<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 333-71397
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
MARATHON POWER TECHNOLOGIES COMPANY
ZMP, INC.
ADAMS RITE AEROSPACE, INC.
(Exact name of each of the co-registrants as specified in its respective
charter)
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DELAWARE 3728 13-3733378
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification
Code Number)
</TABLE>
8233 IMPERIAL DRIVE
WACO, TEXAS 76712
(254) 776-0650
(Address, including zip code, and telephone number, including area code, of
each of the co-registrants' principal executive offices)
------------------------------
PETER B. RADEKEVICH
CHIEF FINANCIAL OFFICER
TRANSDIGM HOLDING COMPANY
8233 IMPERIAL DRIVE
WACO, TEXAS 76712
(254) 776-0650
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPY TO:
KIRK A. DAVENPORT, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 906-1200
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NEW NOTES OFFERING PRICE(1) FEE(1)(2)
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10 3/8% Senior Subordinated Notes due 2008(3)..... $125,000,000 100% $125,000,000 $34,750
Guarantees of the 10 3/8 Senior Subordinated Notes
due 2008(4)..................................... N/A N/A N/A N/A
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(1) The registration fee has been calculated pursuant to Rule 457(a), Rule
457(f)(2) and Rule 457(n) under the Securities Act of 1933, as amended. The
Proposed Maximum Aggregate Offering Price is estimated solely for the
purpose of calculating the registration fee.
(2) Paid with the initial filing of the Registration Statement.
(3) The 10 3/8% Senior Subordinated Notes due 2008 will be the obligations of
TransDigm Inc.
(4) Each of TransDigm Holding Company, Marathon Power Technologies Company, ZMP,
Inc. and Adams Rite Aerospace, Inc. will guarantee on an unconditional basis
the obligations of TransDigm Inc. under the 10 3/8% Senior Subordinated Note
due 2008. Pursuant to Rule 457(n), no additional registration fee is being
paid in respect of the guarantees. The guarantees are not traded separately.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 23, 1999
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($125,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
TRANSDIGM INC.
We are offering to exchange all of our outstanding 10 3/8% senior
subordinated notes ("Old Notes") for our registered 10 3/8% senior subordinated
notes ("New Notes" and, together with the Old Notes, the "Notes"). The terms of
the New Notes are identical to the terms of the Old Notes except that the New
Notes are registered under the Securities Act of 1933 and, therefore, are freely
transferable.
*PLEASE CONSIDER THE FOLLOWING:
- - You should carefully review the Risk Factors beginning on page 11 of this
prospectus.
- - Our offer to exchange Old Notes for New Notes will be open until 5:00 p.m.,
New York City time, on , 1999, unless we extend the offer.
- - You should also carefully review the procedures for tendering the Old Notes
beginning on page 21 of this prospectus.
- - If you fail to tender your Old Notes, you will continue to hold unregistered
securities and your ability to transfer them could be adversely affected.
- - No public market currently exists for the Notes. We do not intend to list the
New Notes on any securities exchange and, therefore, no active public market
is anticipated.
INFORMATION ABOUT THE NOTES:
- - The Notes will mature on December 1, 2008.
- - We will pay interest on the Notes semi-annually on June 1 and April 1 of each
year beginning June 1, 1999 at the rate of 10 3/8% per annum.
- - We may redeem the Notes on or after December 1, 2003 at the rates set forth on
page 75 of this prospectus.
- - We also have the option until December 1, 2001, to redeem up to 35% of the
original aggregate principal amount of the Notes with the net proceeds of
certain types of equity offerings.
- - The Notes are unsecured obligations and are subordinated to our existing and
future senior debt.
- - The Notes are fully and unconditionally guaranteed on an unsecured senior
subordinated basis by our domestic subsidiaries and our parent holding
company.
- - If we undergo a change of control or sell some of our assets, we may be
required to offer to purchase Notes from you.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999
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TABLE OF CONTENTS
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PAGE
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WHERE YOU CAN FIND MORE INFORMATION........................................................................ ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................................................. ii
PROSPECTUS SUMMARY......................................................................................... 1
RISK FACTORS............................................................................................... 11
TRANSACTIONS............................................................................................... 20
THE EXCHANGE OFFER......................................................................................... 21
USE OF PROCEEDS............................................................................................ 28
CAPITALIZATION............................................................................................. 28
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION..................................................... 29
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................................ 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 42
BUSINESS................................................................................................... 52
MANAGEMENT................................................................................................. 63
PRINCIPAL STOCKHOLDERS..................................................................................... 69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 71
DESCRIPTION OF OTHER INDEBTEDNESS.......................................................................... 72
DESCRIPTION OF THE NEW NOTES............................................................................... 74
REGISTRATION RIGHTS........................................................................................ 111
BOOK-ENTRY; DELIVERY AND FORM.............................................................................. 113
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................................... 115
PLAN OF DISTRIBUTION....................................................................................... 116
EXPERTS.................................................................................................... 116
LEGAL MATTERS.............................................................................................. 116
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
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WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the Registration Statement of which this prospectus is
a part, we will file annual and quarterly and other information with the
Securities and Exchange Commission (the "Commission"). You may read and copy any
reports, statements and other information we file at the Commission's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call 1-800-SEC-0330 for further information on the public reference
rooms. Our filings will also be available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
We, together with our domestic subsidiaries and our parent holding company
(the "Guarantors"), have filed a Registration Statement on Form S-4 to register
with the Commission the New Notes to be issued in exchange for the Old Notes.
This prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS
ABOUT THESE MATTERS THAT IS NOT DISCUSSED, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS
NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO DOES NOT MEAN
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS DATE.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements about our
financial condition, results of operations and business. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," or similar expressions used in this prospectus or
incorporated herein.
This prospectus includes forward looking statements including, in
particular, the statements about our plans, strategies and prospects under the
headings "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested by
such forward-looking statements are reasonable, we can give no assurance that
such plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the forward looking
statements we make in this prospectus are set forth below under the caption
"Risk Factors" and elsewhere in this prospectus. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by those cautionary statements.
You are cautioned not to place undue reliance on such statements, which
speak only as of the date of this prospectus or, in the case of documents
incorporated by reference, the date of such document.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus. Additionally, we don't undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements contained or incorporated by reference to this
prospectus.
ii
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PROSPECTUS SUMMARY
IN THIS PROSPECTUS, "TRANSDIGM" REFERS TO TRANSDIGM INC., THE ISSUER OF THE
NOTES, AND ITS SUBSIDIARIES. THE TERM "HOLDINGS" REFERS TO THE PARENT HOLDING
COMPANY OF TRANSDIGM, WHICH HAS NO ASSETS OTHER THAN TRANSDIGM CAPITAL STOCK.
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT TRANSDIGM AND THIS
EXCHANGE OFFER. IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO
YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, WE ENCOURAGE YOU
TO READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO.
TRANSDIGM INC.
8233 Imperial Drive
Waco, Texas 76712
(254) 776-0650
We are a leading supplier of highly engineered aircraft components for use
on nearly all commercial and military aircraft. We sell our products to
commercial airlines, such as United Airlines and Continental Airlines, large
commercial transport and regional and business aircraft original equipment
manufacturers, such as Boeing, Bombardier and Cessna, and various agencies of
the United States government. We compete in niche individual aircraft component
markets that we estimate range in size from $10 million to $100 million in
annual revenues. For fiscal 1998 on a pro forma basis after giving effect to the
offering of the Old Notes, the recapitalization of Holdings, Odyssey's equity
investment in Holdings, the issuance of Holdings' pay-in-kind notes, the
acquisition of ZMP, Inc. and the related borrowings under the new credit
facility as if they had occurred on October 1, 1997, we would have generated net
sales, operating income and EBITDA, As Defined, of $145.0 million, $39.3 million
and $49.0 million, respectively. For the thirteen weeks ended January 1, 1999 on
a pro forma basis as if those transactions had occurred on October 1, 1998, we
would have generated net sales, operating income and EBITDA, As Defined, of
$37.9 million, $10.3 million and $12.8 million, respectively.
Our business is comprised of four business units: (1) AdelWiggins Group, (2)
AeroControlex Group, (3) Marathon Power Technologies Company, and (4) Adams Rite
Aerospace, Inc., each of which has a long history in the aircraft components
industry. AdelWiggins manufactures an extensive line of fuel and hydraulic
system connectors and specialized clamps, heaters and refueling systems.
AeroControlex manufactures customized fuel pumps, compressors, valves, couplings
and mechanical and electromechanical controls. Marathon manufactures nickel
cadmium batteries and static inverters. Adams Rite Aerospace manufactures
mechanical hardware, fluid controls, lavatory hardware, electromechanical
controls and oxygen systems related products. TransDigm Inc. was formed in 1993
through a management-led buyout of the Aerospace Components Group of IMO
Industries Inc. In addition, Marathon and ZMP, Inc., the corporate parent of
Adams Rite Aerospace, were acquired in August 1997 and April 1999, respectively,
as a strategic complement to the Adelwiggins and AeroControlex businesses.
BUSINESS STRATEGY
Key elements of our strategy are:
- - PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. We will continue to focus on
marketing and manufacturing highly engineered products to customers that
place a premium on our capabilities.
- - GENERATE NEW BUSINESS INITIATIVES. We intend to continue to aggressively
pursue growth opportunities through our new business initiatives,
particularly in the aftermarket.
- - REALIZE PRODUCTIVITY SAVINGS. We will continue to focus on improving our
operating margins through manufacturing improvements and increases in
employee productivity.
- - PURSUE STRATEGIC ACQUISITIONS. We intend to aggressively pursue acquisitions
that we believe will allow us to enhance value, reduce costs and develop new
business.
1
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RECENT DEVELOPMENTS
At the same time as the offering of the Old Notes by TransDigm, Holdings
consummated a recapitalization. The former equity holders of Holdings received a
payment in the recapitalization of $330.0 million of which $279.7 million was
paid in cash, $20.0 million was paid in the form of Holdings' pay-in-kind notes
and Holdings' common stock and approximately $30.3 million was retained by such
equity holders in the form of equity interest in Holdings.
As part of the recapitalization, Odyssey Investment Partners Fund, LLC and
its co-investors invested $100.2 million of cash equity in Holdings. As a result
of the recapitalization, Odyssey and its co-investors own approximately 73.7%,
and certain continuing equity holders of Holdings own approximately 26.3%, in
each case, of the outstanding shares of Holdings common stock on a fully diluted
basis.
On April 23, 1999, TransDigm acquired ZMP, Inc., the corporate parent of
Adams Rite Aerospace, through a merger. The purchase price for the acquisition
was $41 million, subject to post-closing purchase price adjustments. The
acquisition was funded entirely through additional borrowings under the new
credit facility. As a result of the acquisition, ZMP and Adams Rite Aerospace
became wholly-owned subsidiaries of TransDigm.
ODYSSEY INVESTMENT PARTNERS FUND, LLC
As a result of the recapitalization, TransDigm is controlled by Odyssey, a
private equity fund engaged in making investments in established, middle market
companies. Although Odyssey was formed in 1997, its principals collectively have
over 70 years of private equity experience.
2
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
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The Exchange Offer.................. $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of Old Notes. As of the
date hereof, Old Notes representing $125.0 million
aggregate principal amount are outstanding.
Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued
to certain third parties unrelated to us, we,
together with Holdings, Marathon, ZMP and Adams Rite
Aerospace (together, the "Guarantors"), believe that
New Notes issued pursuant to the exchange offer in
exchange for Old Notes may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery requirements of the Securities Act, unless
you:
- are an "affiliate" of ours or the Guarantors within
the meaning of Rule 405 under the Securities Act;
- are a broker-dealer who purchased Old Notes
directly from us for resale under Rule 144A or any
other available exemption under the Securities Act;
- acquired the New Notes other than in the ordinary
course of your business; or
- have an arrangement with any person to engage in
the distribution of New Notes.
However, the Commission has not considered the
exchange offer in the context of a no-action letter
and we cannot be sure that the staff of the
Commission would make a similar determination with
respect to the exchange offer as in such other
circumstances. Furthermore, you must make the
appropriate representations in the letter of
transmittal that we are sending you with this
prospectus.
Registration Rights Agreement....... We sold the Old Notes on December 3, 1998, in a
private placement in reliance on Section 4(2) of the
Securities Act. The Old Notes were immediately resold
by the initial purchasers in reliance on Rule 144A
and Regulation S under the Securities Act. At the
same time, we entered into a registration rights
agreement with the initial purchasers requiring us to
make the exchange offer. The registration rights
agreement also requires us and the Guarantors to:
- cause the registration statement filed with respect
to the exchange offer to be declared effective by May
2, 1999; and
- consummate the exchange offer by June 6, 1999.
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See "The Exchange Offer--Purpose and Effect." If we
do not do so, the interest rate on the Old Notes will
increase initially by 0.50%.
Expiration Date..................... The exchange offer will expire at 5:00 p.m., New York
City time, , 1999 or a later date and time if
we extend it (the "Expiration Date").
Withdrawal.......................... The tender of the Old Notes pursuant to the exchange
offer may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned without
expense as soon as practicable after the expiration
or termination of the exchange offer.
Interest on the New Notes and the
Old Notes......................... Interest on the New Notes will accrue from the date
of the original issuance of the Old Notes or from the
date of the last payment of interest on the Old
Notes, whichever is later. No additional interest
will be paid on the Old Notes tendered and accepted
for exchange.
Conditions to the Exchange Offer.... The exchange offer is subject to customary
conditions, some of which may be waived by us. See
"The Exchange Offer-- Conditions to Exchange Offer."
Procedures for Tendering Old
Notes............................. If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal, or
a copy of the letter of transmittal, in accordance
with the instructions contained in this prospectus
and in the letter of transmittal, and mail or
otherwise deliver the letter of transmittal, or the
copy, together with the Old Notes and any other
required documentation, to the exchange agent at the
address set forth in this prospectus. If you are a
person holding the Old Notes through the Depository
Trust Company ("DTC") and wish to accept the exchange
offer, you must do so through DTC's Automated Tender
Offer Program, by which you will agree to be bound by
the letter of transmittal. By executing or agreeing
to be bound by the letter of transmittal, you will be
required to make the representations to us set forth
under "The Exchange Offer--Purpose and Effect."
Under certain circumstances specified in the
registration rights agreement, we may be required to
file a "shelf" registration statement for the Old
Notes for a continuous offering under Rule 415 under
the Securities Act. See "Registration Rights."
We will accept for exchange any and all Old Notes
which are properly tendered in the exchange offer
prior to the Expiration Date. The New Notes issued in
the exchange offer will be delivered promptly
following the Expiration
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4
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Date. See "The Exchange Offer--Terms of the Exchange
Offer."
Exchange Agent...................... State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the exchange offer.
Federal Income Tax Considerations... We believe the exchange of Old Notes for New Notes in
the exchange offer will not constitute a sale or an
exchange for federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Effect of Not Tendering............. Old Notes that are not tendered or that are tendered
but not accepted will, following the completion of
the exchange offer, continue to be subject to their
existing transfer restrictions. We will have no
further obligation to provide for registration under
the Securities Act of such Old Notes.
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5
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SUMMARY OF THE TERMS OF THE NEW NOTES
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Securities Offered........................... $125,000,000 in aggregate principal amount of
senior subordinated notes.
Guarantees................................... Holdings, the parent holding company of
TransDigm, will fully and unconditionally
guarantee the New Notes. However, you should
not rely upon the guarantee by Holdings
because Holdings has no assets other than its
equity interest in TransDigm. In addition,
our domestic subsidiaries will fully and
unconditionally guarantee the New Notes on a
joint and several basis with Holdings.
If we create or acquire a new domestic
subsidiary, it will guarantee the New Notes
unless we designate the subsidiary as an
"unrestricted subsidiary" under the indenture
or the subsidiary does not have significant
assets.
Ranking...................................... The New Notes will be our unsecured senior
subordinated obligations and will rank junior
to our existing and future senior debt. The
guarantees by Holdings and our subsidiaries
will be subordinated to existing and future
senior debt of Holdings and our subsidiaries,
respectively. As of January 1, 1999 on a pro
forma basis after giving effect to the
acquisition of ZMP and the related borrowings
under the new credit facility as if they had
occurred on January 1, 1999, we and our
subsidiaries would have had $133.0 million of
senior debt, excluding approximately $21.0
million that we would have had available to
borrow under our New Credit Facility, and
Holdings would have had $153.2 million of
senior debt.
Optional Redemption.......................... We cannot redeem the New Notes until December
1, 2003. Thereafter we may redeem some or all
of the New Notes at the redemption prices
listed in the "Description of the New Notes"
section under the heading "Optional
Redemption," plus accrued interest.
Optional Redemption after Public Equity At any time and from time to time before
Offerings.................................. December 1, 2001, we can choose to buy back
up to 35% of the outstanding Notes with money
that we raise in certain types of equity
offerings, as long as:
- we pay 110.375% of the face amount of the
Notes, plus accrued interest;
- we buy the Notes back within 120 days of
completing such equity offering; and
- at least 65% of the aggregate principal
amount of Notes issued remains outstanding
afterwards.
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6
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Change of Control Offer...................... If a change in control of TransDigm or
Holdings occurs, we may be required to give
holders of the New Notes the opportunity to
sell us their New Notes at 101% of their face
amount, plus accrued interest.
We might not be able to pay you the required
price for New Notes you present to us at the
time of a change of control, because:
- we might not have enough funds at that
time; or
- the terms of our senior debt may prevent
us from paying.
Asset Sale Proceeds.......................... If we engage in asset sales, we generally
must either invest the net cash proceeds from
such sales in our business within a period of
time, repay senior debt or make an offer to
purchase a principal amount of the New Notes
equal to the excess net cash proceeds. The
purchase price of the New Notes will be 100%
of their principal amount, plus accrued
interest.
Certain Indenture Provisions................. The indenture governing the New Notes will
contain covenants limiting our and most or
all of our subsidiaries' ability to:
- incur additional debt or enter into sale
and leaseback transactions;
- pay dividends or distributions on capital
stock or repurchase capital stock;
- issue stock of subsidiaries;
- make certain investments;
- create liens on our assets to secure debt;
- enter into transactions with affiliates;
- merge or consolidate with another company;
and
- transfer and sell assets.
These covenants are subject to a number of
important limitations and exceptions.
Risk Factors................................. See "Risk Factors" beginning on page 11 for a
description of certain of the risks you
should consider.
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7
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SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and pro forma consolidated
financial information of Holdings. The summary historical consolidated financial
data for the fiscal years ended September 30, 1998, 1997, and 1996 have been
derived from Holdings' consolidated financial statements, which have been
audited by Deloitte & Touche LLP, independent auditors. The summary historical
consolidated financial data as of and for the thirteen weeks ended January 1,
1999 and December 26, 1997 has been derived from Holdings' unaudited
consolidated financial statements for those periods, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations,
financial position, and cash flows. The results for the thirteen weeks ended
January 1, 1999 are not necessarily indicative of results that may be expected
for the entire year. Separate financial information for TransDigm is not
presented since the New Notes will be guaranteed by Holdings and all direct and
indirect subsidiaries of TransDigm, and since Holdings has no operations or
assets separate from its investment in TransDigm.
The pro forma statement of operations data and the pro forma other financial
data set forth below give effect to the offering of the Old Notes, the
recapitalization of Holdings, Odyssey's equity investment in Holdings, the
issuance of Holdings' pay-in-kind notes, the acquisition of ZMP and the related
borrowings under the new credit facility as if they had occurred at the
beginning of the period. The pro forma balance sheet data set forth below give
effect to the acquisition of ZMP and the related borrowings under the new credit
facility as if they had occurred as of the balance sheet date. ZMP's fiscal year
1998 ended on June 26, 1998. The pro forma financial information is not
necessarily indicative of either future results of operations or the results
that might have occurred if the applicable transactions had been consummated on
such date. There can be no assurance that assumptions used in the preparation of
the pro forma financial data will prove to be correct.
The Marathon Acquisition was completed on August 8, 1997. The acquisition
was accounted for as a purchase. The results of operations of Marathon are
included in Holdings' consolidated historical financial statements from the date
of such acquisition. The acquisition of ZMP will also be accounted for as a
purchase.
You should read the following table together with the "Unaudited Pro Forma
Consolidated Financial Information" and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections and the
Consolidated Historical Financial Statements and the notes thereto included
elsewhere in this prospectus.
8
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THIRTEEN
FISCAL YEAR ENDED SEPTEMBER 30, WEEKS ENDED UNAUDITED
UNAUDITED -------------------------- PRO FORMA
------------------------------- PRO FORMA DECEMBER 26, JANUARY 1, JANUARY 1,
1996 1997 1998 1998 1997 1999 1999
--------- --------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 62,897 $ 78,159 $ 110,868 $ 145,022 $ 26,104 $ 28,194 $ 37,855
Gross profit.............................. 21,023 28,856 51,473 61,856 11,397 13,257 16,009
Selling and administrative................ 6,459 7,561 10,473 17,349 2,669 2,685 4,516
Amortization of intangibles............... 3,838 2,089 2,438 3,000 635 645 786
Research and development.................. 836 1,116 1,724 1,724 339 448 448
ZMP facility relocation................... -- -- -- 503 -- -- --
Merger expenses........................... -- -- -- -- -- 39,593 --
--------- --------- --------- ----------- ------------- ----------- -----------
Operating income (loss) (1)............... 9,890 18,090 36,838 39,280 7,754 (30,114) 10,259
Interest expense, net (2)................. 4,510 3,463 3,175 28,952 1,046 2,276 6,884
Warrant put value adjustment.............. 2,160 4,800 6,540 -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
Pre-tax income (loss)..................... 3,220 9,827 27,123 10,328 6,708 (32,390) 3,375
Provision (benefit) for income taxes...... 2,045 5,193 12,986 4,000 2,590 (7,566) 1,281
--------- --------- --------- ----------- ------------- ----------- -----------
Income (loss) before extraordinary item... 1,175 4,634 14,137 6,328 4,118 (24,824) 2,094
Extraordinary item........................ -- (1,462) -- -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
Net income (loss)......................... $ 1,175 $ 3,172 $ 14,137 $ 6,328 $ 4,118 $ (24,824) $ 2,094
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities.................... $ 18,695 $ 17,468 $ 23,455 $ 11,223 $ 6,485 $ (32,735) $ 4,813
Investing activities.................... (2,494) (43,160) (4,295) (8,163) 138 (712) (1,682)
Financing activities.................... (13,475) 28,153 (5,071) (6,980) (20) 16,064 16,278
EBITDA (3)................................ 17,213 23,856 43,305 46,844 9,409 (28,515) 12,174
EBITDA, As Defined (4).................... 17,213 24,522 43,547 49,014 9,651 11,078 12,824
EBITDA, As Defined, margin................ 27.4% 31.4% 39.3% 33.8% 37.0% 39.3% 33.9%
Depreciation and amortization............. $ 7,323 $ 5,766 $ 6,467 $ 7,564 $ 1,655 $ 1,599 $ 1,915
Capital expenditures...................... 2,494 2,285 5,061 8,888 628 712 1,402
Ratio of earnings to fixed charges (5).... 1.7x 3.7x 9.0x 1.4x 7.1x -- 1.5x
Ratio of EBITDA, As Defined, to interest
expense (2)............................. 3.8x 7.1x 13.7x 1.7x 9.2x 4.9x 1.9x
Ratio of total debt to EBITDA, As
Defined................................. 1.1x 2.0x 1.0x 5.5x 5.2x 21.3x 21.7x
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital........................... $ 16,300 $ 16,520 $ 16,654 $ 21,231 $ 26,754 $ 38,344
Total assets.............................. 57,666 101,969 115,785 105,474 118,161 165,975
Long-term debt, including current
portion................................. 19,124 50,000 45,000 50,000 236,200 278,200
Total stockholders' equity (deficiency)... 19,670 22,613 36,427 26,432 (136,165) (136,165)
</TABLE>
9
<PAGE>
(1) Operating income (loss) includes the effect of a non-cash charge of $666 in
fiscal 1997 and $242 in fiscal 1998 due to, in each case, a purchase
accounting adjustment to inventory associated with the acquisition of
Marathon.
(2) The interest expense reported for fiscal 1996 through 1998 represents
interest expense of TransDigm. Holdings had no interest expense prior to the
Recapitalization. After the Recapitalization, Holdings has incurred interest
expense relating to the Holdings PIK Notes and Holdings has no other
interest expense. TransDigm is not an obligor or a guarantor under the
Holdings PIK Notes. Pro forma interest expense and historical interest
expense for the Holdings PIK Notes for the thirteen weeks ended January 1,
1999 were $600 and $200, respectively. Pro forma EBITDA, As Defined to
interest expense of TransDigm, which excludes the Holdings PIK Notes, for
fiscal 1998 and the thirteen weeks ended January 1, 1999 was 1.9x and 2.0x,
respectively.
(3) EBITDA represents earnings before interest, taxes, depreciation,
amortization, warrant put value adjustments and extraordinary items. EBITDA
is presented because management believes it is frequently used by securities
analysts, investors and other interested parties in the evaluation of
companies in Holdings' industry. However, other companies in Holdings'
industry may calculate EBITDA differently than Holdings does. EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities, as a measure of liquidity or an alternative to net
income as indicators of Holdings' operating performance or any other
measures of performance derived in accordance with generally accepted
accounting principles. See Holdings' Consolidated Statements of Cash Flows
included in Holdings consolidated financial statements.
(4) EBITDA, As Defined, is calculated as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------------------
PRO FORMA
PRO FORMA DECEMBER 26, JANUARY 1, JANUARY 1,
1996 1997 1998 1998 1997 1999 1999
--------- --------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA.............................. $ 17,213 $ 23,856 $ 43,305 $ 46,844 $ 9,409 $ (28,515) $ 12,174
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
Adjustments:
Merger expenses................. -- -- -- 125 -- 39,593 --
Inventory purchase
accounting adjustments........ -- 666 242 1,542 242 -- 650
ZMP facility relocation......... -- -- -- 503 -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
EBITDA, As Defined.................. $ 17,213 $ 24,522 $ 43,547 $ 49,014 $ 9,651 $ 11,078 $ 12,824
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
</TABLE>
EBITDA, As Defined, is presented herein to provide additional information
with respect to the ability of Holdings to satisfy its debt service, capital
expenditure and working capital requirements and because certain types of
covenants in TransDigm's and Holdings' borrowing arrangements are tied to
similar measures. While EBITDA-based measures are frequently used as
measures of operations and the ability to meet debt service requirements,
they are not necessarily comparable to other similarly titled captions of
other companies due to differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and the portion
(approximately 33%) of rental expense that management believes is
representative of the interest component of rental expense. Earnings were
insufficient to cover fixed charges by $32,390 for the thirteen weeks ended
January 1, 1999.
10
<PAGE>
RISK FACTORS
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, IN
PARTICULAR, THE STATEMENTS ABOUT OUR PLANS, STRATEGIES, AND PROSPECTS UNDER THE
HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS." ALTHOUGH WE
BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT
SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO TRANSDIGM, HOLDINGS
OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
FOLLOWING CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT
OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NEW NOTES.
We have a significant amount of indebtedness. The following chart shows some
of our important credit statistics and is presented as at January 1, 1999 on a
pro forma basis assuming we had completed the acquisition of ZMP and the related
borrowings under the new credit facility as of the date specified below:
<TABLE>
<CAPTION>
TRANSDIGM
PRO FORMA
AT JANUARY 1, 1999
------------------
<S> <C>
(DOLLARS IN
MILLIONS)
Total indebtedness............................................................................ $ 258.0
Stockholders' equity (deficit)................................................................ $ (116.0)
</TABLE>
In addition, Holdings has an additional $20.2 million of indebtedness
represented by the value of the Holdings' pay-in-kind notes, all of which will
be senior to Holdings' guarantee of these New Notes. As at January 1, 1999 on a
pro forma basis assuming we had completed the acquisition of ZMP and the related
borrowings under the new credit facility on January 1, 1999, Holdings would have
had a stockholders' deficit of approximately $136.2 million. See "Unaudited Pro
Forma Consolidated Financial Information." Holdings' ratio of earnings to fixed
charges for the fiscal year ended September 30, 1998 and the thirteen weeks
ended January 1, 1999, in each case, on a pro forma basis assuming we had
completed (1) the offering of the Old Notes, (2) the recapitalization of
Holdings, (3) Odyssey's equity investment in Holdings, (4) the issuance of
Holdings' pay-in-kind notes, (5) the acquisition of ZMP and (6) the related
borrowings under the new credit facility at the beginning of the period
specified below would have been as follows:
<TABLE>
<CAPTION>
HOLDINGS HOLDINGS
PRO FORMA PRO FORMA
FOR THE YEAR ENDED FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 30, 1998 JANUARY 1, 1999
--------------------- -------------------------------
<S> <C> <C>
Ratio of earnings to fixed charges............................. 1.4x 1.5x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
- - make it more difficult for us to satisfy our obligations with respect to the
New Notes;
- - increase our vulnerability to general adverse economic and industry
conditions;
- - limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
11
<PAGE>
- - require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, research and development
efforts and other general corporate purposes;
- - limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
- - place us at a competitive disadvantage compared to our competitors that have
less debt; and
- - limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds. And,
failing to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on us.
See "Description of the New Notes" and "Description of Other Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE--DESPITE OUR CURRENT INDEBTEDNESS LEVELS, WE
AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS
COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. As at January 1, 1999 on a pro forma basis
assuming we had completed the acquisition of ZMP and the related borrowings
under the new credit facility on January 1, 1999, our new credit facility would
have permitted additional borrowings of up to $21.0 million and all of those
borrowings would have been senior to the New Notes and the guarantees of the New
Notes. If new debt is added to our and the guarantors' current debt levels, the
related risks that we and they now face could intensify.
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of the New Notes" and "Description of Other Indebtedness."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including
the New Notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This is subject not only to our performance within our industry, but also to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
revenue growth, we believe our cash flow from operations, available cash and
available borrowings under our new credit facility, will be adequate to meet our
future liquidity needs for at least the next several years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and revenue
growth will be realized on schedule or at all or that future borrowings will be
available to us under our new credit facility in amounts sufficient to enable us
to pay our indebtedness, including the New Notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
the New Notes, on or before maturity. We cannot assure you that we will be able
to refinance any of our indebtedness, including our new credit facility and the
New Notes, on commercially reasonable terms or at all.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS JUNIOR TO
OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER,
THE GUARANTEES OF THE NEW NOTES WILL BE JUNIOR TO ALL THE GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
12
<PAGE>
The New Notes and the guarantees rank behind all of our and the guarantors'
existing indebtedness, other than trade payables, and all of our and all the
guarantors' future borrowings, other than trade payables, except any future
indebtedness that expressly provides that it ranks equal with, or junior in
right of payment to, the New Notes and the guarantees. As a result, upon any
distribution to our creditors or the creditors of the guarantors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the guarantors or our or their property, the holders of our senior debt and
the senior debt of the guarantors will be entitled to be paid in full in cash
before any payment may be made with respect to the New Notes or the guarantees.
In addition, all payments on the New Notes and the guarantees will be
blocked in the event of a payment default on senior debt and may be blocked for
up to 179 of 360 consecutive days in the event of certain non-payment defaults
on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the New Notes will
participate with trade creditors and all other holders of our subordinated
indebtedness and the subordinated indebtedness of the guarantors in the assets
remaining after we and the guarantors have paid all of the senior debt. However,
because the indenture requires that amounts otherwise payable to holders of the
New Notes in a bankruptcy or similar proceeding be paid to holders of senior
debt instead, holders of the New Notes may receive less, ratably than holders of
trade payables in any such proceeding. In any of these cases, we and the
guarantors may not have sufficient funds to pay all of our creditors and holders
of New Notes may receive less, ratably than the holders of senior debt.
Assuming we had completed the exchange offer, the acquisition of ZMP and the
related borrowings under the new credit facility on January 1, 1999, the New
Notes and the guarantees by our domestic subsidiary would have been subordinated
to $133.0 million of senior debt under our new credit facility. In addition, the
new credit facility would have provided for up to approximately $21.0 million of
additional borrowings. Holdings' guarantee of the New Notes would have been
subordinated to $153.2 million of senior debt consisting of the guarantee of the
new credit facility and the value of the Holdings' pay-in-kind notes. We are
permitted to borrow substantial additional indebtedness, including senior debt,
in the future under the terms of the indenture.
LIMITED VALUE OF HOLDINGS GUARANTEE--YOU SHOULD NOT RELY ON THE GUARANTEE BY
HOLDINGS IN THE EVENT WE CANNOT MAKE PAYMENTS UPON THE NEW NOTES.
The New Notes will be guaranteed by Holdings, our parent holding company, on
a senior subordinated basis. You should not rely on this guarantee because
Holdings has no assets other than our capital stock. If we cannot make payments
under the New Notes, Holdings probably cannot make payments either. In addition,
this guarantee will be subordinated to all senior debt of Holdings, which
consists of Holdings' guarantee of the borrowings under the new credit facility
and the borrowings consisting of the face value of the Holdings' pay-in-kind
notes, in each case, whose holders would be paid before you in the event of a
liquidation.
DEPENDENCE ON MAJOR CUSTOMERS--WE RELY HEAVILY ON CERTAIN CUSTOMERS FOR MUCH
OF OUR SALES.
Our three largest customers for the fiscal year ended September 30, 1998
were Aviall, a distributor of aftermarket parts to airlines throughout the
world, Boeing, which includes McDonnell Douglas and various agencies of the
United States government. These customers accounted for approximately 20%, 14%
and 9%, respectively, of our consolidated net sales in fiscal 1998.
Our top ten customers accounted for approximately 61% of our consolidated
net sales for fiscal 1998.
13
<PAGE>
The loss of any one or more of these key customers could have a material
adverse effect on our business. See "Business--Customers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMER CONTRACTS--WE GENERALLY DO NOT HAVE GUARANTEED FUTURE SALES OF OUR
PRODUCTS. FURTHER, WE ARE OBLIGATED UNDER FIXED PRICE CONTRACTS WITH SOME OF OUR
CUSTOMERS, SO WE TAKE THE RISK FOR COST OVERRUNS.
Since we do not have long-term contracts with most of our customers, future
sales of our products are not guaranteed. Even in those cases where we do, such
as with Boeing and the United States government, our customers may terminate
these contracts on short notice.
We also have entered into fixed-price contracts with some of our customers,
where we agree to perform the work for a fixed price and, accordingly, realize
all the benefit or detriment resulting from
any decreased or increased costs for making these products. Sometimes we accept
a fixed-price contract for a product which we have not yet produced, which
increases the risks of delays or cost overruns.
We also have some contracts with customers which establish prices for
certain of our components based upon the volume the customer purchases. A number
of these contracts do not permit us to recover for increases in input prices,
taxes or labor costs. Any such increases without increases in our prices are
likely to have an adverse effect on our business and may affect our ability to
make payments to you under the New Notes.
AIRCRAFT COMPONENTS INDUSTRY RISKS--OUR BUSINESS IS SENSITIVE TO THE NUMBER
OF FLIGHT HOURS THAT OUR CUSTOMERS' PLANES SPEND ALOFT AND TO OUR CUSTOMERS'
PROFITABILITY. THESE ITEMS ARE, IN TURN, AFFECTED BY GENERAL ECONOMIC
CONDITIONS. IN ADDITION, OUR SALES TO MANUFACTURERS OF NEW LARGE AIRCRAFT ARE
CYCLICAL.
We compete in the aircraft component segment of the aerospace industry. This
segment is sensitive to changes in the number of miles flown by paying customers
of commercial airlines ("revenue passenger miles") and, to a lesser extent, to
changes in the profitability of the commercial airline industry and the size and
age of the worldwide aircraft fleet.
Revenue passenger miles and airline profitability have historically been
correlated with the general economic environment, although international events
can also play a key role. For example, in 1991 revenue passenger miles declined
as a result of increased security concerns among airline customers following the
Gulf War. Although 1991 was the only year in the last ten years in which revenue
passenger miles declined, any future reduction would reduce the use of
commercial aircraft and, consequently, the need for spare parts and new
aircraft. During periods of reduced airline profitability, some airlines may
elect to delay purchases of spare parts, preferring instead to deplete existing
inventories.
If demand for new aircraft and spare parts decreases, there may be a
decrease in demand for certain of our products. Therefore, any future decline in
revenue passenger miles, airline profitability or the size of the worldwide
aircraft fleet, for any reason, could have a material adverse effect on our
business. See "Business--Industry Overview."
In addition, sales to manufacturers of large commercial aircraft, which
accounted for less than 20% of our annual net sales in fiscal 1998, have
historically experienced periodic downturns. In the past, these sales have been
affected by airline profitability, which is impacted by fuel and labor costs and
price competition, and other things. Due in part to these factors, the number of
large commercial aircraft delivered dropped from a peak of approximately 756
aircraft in 1991 to approximately 370 aircraft in 1995, according to a trade
report.
14
<PAGE>
We believe that by concentrating on products with strong aftermarket demand
and on smaller regional planes, we have reduced our exposure to downturns in
this sector. Prior downturns have adversely effected our net sales, gross margin
and net income. These and certain other factors may cause a downturn in sales to
manufacturers of large commercial aircraft in the future which may have a
material adverse effect on our business.
REDUCTION IN DEFENSE SPENDING--A DECLINE IN THE U.S. DEFENSE BUDGET MAY
ADVERSELY AFFECT OUR SALES OF PARTS USED IN MILITARY AIRCRAFT.
In fiscal 1998, approximately 27.0% of our sales were related to products
used in military aircraft, in each case, over half of which were spare parts
provided to various governmental agencies.
In general, the United States' defense budget has been declining or stable
in recent years, resulting in reduced or stable demand for new aircraft and, to
a lessor extent, spare parts. The United States' defense budget may continue to
decline and sales of defense related items to foreign governments may decrease.
If there is a decline which reduces demand for our components, our business may
be adversely affected.
GOVERNMENT REGULATION--OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE LOST
OUR GOVERNMENT PERMITS OR IF FUTURE, MORE ONEROUS GOVERNMENT REGULATIONS WERE
ENACTED.
In order to sell our components, our company and the components we
manufacture must be certified by the FAA, the United States Department of
Defense and similar agencies in foreign countries and by individual
manufacturers.
If material authorizations or approvals were revoked or suspended, our
business would be adversely affected. In the future, if new and more stringent
government regulations are adopted or if industry oversight increases, our
business may be adversely affected. See "Business--Governmental Regulation."
RISKS ASSOCIATED WITH OUR WORKFORCE--WE ARE DEPENDENT ON OUR HIGHLY TRAINED
EMPLOYEES AND ANY WORK STOPPAGE OR DIFFICULTY HIRING SIMILAR EMPLOYEES WOULD
ADVERSELY AFFECT OUR BUSINESS.
Because our products are complicated and very detailed, we are highly
dependent on an educated and trained workforce. There is substantial competition
for these kinds of personnel in the aircraft component industry. We may not be
able to (1) retain our existing senior management or engineering staff, (2) fill
new positions or vacancies created by expansion or turnover, or (3) attract
additional qualified personnel. Although we have entered into employment
agreements with certain executive officers, these agreements may not be renewed.
See "Management--Employment Agreements."
At September 30, 1998, approximately 30% of our employees were unionized.
Our collective bargaining agreements expire in April 2002 and November 2000.
Although we believe that our relations with our employees are good, we cannot
assure you that we will be able to negotiate a satisfactory renewal of these
collective bargaining agreements or that our employee relations will remain
stable.
Because we maintain a relatively small inventory of finished goods and
operate on relatively short lead times for our products, any work shortage or
shortage in skilled employees could have a material adverse effect on our
business. "See Business--Employees."
RISKS ASSOCIATED WITH SUPPLIERS--OUR BUSINESS IS DEPENDENT ON THE
AVAILABILITY OF CERTAIN COMPONENTS AND RAW MATERIALS THAT WE BUY FROM SUPPLIERS.
Our business is affected by the price and availability of the raw materials
and unique component parts that we use to manufacture our components. Because we
maintain a relatively small inventory of raw materials and component parts, our
business could be adversely affected by factors affecting our
15
<PAGE>
suppliers, or by increased costs of such raw materials or components if we are
unable to pass along such price increases to our customers. See "Business--Raw
Materials and Patents."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES--WE MAY BE LIABLE FOR
PENALTIES UNDER A VARIETY OF ENVIRONMENTAL LAWS, EVEN IF WE DID NOT CAUSE ANY
ENVIRONMENTAL PROBLEMS. CHANGES IN ENVIRONMENTAL LAWS OR UNEXPECTED
INVESTIGATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our business and our facilities are subject to a number of federal, state
and local laws and regulations, which govern, among other things, the discharge
of hazardous materials into the air and water as well as the handling, storage
and disposal of such materials.
Pursuant to certain environmental laws, a current or previous owner or
operator of land or persons who arrange (as defined under these statutes) for
the disposal or treatment of hazardous materials may be liable for the costs of
investigation, removal or remediation of hazardous materials at such property.
These laws typically impose liability whether or not the owner or operator knew
of, or was responsible for, the presence of any hazardous materials. See
"Business--Environmental Matters."
Because we own and operate a number of facilities, and because we arrange
for the disposal of hazardous materials at many disposal sites, we may incur
costs for investigation, removal and remediation, as well as capital costs
associated with compliance with these laws. Although such environmental costs
have not been material in the past and are not expected to be material in the
future, changes in environmental laws or unexpected investigations and clean-up
costs could have a material adverse effect on our business.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND ASIAN FINANCIAL
MARKETS--OUR INTERNATIONAL BUSINESS EXPOSES US TO RISKS RELATING TO INCREASED
REGULATION AND POLITICAL OR ECONOMIC INSTABILITY, GLOBALLY OR WITHIN CERTAIN
FOREIGN COUNTRIES.
Approximately 16%, 20% and 20% of our sales in fiscal 1998, fiscal 1997 and
fiscal 1996, respectively, were made directly to foreign end-users. In addition,
a portion of the products we sell to domestic distributors are resold to foreign
end-users. These sales are subject to numerous additional risks, including the
impact of foreign government regulations, currency fluctuations, political
uncertainties and differences in business practices.
Foreign governments could adopt regulations or take other actions that would
have an adverse impact on our business or market opportunities abroad.
Furthermore, the political, cultural and economic climate outside the United
States may not be favorable to our business and growth strategy.
The Asian markets are important markets for airlines and the large
commercial aircraft manufacturers. For example, Boeing has developed a large
backlog of aircraft sales to customers in Asia, and the current crisis in the
Asian financial markets has resulted in some deferrals and cancellations of
deliveries. This may result in significant cancellation of orders or additional
deferral of deliveries for new aircraft or negatively impact these
manufacturers. The resulting decreased demand in the aftermarket could adversely
affect our business.
RISKS RELATED TO CURRENT AND POTENTIAL FUTURE ACQUISITIONS--WE INTEND TO
PURSUE FUTURE ACQUISITIONS AND ARE CONSIDERING A SPECIFIC ACQUISITION WHICH, IF
CONSUMMATED, WOULD SUBSTANTIALLY INCREASE THE LEVEL OF OUR INDEBTEDNESS AND MAY
ADVERSELY AFFECT OUR BUSINESS IF WE CANNOT EFFECTIVELY INTEGRATE THESE NEW
OPERATIONS.
On April 23, 1999, we acquired ZMP, Inc., the corporate parent of Adams Rite
Aerospace, through a merger. The purchase price for the acquisition was $41
million, subject to post-closing purchase price adjustments. The acquisition was
funded entirely through additional borrowings under the new credit facility. We
intend to pursue additional acquisitions that we believe will present
16
<PAGE>
opportunities to realize significant synergies, operating expense reductions or
overhead cost savings and increase our market position. This acquisition
strategy may require substantial capital, and we may not be able to raise the
necessary funds on satisfactory terms or at all. Although we currently have no
binding agreements with respect to any additional acquisitions and we cannot
assure you that we will be able to reach agreement with respect to any
additional acquisition, such acquisitions would likely result in the incurrence
of debt and contingent liabilities and an increase in interest expense and
amortization expenses related to goodwill and other intangible assets, which
could have a material adverse effect upon our business.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. For all of these reasons, if any such acquisitions occur, our
business could be adversely affected. In addition, if we are unable to
successfully assimilate the operations, technologies, services and products of
Adams Rite Aerospace with that of our other three divisions or if the
assimilation of Adams Rite Aerospace materially diverts the management's
attention from other business concerns, our business could be adversely
affected.
COMPETITION--WE MAY BE UNABLE TO REPAY THE NEW NOTES IF WE DO NOT
SUCCESSFULLY COMPETE WITHIN OUR INDUSTRY.
We compete against a number of companies, including divisions of larger
companies, some of which have significantly greater financial, technological and
marketing resources than us. We also compete for a limited number of customers.
We believe that our ability to compete depends on product performance, short
lead-time and timely delivery, competitive pricing, responsiveness to our
customers and continued certification under customer quality requirements and
assurance programs. If we do not retain an advantage vis a vis our competitors
in these areas, our business may be adversely affected. See
"Business--Competition."
CONTROL BY ODYSSEY--WE ARE CONTROLLED BY ODYSSEY, WHOSE INTERESTS MAY NOT BE
ALIGNED WITH YOURS.
Odyssey and its co-investors indirectly own approximately 73.7% of the
equity interests in our parent company, Holdings, on a fully diluted basis and,
therefore, have the power, subject to certain exceptions, to control Holdings.
They also control the appointment of management and the entering into of
mergers, sales of substantially all assets and other extraordinary transactions.
The interests of Odyssey may not in all cases be aligned with yours. See "The
Transactions" and "Certain Relationships and Related Transactions."
IMPACT OF YEAR 2000 ISSUE--THE YEAR 2000 PROBLEM MAY RESULT IN DECREASED
SALES FOR US IF CERTIFICATIONS WE RECEIVED FROM OUR VENDORS ARE INACCURATE OR IF
OUR CUSTOMERS AND SUPPLIERS DO NOT ADEQUATELY ADDRESS THEIR YEAR 2000 CONCERNS.
We are completing a review of our information technology systems and
embedded systems in order to assess our exposure to Year 2000 issues. For
details of this review see "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Impact of Year 2000 Issue."
In the event that Year 2000 problems arise for us, or that our significant
suppliers or customers, including various agencies of the United States
government, do not successfully and timely achieve Year 2000 compliance, we may
have to bear Year 2000 costs and expenses which could have a material adverse
effect on our business.
PRODUCT LIABILITY; CLAIMS EXPOSURE--WE COULD BE ADVERSELY AFFECTED AS A
RESULT OF A LAWSUIT IF ONE OF OUR COMPONENTS CAUSES AN AIRCRAFT TO CRASH AND WE
ARE NOT COVERED BY OUR INSURANCE POLICIES.
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Our operations expose us to potential liabilities for personal injury or
death as a result of the failure of an aircraft component that has been
designed, manufactured or serviced by us. While management believes that our
liability insurance is adequate to protect us from future products liability
claims, if claims were to arise, such insurance coverage may not be adequate.
Additionally insurance coverage may not be able to be maintained in the
future at an acceptable cost. Any such liability not covered by insurance or for
which third party indemnification is not available could have a material adverse
effect on our business.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding Notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of Notes or that restrictions in our new
credit facility will not allow such repurchases. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
indenture. See "Description of the New Notes-Change of Control."
FAILURE TO EXCHANGE OLD NOTES--IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES,
YOU WILL CONTINUE TO HOLD UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER
OLD NOTES WILL BE ADVERSELY AFFECTED.
We will only issue New Notes in exchange for Old Notes that are timely
received by the Exchange Agent together with all required documents, including a
properly completed and signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the Exchange Agent are required to tell you of any defects or irregularities
with respect to your tender of the Old Notes. If you do not tender your Old
Notes or if we do not accept your Old Notes because you did not tender your Old
Notes properly, then, after we consummate the exchange offer, you may continue
to hold Old Notes that are subject to the existing transfer restrictions. In
addition, if you tender your Old Notes for the purpose of participating in a
distribution of the New Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes. If you are a broker-dealer that
receives New Notes for your own account in exchange for Old Notes that you
acquired as a result of market-making activities or any other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale of such New Notes. After the exchange
offer is consummated, if you continue to hold any Old Notes, you may have
difficulty selling them because there will be less Old Notes outstanding. In
addition, if a large amount of Old Notes are not tendered or are tendered
improperly, the limited amount of New Notes that would be issued and outstanding
after we consummate the exchange offer could lower the market price of such New
Notes.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS,
UNDER SPECIFIC CIRCUMSTANCES, TO VOID THE NEW NOTES AND THE GUARANTEES AND
REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR THE GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the New Notes and the guarantees could be voided, or
claims in respect of the New Notes or the guarantees could be subordinated to
all of our other debts or debts of any guarantor if, among other things, we or
that guarantor, at the time it incurred the indebtedness evidenced by the New
Notes or its guarantee:
- - received less than reasonably equivalent value or fair consideration for the
incurrence of such indebtedness; or
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- - was insolvent or rendered insolvent by reason of such incurrence; or
- - was engaged in a business or transaction for which our or that guarantor's
remaining assets constituted unreasonably small capital; or
- - intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they mature.
In addition, any payment by us or that guarantor pursuant to the New Notes
or a guarantee could be voided and required to be returned to us or that
guarantor, or to a fund for the benefit of the creditors of us or that
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, we or a guarantor would
be considered insolvent if:
- - the sum of its debts, including contingent liabilities, were greater than the
fair saleable value of all of its assets,
- - if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature, or
- - it could not pay its debts as they become due.
Based upon information currently available to us, we believe that the New
Notes and the guarantees are being incurred for proper purposes and in good
faith and that we, and each of the guarantors:
- - are solvent and will continue to be solvent after giving effect to the
issuance of the New Notes and the guarantees, as the case may be;
- - will have enough capital for carrying on our business and the business of each
of the guarantors after the issuance of the New Notes and the guarantees, as
the case may be; and
- - will be able to pay our debts.
NO PRIOR MARKET FOR THE NEW NOTES--YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE NEW NOTES.
The New Notes are a new issue of securities with no established trading
market and will not be listed on any securities exchange. The liquidity of the
trading market in the New Notes, and the market price quoted for the New Notes,
may be adversely affected by changes in the overall market for high yield
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, you cannot be
sure that an active trading market will develop for the New Notes.
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TRANSACTIONS
On April 23, 1999, TransDigm acquired ZMP, Inc., the corporate parent of
Adams Rite Aerospace, Inc., under the terms of an agreement and plan of
reorganization, dated March 31, 1999. The purchase price for the acquisition of
ZMP was $41 million, subject to post-closing purchase price adjustments. The
acquisition of ZMP and the related expenses were funded entirely through
additional borrowings under the New Credit Facility.
On December 3, 1998, together with the completion of the offering of the Old
Notes by TransDigm, Holdings consummated a recapitalization of Holdings (the
"Recapitalization") under the terms of an agreement and plan of merger, dated
August 3, 1998, as amended, between Phase II Acquisition Corp. and Holdings (the
"Merger Agreement"). Concurrently with the offering of the Old Notes, TransDigm
entered into a credit agreement (as amended, the "New Credit Facility")
providing for a six-year $30.0 million revolving credit facility (the "Revolving
Credit Facility"), $2.6 million of which was funded to consummate the
Recapitalization and $8.0 million of which was funded to consummate the
acquisition of ZMP, and a 6-year $62.0 million Tranche A Term Loan Facility (the
"Tranche A Facility") and a 7 1/2-year $62.0 million Tranche B Term Loan
Facility (the "Tranche B Facility"), in each case, $45.0 million of which was
funded to consummate the Recapitalization and $17.0 million of which was funded
to consummate the acquisition of ZMP. Additional borrowings under the Revolving
Credit Facility are available for certain permitted acquisitions and for general
corporate purposes, including working capital requirements. See "Description of
Other Indebtedness--The Company--The New Credit Facility."
As part of the Recapitalization, Odyssey and its co-investors invested
approximately $100.2 million of cash equity in Holdings (the "Odyssey
Investment"). The equity holders of Holdings received a payment in the
Recapitalization of $330.0 million of which $279.7 million was paid in cash,
$20.0 million was paid in the form of Holdings' pay-in-kind notes due 2009 of
Holdings (the "Holdings PIK Notes") and Holdings' common stock and $30.3 million
was paid in the form of common stock and options of Holdings that was retained
by the shareholders of Holdings (the "Rollover Investment"). As a result of the
consummation of the Recapitalization, Odyssey and its co-investors own
approximately 73.7%, and certain continuing equity holders of Holdings own
approximately 26.3%, in each case, of the outstanding shares of Holdings common
stock on a fully diluted basis.
The offering of the Old Notes, the Recapitalization, the Odyssey Investment,
the issuance of the Holdings PIK Notes, the acquisition of ZMP and the related
borrowings under the New Credit Facility are collectively referred to herein as
the "Transactions."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
Together with the sale by TransDigm of the Old Notes on December 3, 1998,
TransDigm, Holdings and Marathon (together with Holdings, the "Initial
Guarantors") entered into a registration rights agreement (the "Registration
Rights Agreement"), dated December 3, 1998, with the initial purchasers, which
requires that TransDigm and the Initial Guarantors file a registration statement
under the Securities Act with respect to the New Notes (the "Registration
Statement") and, upon the effectiveness of that Registration Statement, offer to
the holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of New Notes. The New Notes will be issued without a
restrictive legend and generally may be reoffered and resold by the holder
without registration under the Securities Act. The Registration Rights Agreement
further provides that TransDigm must cause the Registration Statement with
respect to the exchange offer to be declared effective by May 2, 1999 and
consummate the exchange offer by June 6, 1999.
Except for exceptions listed below, upon the completion of the exchange
offer, TransDigm's obligations with respect to the registration of the Old Notes
and the New Notes will terminate. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement, of which this
prospectus is a part, and this summary of the material provisions of the
Registration Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the complete Registration Rights Agreement. As a
result of the timely filing and the effectiveness of the Registration Statement,
TransDigm will not have to pay certain additional interest on the Old Notes
provided in the Registration Rights Agreement. Following the completion of the
exchange offer, holders of Old Notes not tendered will not have any further
registration rights other than as set forth in the paragraphs below, and those
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected upon consummation of the exchange offer.
In order to participate in the exchange offer, a holder must represent to
TransDigm, among other things, that:
- the New Notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the holder;
- the holder is not engaging in and does not intend to engage in a
distribution of the New Notes;
- the holder does not have an arrangement or understanding with any
person to participate in the distribution of the New Notes; and
- the holder is not an "affiliate," as defined under Rule 405 under the
Securities Act, of TransDigm or the Guarantors.
Under certain circumstances specified in the Registration Rights Agreement,
TransDigm may be required to file a "shelf" registration statement for a
continuous offering pursuant to Rule 415 under the Securities Act in respect of
the Old Notes. See "--Procedure for Tendering" and "Registration Rights."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to TransDigm, TransDigm believes that,
with the exceptions set forth below, New Notes issued in the exchange offer may
be offered for resale, resold and otherwise transferred by the holder of New
Note without compliance with the registration and prospectus delivery
requirements of the Securities Act, unless the holder:
- is an "affiliate" of TransDigm or the Guarantors within the meaning of
Rule 405 under the Securities Act;
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- is a broker-dealer who purchased Old Notes directly from TransDigm for
resale under Rule 144A or any other available exemption under the
Securities Act;
- acquired the New Notes other than in the ordinary course of the
holder's business; or
- the holder has an arrangement with any person to engage in the
distribution of New Notes.
Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the New Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." Broker-dealers
who acquired Old Notes directly from us and not as a result of market-making
activities or other trading activities may not rely on the staff's
interpretations discussed above or participate in the exchange offer and must
comply with the prospectus delivery requirements of the Securities Act in order
to sell the Old Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, TransDigm will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1999, or such date and time to which we extend the offer. TransDigm
will issue $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of outstanding Old Notes accepted in the exchange offer.
Holders may tender some or all of their Old Notes pursuant to the exchange
offer. However, Old Notes may be tendered only in integral multiples of $1,000
in principal amount.
The New Notes will evidence the same debt as the Old Notes and will be
issued under the terms of, and entitled to the benefits of, the Indenture
relating to the Old Notes.
As of the date of this prospectus, Old Notes representing $125.0 million
aggregate principal amount were outstanding and there was one registered holder,
a nominee of DTC. This prospectus, together with the letter of transmittal, is
being sent to such registered holder and to others believed to have beneficial
interests in the Old Notes. TransDigm intends to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission promulgated under the Exchange Act.
TransDigm shall be deemed to have accepted validly tendered Old Notes when,
as, and if TransDigm has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the New Notes from TransDigm. If any tendered Old Notes are
not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth under the heading "--Conditions to the Exchange
Offer" or otherwise, certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder of those Old Notes as
promptly as practicable after , 1999, unless the exchange offer is
extended.
Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of Old Notes in the
exchange offer. TransDigm will pay all charges and expenses, other than certain
applicable taxes, applicable to the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be 5:00 p.m., New York City time, on ,
1999, unless TransDigm, in its sole discretion, extends the exchange offer, in
which case the expiration date shall mean the latest
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date and time to which the exchange offer is extended. In order to extend the
exchange offer, TransDigm will notify the Exchange Agent and each registered
holder of any extension by oral or written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date. TransDigm reserves the right, in its sole discretion, (A) to delay
accepting any Old Notes, to extend the exchange offer or, if any of the
conditions set forth under "--Conditions to Exchange Offer" shall not have been
satisfied, to terminate the exchange offer, by giving oral or written notice of
that delay, extension or termination to the Exchange Agent, or (B) to amend the
terms of the exchange offer in any manner. In the event that TransDigm makes a
material or fundamental change to the terms of the exchange offer, TransDigm
will file a post-effective amendment to the Registration Statement.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the exchange offer.
Except as set forth under "--Book Entry Transfer," to tender in the exchange
offer a holder must complete, sign, and date the letter of transmittal, or a
copy of the letter of transmittal, have the signatures on the letter of
transmittal guaranteed if required by the letter of transmittal, and mail or
otherwise deliver the letter of transmittal or copy to the Exchange Agent prior
to the expiration date. In addition:
- certificates for the Old Notes must be received by the Exchange Agent
along with the letter of transmittal prior to the expiration date;
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the Old Notes, if that procedure is available, into
the Exchange Agent's account at DTC (the "Book-Entry Transfer
Facility") following the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the expiration
date; or
- you must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the Exchange Agent at the address set forth under
"--Exchange Agent" prior to the expiration date.
Your tender, if not withdrawn before the expiration date will constitute an
agreement between you and TransDigm in accordance with the terms and subject to
the conditions set forth herein and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO TRANSDIGM. YOU MAY REQUEST YOUR
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR YOU.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the registered
holder to tender on the beneficial owner's behalf. If the beneficial owner
wishes to tender on the owner's own behalf, the owner must, prior to completing
and executing the letter of transmittal and delivering the owner's Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
the beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless Old Notes tendered pursuant thereto are tendered (A) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the letter of transmittal or (B) for the
account of an Eligible Institution. If signatures on a letter of transmittal or
a notice of withdrawal, as the case may be, are
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required to be guaranteed, the guarantee must be by any eligible guarantor
institution that is a member of or participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or an
Eligible Institution.
If the letter of transmittal is signed by a person other than the registered
holder of any Old Notes listed in the letter of transmittal, the Old Notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to TransDigm
of their authority to so act must be submitted with the letter of transmittal
unless waived by TransDigm.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance, and withdrawal of tendered Old Notes will be determined by
TransDigm in its sole discretion, which determination will be final and binding.
TransDigm reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes TransDigm's acceptance of which would, in the
opinion of counsel for TransDigm, be unlawful. TransDigm also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
Old Notes. TransDigm's interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes must be cured within such time as
TransDigm shall determine. Although TransDigm intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither
TransDigm, the Exchange Agent, nor any other person shall incur any liability
for failure to give that notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the letter of transmittal, as soon as practicable
following , 1999, unless the exchange offer is extended.
In addition, TransDigm reserves the right in its sole discretion to purchase
or make offers for any Old Notes that remain outstanding after the expiration
date or, as set forth under "--Conditions to the exchange offer," to terminate
the exchange offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions, or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
By tendering, you will represent to TransDigm that, among other things:
- the New Notes acquired in the exchange offer are being obtained in the
ordinary course of business of the person receiving such New Notes,
whether or not such person is the registered holder;
- you are not engaging in and do not intend to engage in a distribution
of the New Notes;
- you do not have an arrangement or understanding with any person to
participate in the distribution of such New Notes; and
- you are not an "affiliate," as defined under Rule 405 of the
Securities Act, of TransDigm or any of the Guarantors.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed letter of
transmittal or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the letter of transmittal, and all other
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required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the exchange offer or if Old Notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged Old Notes will be returned without expense to
the tendering holder or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
according to the book-entry transfer procedures described below, those
nonexchanged Old Notes will be credited to an account maintained with that
Book-Entry Transfer Facility, in each case, as promptly as practicable after the
expiration or termination of the exchange offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where those Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of those New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
that Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the letter of transmittal or copy of the letter of
transmittal, with any required signature guarantees and any other required
documents, must, in any case other than as set forth in the following paragraph,
be transmitted to and received by the Exchange Agent at the address set forth
under "--Exchange Agent" on or prior to the expiration date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system instead of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the letter of transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender Old Notes and the
Old Notes are not immediately available, or time will not permit that holder's
Old Notes or other required documents to reach the Exchange Agent before the
expiration date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if:
- the tender is made through an Eligible Institution;
- prior to the expiration date, the Exchange Agent receives from that
Eligible Institution a properly completed and duly executed letter of
transmittal or a facsimile of duly executed letter of transmittal and
notice of guaranteed delivery, substantially in the form provided by
TransDigm, by telegram, telex, fax transmission, mail or hand
delivery, setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered and stating that the tender
is being made by guaranteed delivery and guaranteeing that within
three New York Stock Exchange, Inc. ("NYSE") trading days after the
date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, will be
deposited by the Eligible Institution with the Exchange Agent; and
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- the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, are
received by the Exchange Agent within three NYSE trading days after
the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal of a tender of Old Notes to be effective, a written or, for
DTC participants, electronic ATOP transmission notice of withdrawal, must be
received by the Exchange Agent at its address set forth under "--Exchange Agent"
prior to 5:00 p.m., New York City time, on the expiration date. Any such notice
of withdrawal must:
- specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor");
- identify the Old Notes to be withdrawn, including the certificate
number or numbers and principal amount of such Old Notes;
- be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such Old Notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the Trustee register the
transfer of such Old Notes into the name of the person withdrawing the
tender; and
- specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form, eligibility and time of receipt of
such notices will be determined by TransDigm, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. Any
Old Notes which have been tendered for exchange but which are not exchanged for
any reason will be returned to the holder of those Old Notes without cost to
that holder as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures under "--Procedures for Tendering"
at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, TransDigm shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the exchange offer if at any time
before the acceptance of those Old Notes for exchange or the exchange of the New
Notes for those Old Notes, TransDigm determines that the exchange offer violates
applicable law, any applicable interpretation of the staff of the Commission or
any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of TransDigm and may be
asserted by TransDigm regardless of the circumstances giving rise to any such
condition or may be waived by TransDigm in whole or in part at any time and from
time to time in its sole discretion. The failure by TransDigm at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any of
those rights and each of those rights shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, TransDigm will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for those Old Notes, if at such time
any stop order shall be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Indenture under the Trust Indenture Act of 1939. In any of those events
TransDigm
26
<PAGE>
is required to use every reasonable effort to obtain the withdrawal of any stop
order at the earliest possible time.
EXCHANGE AGENT
All executed letters of transmittal should be directed to the Exchange
Agent. State Street Bank and Trust Company has been appointed as Exchange Agent
for the exchange offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the letter of transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department, Fourth Floor
Attn: Susan Levy Attn: Susan Levy
P.O. Box 778 Two International Place
Boston, MA 02102-0078 Boston, MA 02110
Reference: TransDigm Inc. Reference: TransDigm Inc.
</TABLE>
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(617) 664-5290
Reference: TransDigm Inc.
FOR INFORMATION OR CONFIRMATION BY TELEPHONE:
Susan Levy
(617) 664-5314
Originals of all documents sent by facsimile should be sent promptly
by registered or certified mail, by hand or by overnight delivery service.
FEES AND EXPENSES
TransDigm will not make any payments to brokers, dealers or others
soliciting acceptances of the exchange offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of TransDigm. The estimated cash expenses
to be incurred in connection with the exchange offer will be paid by TransDigm
and will include fees and expenses of the Exchange Agent, accounting, legal,
printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection with that tender or exchange, except that
holders who instruct TransDigm to register New Notes in the name of, or request
that Old Notes not tendered or not accepted in the exchange offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax on those Old Notes.
27
<PAGE>
USE OF PROCEEDS
TransDigm will not receive any cash proceeds from the issuance of the New
Notes. In consideration for issuing the New Notes as contemplated in this
prospectus, TransDigm will receive in exchange Old Notes in like principal
amount, which will be canceled and as such will not result in any increase in
our indebtedness.
CAPITALIZATION
The following table sets forth the consolidated capitalization of TransDigm
and Holdings as of January 1, 1999, on a historical basis and of Holdings as of
January 1, 1999 on a pro forma basis after giving effect to the acquisition of
ZMP and the related borrowings under the New Credit Facility as if they had
occurred on January 1, 1999. This table should be read in conjunction with the
information contained in "Unaudited Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as the Consolidated Historical Financial Statements and the
notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 1, 1999
-------------------------------------
UNAUDITED
PRO FORMA
TRANSDIGM HOLDINGS HOLDINGS
------------ ---------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents.................................................. $ 2,103 $ 2,103 $ 2,103
------------ ---------- -----------
------------ ---------- -----------
Total debt (including current maturities):
New Credit Facility (1).................................................. $ 91,000 $ 91,000 $ 133,000
Old Notes................................................................ 125,000 125,000 125,000
Holdings PIK Notes....................................................... -- 20,200 20,200
------------ ---------- -----------
Total debt............................................................. 216,000 236,200 278,200
------------ ---------- -----------
Redeemable common stock (2)................................................ -- 800 800
Stockholders' equity (deficit):
Common stock $0.01 par value and paid-in capital......................... 24,281 100,624 100,624
Other stockholders' equity (deficit)..................................... (139,446) (236,789) (236,789)
------------ ---------- -----------
Total stockholders' equity (deficit)................................... (115,165) (136,165) (136,165)
------------ ---------- -----------
Total capitalization................................................... $ 100,835 $ 100,835 $ 142,835
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
- ------------------------
(1) The New Credit Facility, as amended, consists of: (A) the Revolving Credit
Facility which provides for borrowings of up to $30.0 million, of which, on
a pro forma basis, $9.0 million would have been drawn as of January 1, 1999
with the remainder undrawn and available for certain permitted acquisitions
and for general corporate purposes, including working capital requirements;
(B) the Tranche A Facility, which provides for term debt of $62.0 million;
and (C) the Tranche B Facility which provides for term debt of $62.0
million. See "Description of Other Indebtedness--The Company--The New Credit
Facility."
(2) The redeemable common stock represents the estimated value of Common Stock
held by management stockholders which have the put rights described under
the heading "Management-- Management Stockholders Agreement."
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial information of TransDigm and
Holdings has been derived by the application of pro forma adjustments to
Holdings' historical consolidated financial statements for the year ended
September 30, 1998 and the thirteen weeks ended January 1, 1999 and as at
January 1, 1999. The pro forma consolidated statements of operations give effect
to each of the Transactions as if they had been consummated at the beginning of
each respective period. The pro forma consolidated balance sheet gives effect to
the acquisition of ZMP and the related borrowings under the New Credit Facility
as if they had occurred as of the balance sheet date. The adjustments necessary
to fairly present this pro forma consolidated financial information have been
made based on available information and in the opinion of management are
reasonable and are described in the accompanying notes. The pro forma
consolidated financial information should not be considered indicative of actual
results that would have been achieved had the Transactions been consummated on
the respective dates indicated and do not purport to indicate results of
operations for any future period. You should read the pro forma consolidated
financial statements together with the "The Transactions" and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections and the Consolidated Historical Financial Statements and the notes
thereto, and other financial information included elsewhere in this prospectus.
As a result of the consummation of the Recapitalization, Odyssey and its
co-investors acquired 73.7% of Holdings common stock on a fully diluted basis
and certain continuing equity holders of Holdings retained approximately 26.3%
of the common stock. Accordingly, the Recapitalization was accounted for as a
recapitalization and had no impact on the historical basis of TransDigm's and
Holdings' assets and liabilities. The pro forma adjustments were applied to the
respective historical consolidated financial statements to reflect and account
for the Recapitalization as a recapitalization.
The acquisition of ZMP has been accounted for as a purchase. The purchase
price consideration of $41 million in cash and $1 million of costs associated
with the acquisition was funded entirely through additional borrowings under the
New Credit Facility. The purchase price has been allocated to the assets
acquired and liabilities assumed of ZMP and its wholly-owned subsidiary, Adams
Rite Aerospace, based on a preliminary analysis of their fair values.
One-time merger charges of approximately $39.6 million and $0.2 million
($28.8 million and $0.1 million after tax), incurred in connection with, or due
to, the Recapitalization and the acquisition of ZMP, respectively, were
recorded, in each case, in the first quarter of fiscal 1999, as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------
<S> <C>
Recapitalization
Compensation expense on stock options........................................ $ 19,437
Management bonuses........................................................... 6,450
Termination of financial advisory services agreement......................... 5,850
Professional fees and expenses............................................... 6,673
Write-off deferred financing charges......................................... 552
Other........................................................................ 631
-------------
39,593
Acquisition of ZMP
Professional fees and expenses............................................... 164
-------------
Total...................................................................... $ 39,757
-------------
-------------
</TABLE>
The unaudited pro forma consolidated statements of operations for the year ended
September 30, 1998 and the thirteen weeks ended January 1, 1999 exclude those
non-recurring expenses.
29
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
HOLDINGS ZMP, INC. FOR THE FOR THE TRANSDIGM FOR THE HOLDINGS
HISTORICAL HISTORICAL(1) RECAPITALIZATION(2) ACQUISITION(3) PRO FORMA RECAPITALIZATION(4) PRO FORMA
----------- ------------ ----------------- ------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 110,868 $ 34,154 -- -- $ 145,022 -- $ 145,022
Cost of sales........... 59,395 22,421 -- $ 1,300(a) 83,166 -- 83,166
50(b)
----------- ------------ -------- ------------- ----------- -------- -----------
Gross profit............ 51,473 11,733 -- (1,350) 61,856 -- 61,856
----------- ------------ -------- ------------- ----------- -------- -----------
Operating expenses:
Selling and 10,473 6,976 $ (100) -- 17,349 -- 17,349
administrative...... (a)
Amortization of 2,438 687 -- (125) 3,000 3,000
intangibles......... (c)
Research and 1,724 -- -- -- 1,724 1,724
development.........
ZMP facility -- 503 503 503
relocation..........
----------- ------------ -------- ------------- ----------- -------- -----------
Total operating 14,635 8,166 (100) (125) 22,576 -- 22,576
expenses..........
----------- ------------ -------- ------------- ----------- -------- -----------
Income from 36,838 3,567 100 (1,225) 39,280 -- 39,280
operations............
Interest expense - 3,175 1,496 19,382(b) 2,269(d) 26,322 $ 2,630(a) 28,952
net...................
Warrant put value 6,540 -- (6,540) -- -- -- --
adjustment............ (c)
----------- ------------ -------- ------------- ----------- -------- -----------
Income before income 27,123 2,071 (12,742) (3,494) 12,958 (2,630) 10,328
taxes.................
12,986 1,098 (7,610) (1,448) 5,026 (1,026) 4,000
Income tax provision.... (d) (e) (b)
----------- ------------ -------- ------------- ----------- -------- -----------
Net income.............. $ 14,137 $ 973 $ (5,132) $ (2,046) $ 7,932 $ (1,604) $ 6,328
----------- ------------ -------- ------------- ----------- -------- -----------
----------- ------------ -------- ------------- ----------- -------- -----------
EBITDA, As Defined(5)... $ 43,547 $ 5,367 $ 100 $ -- $ 49,014 $ -- $ 49,014
Cash flow provided by
(used in):
Operating 23,455 462 (10,489) (2,205) 11,223 -- 11,223
activities..........
Investing (4,295) (3,868) -- -- (8,163) -- (8,163)
activities..........
Financing (5,071) -- 300 (2,209) (6,980) -- (6,980)
activities..........
</TABLE>
30
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.)
(1) The amounts in this column represent the consolidated operations of ZMP,
Inc. for the year ended June 26, 1998.
(2) The amounts in this column represent the adjustments resulting from the
Recapitalization that are necessary to determine TransDigm's pro forma results
of operations as follows:
(a) This adjustment represents the elimination of the annual advisory
fee payable to an affiliate of TransDigm's former largest stockholder.
(b) The adjustment to interest expense reflects the following (in
thousands):
<TABLE>
<S> <C>
Interest expense on existing indebtedness to be retired in
connection with the Recapitalization..................... $ (3,358)
Interest income on cash and cash equivalents............... 450
Amortization of debt issuance costs on existing
indebtedness............................................. (267)
---------
Net interest expense....................................... (3,175)
Interest expense on New Credit Facility (at a weighted
average rate of 8.75%)................................... 8,138
Interest expense on the Notes.............................. 12,969
Amortization of debt issuance costs........................ 1,450
---------
Total adjustment........................................... $ 19,382
---------
---------
</TABLE>
A 0.250% increase or decrease in the weighted average interest rate
applicable to TransDigm's indebtedness outstanding under the New Credit
Facility resulting from the Recapitalization would change the pro forma
interest expense and net income by $232,000 and $142,000, respectively, for
the year ended September 30, 1998 and $58,000 and $36,000 for the thirteen
weeks ended January 1, 1999. Each $1.0 million increase or decrease in the
revolving credit facility under the New Credit Facility would change the pro
forma interest expense by $87,500 and $21,875, respectively, for the year
ended September 30, 1998 and the thirteen weeks ended January 1, 1999,
respectively.
(c) This adjustment represents the elimination of the warrant put value
adjustment. The warrants were retired in connection with the
Recapitalization.
(d) The tax effect of pro forma adjustments to income before income
taxes is based on the estimated applicable statutory tax rates. No tax
effect is recorded for the elimination of the warrant put value adjustment.
(3) The amounts in this column represent the adjustments resulting from the
acquisition of ZMP that are necessary to determine TransDigm's pro forma results
of operations as follows:
(a) This amount represents the inventory purchase accounting adjustment
that will be charged to cost of sales as the ZMP inventory on hand at the
date of the acquisition of ZMP is sold.
(b) This adjustment represents an increase in depreciation expense due
to the write-up of ZMP's equipment and improvements to fair value in
connection with the acquisition of ZMP.
31
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.) (CONTINUED)
(c) This adjustment represents the change in amortization expense
resulting from the amortization of the goodwill recorded in connection with
the acquisition of ZMP over 40 years using the straight-line method.
(d) The adjustment to interest expense reflects the following (in
thousands):
<TABLE>
<S> <C>
Interest expense on existing indebtedness to be retired in
connection with the acquisition of ZMP................... $ (1,496)
Interest expense on additional indebtedness to be incurred
in connection with the acquisition of ZMP (at a weighted
average rate of 8.75%)................................... 3,675
Amortization of debt issuance costs........................ 90
---------
Total adjustment........................................... $ 2,269
---------
---------
</TABLE>
A 0.250% increase or decrease in the weighted average interest rate
applicable to TransDigm's indebtedness outstanding under the New Credit
Facility resulting from the acquisition of ZMP would change the pro forma
interest expense and net income by $105,000 and $63,000, respectively, for
the year ended September 30, 1998 and $26,000 and $16,000 for the thirteen
weeks ended January 1, 1999.
(e) This adjustment represents the tax effect of pro forma adjustments
to income before income taxes and is based on the estimated applicable
statutory tax rates.
(4) The amounts in this column represent the adjustments necessary to
determine Holdings' pro forma consolidated statement of operations as follows:
(a) This adjustment represents interest expense on the Holdings PIK
Notes, including amortization of debt issuance costs.
(b) This adjustment represents the tax effect of pro forma adjustments
to income before income taxes and is based on the estimated applicable
statutory tax rates.
32
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.) (CONTINUED)
(5) EBITDA, As Defined, represents earnings before interest, taxes,
depreciation and amortization, the warrant put value adjustment, the inventory
purchase accounting adjustments, ZMP facility relocation costs, and merger
expenses as follows (in thousands):
<TABLE>
<CAPTION>
HOLDINGS ZMP, INC. TRANSDIGM HOLDINGS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income............................................ $ 14,137 $ 973 $ 7,932 $ 6,328
Adjustments:
Income tax provision................................ 12,986 1,098 5,026 4,000
Interest expense.................................... 3,175 1,496 26,322 28,952
Depreciation and amortization....................... 6,467 1,172 7,564 7,564
Warrant put value adjustment........................ 6,540 -- -- --
----------- ----------- ----------- -----------
EBITDA................................................ 43,305 4,739 46,844 46,844
Inventory purchase accounting adjustments:
Marathon............................................ 242 -- 242 242
ZMP, Inc............................................ -- 1,300 1,300
ZMP facility relocation............................... -- 503 503 503
ZMP merger expenses................................... -- 125 125 125
----------- ----------- ----------- -----------
EBITDA, As Defined.................................... $ 43,547 $ 5,367 $ 49,014 $ 49,014
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
33
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999
(THIRTEEN WEEKS ENDED DECEMBER 25, 1998 FOR ZMP, INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
HOLDINGS ZMP, INC. FOR THE FOR THE TRANSDIGM FOR THE
HISTORICAL HISTORICAL(1) RECAPITALIZATION(2) ACQUISITION(3) PRO FORMA RECAPITALIZATION(4)
----------- ------------- ------------------ -------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $ 28,194 $ 9,661 -- -- $ 37,855 --
Cost of sales............ 14,937 6,247 -- $ 650(a) 21,846 --
12(b)
----------- ------ ------------------ -------------- ----------- --------
Gross profit............. 13,257 3,414 -- (662) 16,009 --
----------- ------ ------------------ -------------- ----------- --------
Operating expenses:
Selling and
administrative....... 2,685 1,851 $ (20)(a) -- 4,516 --
Amortization of
intangibles.......... 645 171 -- (30)(c) 786 --
Research and
development.......... 448 -- -- -- 448 --
Merger expenses........ 39,593 164 (39,593)(b) (164)(d) -- --
----------- ------ ------------------ -------------- ----------- --------
Total operating
expenses........... 43,371 2,186 (39,613) (194) 5,750 --
----------- ------ ------------------ -------------- ----------- --------
Income (loss) from
operations............. (30,114) 1,228 39,613 (468) 10,259 --
Interest expense--net.... 2,276 425 3,057(c) 518(e) 6,276 $ 608(a)
----------- ------ ------------------ -------------- ----------- --------
Income (loss) before
income taxes........... (32,390) 803 36,556 (986) 3,983 (608)
Income tax provision
(benefit).............. (7,566) 281 9,209(d) (406)(f) 1,518 (237)(b)
----------- ------ ------------------ -------------- ----------- --------
Net income (loss)........ $ (24,824) $ 522 $ 27,347 $ (580) $ 2,465 $ (371)
----------- ------ ------------------ -------------- ----------- --------
----------- ------ ------------------ -------------- ----------- --------
EBITDA, As Defined(5).... $ 11,078 $ 1,726 $ 20 $ -- $ 12,824 $ --
Cash flow provided by
(used in):
Operating activities... (32,735) 2,143 35,858 (453) 4,813 --
Investing activities... (712) (970) -- -- (1,682) --
Financing activities... 16,064 214 -- -- 16,278 --
<CAPTION>
HOLDINGS
PRO FORMA
-----------
<S> <C>
Net sales................ $ 37,855
Cost of sales............ 21,846
-----------
Gross profit............. 16,009
-----------
Operating expenses:
Selling and
administrative....... 4,516
Amortization of
intangibles.......... 786
Research and
development.......... 448
Merger expenses........ --
-----------
Total operating
expenses........... 5,750
-----------
Income (loss) from
operations............. 10,259
Interest expense--net.... 6,884
-----------
Income (loss) before
income taxes........... 3,375
Income tax provision
(benefit).............. 1,281
-----------
Net income (loss)........ $ 2,094
-----------
-----------
EBITDA, As Defined(5).... $ 12,824
Cash flow provided by
(used in):
Operating activities... 4,813
Investing activities... (1,682)
Financing activities... 16,278
</TABLE>
34
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 (THIRTEEN WEEKS ENDED DECEMBER 25, 1998 FOR
ZMP, INC.)
(1) The amounts in this column represent the consolidated operations of ZMP for
the thirteen-week period September 26, 1998 through December 25, 1998. A
comparison of ZMP's net sales, operating income, and net income for the
thirteen weeks ended December 25, 198 and the thirteen weeks ended September
25, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, 1998 SEPTEMBER 25, 1998
------------------- ------------------
<S> <C> <C>
Net sales................................................ $ 9,661 $ 10,400
Operating income......................................... 1,228 1,089
Net income............................................... 522 247
</TABLE>
ZMP's statement of operations for the thirteen weeks ended September 25,
1998 have been excluded from the unaudited pro forma consolidated statement
of operations for the thirteen weeks ended January 1, 1999.
(2) The amounts in this column represent the adjustments resulting from the
Recapitalization necessary to determine TransDigm's pro forma results of
operations.
(a) This adjustment represents the elimination of the advisory fee payable
to an affiliate of TransDigm's former largest stockholder.
(b) This adjustment eliminates the non-recurring merger expenses incurred in
connection with the Recapitalization.
(c) The adjustment to interest expense reflects the following (in
thousands):
<TABLE>
<S> <C>
Interest expense on indebtedness retired in connection with the
Recapitalization................................................... $ (600)
Interest income on cash and cash equivalents......................... 131
Amortization of debt issuance costs on existing indebtedness......... (36)
Interest expense on Holdings PIK Notes............................... (200)
---------
(705)
Additional interest on New Credit Facility (at a weighted average
rate of 8.75%)..................................................... 1,356
Additional interest expense on the Notes............................. 2,161
Additional amortization of debt issuance costs....................... 245
---------
Total adjustment..................................................... $ 3,057
---------
---------
</TABLE>
(d) The tax effect of pro forma adjustments to income before income taxes is
based on the estimated applicable statutory tax rates and includes the
tax effect of the non-recurring merger expenses described previously.
(3) The amounts in this column represent the adjustments resulting from the
acquisition of ZMP that are necessary to determine TransDigm's pro forma
results of operations as follows:
(a) This amount represents the inventory purchase accounting adjustment that
will be charged to cost of sales as the ZMP inventory, on hand at the
date of the acquisition of ZMP, is sold.
(b) This adjustment represents an increase in depreciation expense due to
the write-up of ZMP's equipment and improvements to fair value in
connection with the acquisition of ZMP.
35
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 (THIRTEEN WEEKS ENDED DECEMBER 25, 1998 FOR
ZMP, INC.) (CONTINUED)
(c) This adjustment represents the change in amortization expense resulting
from the amortization of the goodwill recorded in connection with the
acquisition of ZMP over 40 years using the straight-line method.
(d) This adjustment eliminates non-recurring expenses directly attributable
to the sale of ZMP's common stock to TransDigm.
(e) The adjustment to interest expense reflects the following (in
thousands):
<TABLE>
<S> <C>
Interest expense on existing indebtedness to be retired in connection
with the acquisition of ZMP......................................... $ (425)
Interest expense on additional indebtedness to be incurred in
connection with the acquisition of ZMP (at a weighted average rate
of 8.75%)........................................................... 920
Amortization of debt issuance costs................................... 23
---------
Total adjustment...................................................... $ 518
---------
---------
</TABLE>
(f) This adjustment represents the tax effect of proforma adjustments to
income before income taxes and is based on the estimated applicable
statutory tax rates.
(4) The amounts in this column represent the adjustments necessary to determine
Holdings pro forma consolidated statement of operations as follows:
(a) This adjustment represents interest expense on the Holdings PIK Notes,
including amortization of debt issuance costs.
(b) The tax effect of pro forma adjustments to income before income taxes is
based on the estimated applicable statutory tax rates.
(5) EBITDA, As Defined, represents earnings before interest, taxes, depreciation
and amortization, the ZMP inventory purchase accounting adjustment and
merger expenses as follows (in thousands):
<TABLE>
<CAPTION>
HOLDINGS ZMP, INC. TRANSDIGM HOLDINGS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss)....................................... $ (24,824) $ 522 $ 2,465 $ 2,094
Adjustments:
Income tax provision.................................. (7,566) 281 1,518 1,281
Interest expense...................................... 2,276 425 6,276 6,884
Depreciation and amortization......................... 1,599 334 1,915 1,915
----------- ----------- ----------- -----------
EBITDA.................................................. (28,515) 1,562 12,174 12,174
Inventory purchase accounting adjustment-- ZMP........ -- -- 650 650
Merger expenses....................................... 39,593 164 -- --
----------- ----------- ----------- -----------
EBITDA, As Defined...................................... $ 11,078 $ 1,726 $ 12,824 $ 12,824
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
36
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 1, 1999 (DECEMBER 25, 1998 FOR ZMP, INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ZMP, INC.
HOLDINGS HISTORICAL PRO FORMA TRANSDIGM PRO FORMA HOLDINGS
HISTORICAL (1) ADJUSTMENTS (2) PRO FORMA ADJUSTMENTS (3) PRO FORMA
----------- ------------ --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................... $ 2,103 $ 3,687 $ (3,687)(a) $ 2,103 -- $ 2,103
Accounts receivable--net.................. 14,403 5,935 (506)(a) 19,832 -- 19,832
Inventories............................... 18,180 10,188 1,300(b) 29,668 -- 29,668
Refundable income taxes................... 7,692 -- -- 7,692 -- 7,692
Deferred income taxes and other........... 3,992 2,072 200(d) 6,264 -- 6,264
----------- ------------ --------------- ----------- --------------- -----------
Total current assets.................... 46,370 21,882 (2,693) 65,559 -- 65,559
----------- ------------ --------------- ----------- --------------- -----------
Property, plant and equipment--net.......... 21,709 4,681 500(c) 26,890 -- 26,890
Intangible assets--net...................... 34,649 13,394 9,200(i) 57,243 -- 57,243
Debt issue costs--net....................... 11,101 500(h) 11,601 -- 11,601
Deferred income taxes and other............. 4,332 550 (200)(d) 4,682 -- 4,682
----------- ------------ --------------- ----------- --------------- -----------
Total....................................... $ 118,161 $ 40,507 $ 7,307 $ 165,975 -- $ 165,975
----------- ------------ --------------- ----------- --------------- -----------
----------- ------------ --------------- ----------- --------------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 4,700 -- $ 2,209(h) $ 6,909 -- $ 6,909
Accounts payable.......................... 5,554 $ 1,645 -- 7,199 -- 7,199
Accrued liabilities....................... 9,362 2,164 (219)(a) 13,107 -- 13,107
1,800(j)
----------- ------------ --------------- ----------- --------------- -----------
Total current liabilities............... 19,616 3,809 3,790 27,215 -- 27,215
Long-term debt--less current portion........ 231,500 16,128 23,663(h) 251,091 $ 20,200(a) 271,291
(20,200)(f)
Other liabilities........................... 2,410 424 -- 2,834 -- 2,834
----------- ------------ --------------- ----------- --------------- -----------
Total liabilities......................... 253,526 20,361 7,253 281,140 20,200 301,340
----------- ------------ --------------- ----------- --------------- -----------
Redeemable common stock..................... 800 -- -- 800 -- 800
Stockholders' equity (deficit):
Capital stock............................. 100,624 17,167 (17,167)(e) 424 100,200(b) 100,624
(100,200)(g)
Retained earnings......................... (236,035) 2,979 (2,979)(e) (115,635) (20,200)(a) (236,035)
20,200(f) (100,200)(b)
100,200(g)
Accumulated other comprehensive income.... ) ) )
(754 -- -- (754 -- (754
----------- ------------ --------------- ----------- --------------- -----------
Total stockholders' equity (deficit)...... (136,165) 20,146 54 (115,965) (20,200) (136,165)
----------- ------------ --------------- ----------- --------------- -----------
Total....................................... $ 118,161 $ 40,507 $ 7,307 $ 165,975 $ -- $ 165,975
----------- ------------ --------------- ----------- --------------- -----------
----------- ------------ --------------- ----------- --------------- -----------
</TABLE>
37
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 1, 1999 (DECEMBER 25, 1998 FOR ZMP, INC.)
(1) The amounts in this column represent the financial position of ZMP at
December 25, 1998.
(2) The amounts in this column represent the adjustments resulting from the
acquisition of ZMP that are necessary to determine TransDigm's pro forma
consolidated balance sheet.
(a) This adjustment reflects cash balances, receivables and income tax
liabilities retained by the seller.
(b) This adjustment represents the estimated excess of the fair value of
ZMP's inventory over its carrying value. As the inventory is sold, this
adjustment will be charged to cost of sales. TransDigm expects this
inventory to be sold over a six month period.
(c) This adjustment represents the estimated excess of the fair value of
ZMP's property, plant, and equipment over its carrying value.
(d) This adjustments recognizes deferred income tax liabilities for the fair
value adjustments described in Notes (b), (c) and (j).
(e) This adjustment eliminates ZMP's stockholders' equity.
(f) This adjustment eliminates the Holdings PIK Notes from TransDigm's pro
forma consolidated balance sheet.
(g) This adjustment is necessary to reflect TransDigm's capital structure.
(h) This adjustment reflects the repayment of existing indebtedness of ZMP
and additional borrowings (including related costs) under the New Credit
Facility to finance the purchase price and the direct costs of the
acquisition of ZMP.
(i) This adjustment reflects the allocation of the purchase price to
goodwill.
(j) This adjustment represents the accrual of fees and other costs
associated with the acquisition of ZMP.
(3) The amounts in this column represent the adjustments necessary to determine
Holdings' pro forma consolidated balance sheet.
(a) This adjustment records the outstanding balance (including accrued
interest) of the Holdings PIK Notes at January 1, 1999.
(b) This adjustment is necessary to reflect Holdings' capital structure.
38
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information of Holdings. The selected historical consolidated financial data for
the fiscal years ended September 30, 1998, 1997, and 1996 have been derived from
Holdings' consolidated financial statements, which have been audited by Deloitte
& Touche LLP, independent auditors. The selected historical consolidated audited
financial data for the fiscal years ended September 30, 1995 and 1994, which
have also been derived from Holdings' consolidated financial statements, have
been adjusted to give retroactive effect to the change in accounting for put
warrants as described in Note 17 to the Consolidated Historical Financial
Statements of Holdings included elsewhere in this Prospectus. The selected
historical consolidated financial data as of and for the thirteen weeks ended
January 1, 1999 and December 26, 1997 has been derived from Holdings' unaudited
consolidated financial statements for those periods, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations,
financial position, and cash flows. The results for the thirteen weeks ended
January 1, 1999 are not necessarily indicative of results that may be expected
for the entire year. Separate financial information for TransDigm is not
presented since the New Notes will be guaranteed by Holdings and all direct and
indirect domestic subsidiaries of TransDigm, and since Holdings has no
operations or assets separate from its investment in TransDigm.
The Marathon Acquisition was completed on August 8, 1997. The acquisition
was accounted for as a purchase. The results of operations of Marathon are
included in Holdings' consolidated financial statements from the date of such
acquisition.
You should read the following table together with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and the Consolidated Historical Financial Statements and the notes
thereto included elsewhere in this prospectus.
39
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------
----------------------------------------------------- DECEMBER 26, JANUARY 1,
1994 1995 1996 1997 1998 1997 1999
--------- --------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 52,028 $ 57,095 $ 62,897 $ 78,159 $ 110,868 $ 26,104 $ 28,194
Gross profit..................................... 9,151 17,029 21,023 28,856 51,473 11,397 13,257
Selling and administrative....................... 6,244 6,167 6,459 7,561 10,473 2,669 2,685
Amortization of intangibles...................... 4,062 4,002 3,838 2,089 2,438 635 645
Research and development......................... 784 1,058 836 1,116 1,724 339 448
Merger expenses.................................. -- -- -- -- -- -- 39,593
--------- --------- --------- --------- --------- ------------ -----------
Operating income (loss) (1)...................... (1,939) 5,802 9,890 18,090 36,838 7,754 (30,114)
Interest expense, net (2)........................ 4,823 5,193 4,510 3,463 3,175 1,046 2,276
Warrant put value adjustment..................... 868 736 2,160 4,800 6,540 -- --
--------- --------- --------- --------- --------- ------------ -----------
Pre-tax income (loss)............................ (7,630) (127) 3,220 9,827 27,123 6,708 (32,390)
Provision (benefit) for income taxes............. (2,307) 134 2,045 5,193 12,986 2,590 (7,566)
--------- --------- --------- --------- --------- ------------ -----------
Income (loss) before extraordinary item.......... (5,323) (261) 1,175 4,634 14,137 4,118 (24,824)
Extraordinary item............................... -- -- -- (1,462) -- -- --
--------- --------- --------- --------- --------- ------------ -----------
Net income (loss)................................ $ (5,323) $ (261) $ 1,175 $ 3,172 $ 14,137 $ 4,118 $ (24,824)
--------- --------- --------- --------- --------- ------------ -----------
--------- --------- --------- --------- --------- ------------ -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities........................... $ 1,115 $ 3,972 $ 18,695 $ 17,468 $ 23,455 $ 6,485 $ (32,735)
Investing activities........................... (3,595) 702 (2,494) (43,160) (4,295) 138 (712)
Financing activities........................... 1,851 (4,560) (13,475) 28,153 (5,071) (20) 16,064
EBITDA (3)....................................... 5,402 13,168 17,213 23,856 43,305 9,409 (28,515)
EBITDA, As Defined (4)........................... 9,875 13,168 17,213 24,522 43,547 9,651 11,078
EBITDA, As Defined, margin....................... 19.0% 23.1% 27.4% 31.4% 39.3% 37.0% 39.3%
Depreciation and amortization.................... $ 7,341 $ 7,366 $ 7,323 $ 5,766 $ 6,467 $ 1,655 $ 1,599
Capital expenditures............................. 1,941 1,702 2,494 2,285 5,061 628 712
Ratio of earnings to fixed charges (5)........... -- -- 1.7x 3.7x 9.0x 7.1x --
Ratio of EBITDA, As Defined, to interest
expense........................................ 2.0x 2.5x 3.8x 7.1x 13.7x 9.2x 4.9x
Ratio of total debt to EBITDA, As Defined........ 3.7x 2.4x 1.1x 2.0x 1.0x 5.2x 21.3x
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital.................................. $ 12,592 $ 17,730 $ 16,300 $ 16,520 $ 16,654 $ 21,231 $ 26,754
Total assets..................................... 71,554 65,758 57,666 101,969 115,785 105,474 118,161
Long-term debt, including current portion........ 36,399 32,074 19,124 50,000 45,000 50,000 236,200
Total stockholders' equity (deficiency).......... 19,745 19,285 19,670 22,613 36,427 26,432 (136,165)
</TABLE>
40
<PAGE>
- ------------------------
(1) Operating income (loss) includes the effect of a non-cash charge of $4,473
in fiscal 1994 due to a purchase accounting adjustment to inventory
associated with the acquisition of the Aerospace Components Group of IMO and
a non-cash charge of $666 in fiscal 1997 and $242 in fiscal 1998 due to a
purchase accounting adjustment to inventory associated with the acquisition
of Marathon.
(2) All of the interest expense reported for fiscal 1994 through 1998 represents
interest expense of TransDigm. Holdings had no interest expense prior to the
Recapitalization. After the Recapitalization, Holdings has incurred interest
expense relating to the Holdings PIK Notes and Holdings has no other
interest expense. TransDigm is not an obligor or a guarantor under the
Holdings PIK Notes. Interest expense for the Holdings PIK Notes for the
thirteen weeks ended January 1, 1999 was $200.
(3) EBITDA represents earnings before interest, taxes, depreciation,
amortization, warrant put value adjustment and extraordinary items. EBITDA
is presented because management believes it is frequently used by securities
analysts, investors and other interested parties in the evaluation of
companies in Holdings' industry. However, other companies in Holdings'
industry may calculate EBITDA differently than Holdings does. EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities, as a measure of liquidity or an alternative to net
income as indicators of Holdings' operating performance or any other
measures of performance derived in accordance with generally accepted
accounting principles. See Holdings' consolidated Statements of Cash Flows
included in Holdings' consolidated financial statements.
(4) EBITDA, As Defined, is calculated as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
DECEMBER 26, JANUARY 1,
1994 1995 1996 1997 1998 1997 1999
--------- --------- --------- --------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA........................................ $ 5,402 $ 13,168 $ 17,213 $ 23,856 $ 43,305 $ 9,409 $ (28,515)
Adjustments:
Merger Expenses............................. -- -- -- -- -- -- 39,593
Inventory Purchase Accounting Adjustments... 4,473 -- -- 666 242 242 --
--------- --------- --------- --------- --------- ------ -----------
EBITDA, As Defined............................ $ 9,875 $ 13,168 $ 17,213 $ 24,522 $ 43,547 $ 9,651 $ 11,078
--------- --------- --------- --------- --------- ------ -----------
--------- --------- --------- --------- --------- ------ -----------
</TABLE>
EBITDA, As Defined, is presented herein to provide additional information
with respect to the ability of Holdings to satisfy its debt service, capital
expenditure and working capital requirements and because certain types of
covenants in TransDigm's and Holdings' borrowing arrangements are tied to
similar measures. While EBITDA-based measures are frequently used as
measures of operations and the ability to meet debt service requirements,
they are not necessarily comparable to other similarly titled captions of
other companies due to differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and the portion
(approximately 33%) of rental expense that management believes is
representative of the interest component of rental expense. Earnings were
insufficient to cover fixed charges by $7,630, $127 and $32,390 for fiscal
1994, fiscal 1995 and the thirteen weeks ended January 1, 1999,
respectively.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS IN THIS DISCUSSION REGARDING THE INDUSTRY OUTLOOK,
TRANSDIGM'S EXPECTATIONS REGARDING THE FUTURE PERFORMANCE OF ITS BUSINESSES, AND
THE OTHER NONHISTORICAL STATEMENTS IN THIS DISCUSSION ARE FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS RISKS AND
UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES
DESCRIBED IN THE "RISK FACTORS" SECTION. YOU SHOULD READ THE FOLLOWING
DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF TRANSDIGM
TOGETHER WITH THE SECTIONS ENTITLED "RISK FACTORS" AND "SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA" AND WITH THE CONSOLIDATED HISTORICAL FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. TRANSDIGM'S
FISCAL YEAR ENDS ON SEPTEMBER 30 OF THE YEARS INDICATED.
OVERVIEW
TransDigm is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. TransDigm sells its products
to commercial airlines and aircraft maintenance facilities in the aftermarket,
to most original equipment manufacturers ("OEMs") of aircraft and to various
agencies of the United States government. Sales of TransDigm's products are made
directly to these organizations as well as through U.S. and international
distributors who maintain inventories throughout the world of products purchased
from TransDigm and others. TransDigm generates most of its EBITDA, As Defined
from sales of replacement parts in the aftermarket, including to the airlines.
This is because most of TransDigm's OEM sales are on an exclusive sole source
basis; therefore, in most cases, TransDigm is the only certified provider of
these parts in the aftermarket. Because aftermarket parts sales are driven by
the size of the worldwide aircraft fleet, they are relatively stable and
generate recurring revenues over the life of an aircraft that are many times the
size of the original OEM purchases.
TransDigm provides its products to commercial airlines, such as United
Airlines and Continental Airlines, large commercial transport and regional and
business aircraft OEMs such as Boeing, Bombardier and Cessna and various
agencies of the United States government. While aftermarket and OEM sales have
historically each accounted for approximately half of TransDigm's net sales,
aftermarket sales typically carry a substantially higher gross margin than sales
to OEMs.
Management believes that the aircraft components industry has historically
been sensitive to changes in revenue passenger miles and, to a lesser extent, to
airline profitability, each of which has historically been correlated with
changes in general economic conditions, and the size and age of the worldwide
aircraft fleet. On a worldwide basis, revenue passenger miles have increased
from approximately 978 billion in 1985 to approximately 1,719 billion in 1996 at
a compound annual growth rate of approximately 6%. See "Business--Industry." In
addition, management believes less than 20% of TransDigm's net sales during
fiscal 1998 and the thirteen weeks ended January 1, 1999 were attributable to
sales to manufacturers of large commercial transports such as Boeing and Airbus.
As a result, increases and decreases in the manufacture of large commercial
transports only affect a portion of TransDigm's net sales.
Management has, since 1993, implemented a number of programs that have had a
positive impact on the profitability and strategic positioning of TransDigm. To
ensure a competitive cost structure, TransDigm consolidated the Adel Fasteners
and Wiggins Connectors divisions into AdelWiggins and the AeroProducts and
Controlex divisions into AeroControlex and, in fiscal 1994, consolidated
TransDigm's four manufacturing facilities into two locations. Beginning in
fiscal 1994, management reorganized the business along 11 major product lines in
order to streamline new business initiatives, increase accountability and
facilitate greater responsiveness to customer needs. As a result of the
acquisition of ZMP, TransDigm acquired four additional major product lines of
Adams Rite Aerospace. Management
42
<PAGE>
intends to reorganize the business along 15 major product lines to incorporate
the four major product lines of Adams Rite Aerospace.
TransDigm's historical financial results are also affected by the
acquisition of Marathon on August 8, 1997. Marathon's operations were
consolidated with those of TransDigm as of the acquisition date.
The Recapitalization was recorded as a recapitalization for accounting
purposes. As a result of the Recapitalization, including the financing and the
application of the proceeds thereof, TransDigm incurred certain nonrecurring
costs and charges, consisting primarily of compensation costs for management
bonuses and stock options which were canceled in conjunction with the
Recapitalization, the cost of terminating a financial advisory services
agreement with an affiliate of one of TransDigm's stockholders, the write-off of
deferred financing costs, and professional, advisory and financing fees. A
one-time charge of approximately $39.6 million ($28.8 million after tax) was
recorded for the thirteen weeks ended January 1, 1999. Because the cash costs
included in this charge were funded principally through the proceeds of the
offering of the Old Notes and borrowings under the New Credit Facility, this
cost did not materially impact TransDigm's liquidity, ongoing operations or
market position. For a discussion of the consequences of the incurrence of
indebtedness as a result of the Transactions, see the heading "--Liquidity and
Capital Resources" in this section.
On April 23, 1999, TransDigm acquired ZMP, the corporate parent of Adams
Rite Aerospace. Adams Rite Aerospace is a well established supplier of highly
engineered aircraft components that will complement the businesses of
AdelWiggins, AeroControlex and Marathon. Through the acquisition of ZMP,
TransDigm acquired four additional major product lines of Adams Rite Aerospace
consisting of mechanical hardware, fluid control products, electromechanical
control products and oxygen systems related products. For its fiscal 1998, Adams
Rite Aerospace generated net sales, operating income and EBITDA, As Defined, of
$34.2 million, $3.6 million and $5.4 million, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data of Holdings as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
THIRTEEN WEEKS ENDED
------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 26, JANUARY 1,
1996 1997 1998 1997 1999
--------- --------- --------- --------------- -----------
Net sales..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................................................. 33.4 36.9 46.4 43.7 47.0
Selling and administrative.................................... 10.3 9.7 9.4 10.3 9.5
Amortization of intangibles................................... 6.1 2.7 2.2 2.4 2.3
Research and development...................................... 1.3 1.4 1.6 1.3 1.6
Merger expenses............................................... 0.0 0.0 0.0 0.0 140.4
--------- --------- --------- ----- -----------
Operating income (loss)....................................... 15.7 23.1 33.2 29.7 (106.8)
Interest expense, net......................................... 7.2 4.4 2.9 4.0 8.1
Warrant put value adjustment (1).............................. 3.4 6.1 5.9 0.0 0.0
Provision (benefit) for income taxes.......................... 3.2 6.6 11.7 9.9 (26.8)
Extraordinary item............................................ 0.0 1.9 0.0 0.0 0.0
--------- --------- --------- ----- -----------
Net income (loss)............................................. 1.9% 4.1% 12.7% 15.8% (88.1)%
--------- --------- --------- ----- -----------
--------- --------- --------- ----- -----------
</TABLE>
- ------------------------------
(1) Together with the formation of TransDigm on September 30, 1993, TransDigm
issued subordinated notes which included detachable warrants to purchase
approximately 16,000 shares of non-voting common stock of Holdings at a
price of $0.10 per share, exercisable upon certain change of control events,
including the Recapitalization. If no transaction constituting a triggering
event was consummated prior to July 31, 1999, warrant holders had the right
to exercise a put option requiring TransDigm to repurchase all of the
warrants at their then appraised fair market value. The warrant put value
adjustment for each period indicated reflects the increase in the estimated
put value of these warrants that occurred during that period.
43
<PAGE>
CHANGES IN RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 COMPARED WITH THIRTEEN WEEKS ENDED DECEMBER
26, 1997
- - NET SALES. Net sales increased by $2.1 million, or 8.0%, to $28.2 million for
the thirteen weeks ended January 1, 1999 from $26.1 million for the thirteen
weeks ended December 26, 1997. Substantially all of the increase was due to
higher aftermarket sales, principally for large commercial transport aircraft,
reflecting TransDigm's continued efforts to increase sales in this area
because of the larger gross margins that are generally realized from such
sales.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $1.9
million, or 16.7%, to $13.3 million for the thirteen weeks ended January 1,
1999 from $11.4 million for the thirteen weeks ended December 26, 1997. This
improvement in gross profits was principally the result of the higher
aftermarket sales discussed above and the larger gross margins that are
associated with such sales. Gross profit for the thirteen weeks ended December
26, 1997 includes the effect of a non-cash charge of $0.3 million due to a
purchase accounting adjustment to inventory associated with the acquisition of
Marathon. Gross profit also increased as a percentage of net sales from 43.7%
for the thirteen weeks ended December 26, 1997 to 47.0% for the thirteen weeks
ended January 1, 1999 due to the non-cash charge from the Marathon inventory
purchase accounting adjustment and the increase in aftermarket sales.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expense was unchanged
at $2.7 million for the thirteen weeks ended January 1, 1999 and December 26,
1997. Selling and administrative expenses as a percentage of net sales
decreased from 10.2% for the thirteen weeks ended December 26, 1997 to 9.5%
for the thirteen weeks ended January 1, 1999 due to the increase in sales
referred to above and continued programs to manage expenses.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles was unchanged at $0.6
million for the thirteen weeks ended January 1, 1999 and December 26, 1997.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased $.1
million, or 33.3%, to $.4 million for the quarter ended January 1, 1999 from
$.3 million for the comparable quarter last year. This increase was primarily
attributable to continued new product development at each of
AdelWiggins, AeroControlex and Marathon. Research and development expense as a
percentage of net sales remained relatively constant at 1.6% for the thirteen
weeks ended January 1, 1999 and 1.3% for the thirteen weeks ended December 26,
1997.
- - MERGER EXPENSES. Merger costs totaling $39.6 million were incurred during the
thirteen weeks ended January 1, 1999 in connection with the Merger and
Recapitalization. The nature of the merger-related charges is detailed below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Compensation expense on stock options......................................... $ 19,437
Management bonuses............................................................ 6,450
Termination of financial advisory service agreement........................... 5,850
Professional fees and expenses................................................ 6,673
Write-off of deferred financing costs......................................... 552
Other......................................................................... 631
-------
$ 39,593
-------
-------
</TABLE>
- - OPERATING INCOME (LOSS). Operating income decreased from $7.8 million for the
thirteen weeks ended December 26, 1997 to a loss of $30.1 million for the
thirteen weeks ended January 1, 1999 due to the merger expenses discussed
above. Operating income, excluding merger-related expenses, increased by $1.7
million, or 21.8%. As a percentage of net sales, operating income before
merger-related
44
<PAGE>
expenses increased to 33.6% for the thirteen weeks ended January 1, 1999 from
29.7% for the thirteen weeks ended December 26, 1997. This increase was
primarily attributable to the increase in sales volume and gross profits
referred to above.
- - INTEREST EXPENSE. Interest expense increased by $1.2 million, or 109%, to $2.3
million for the thirteen weeks ended January 1, 1999 from $1.1 million for the
thirteen weeks ended December 26, 1997 as a result of the increase in the
average level of outstanding borrowings in connection with the
Recapitalization.
- - INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss)
before income taxes was (23.3)% for the thirteen weeks ended January 1, 1999
compared to 38.6% thirteen weeks ended December 26, 1997. The tax benefit
recorded for the thirteen weeks ended January 1, 1999 was significantly
impacted by the non-deductible expenses incurred in connection with the
Recapitalization.
- - NET INCOME (LOSS). TransDigm incurred a net loss of $24.8 million for the
thirteen weeks ended January 1, 1999 compared to net income of $4.1 million
for the thirteen weeks ended December 26, 1997 primarily as a result of the
factors referred to above.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1997
- - NET SALES. Net sales increased by $32.8 million, or 42%, to $110.9 million for
fiscal 1998 from $78.1 million for fiscal 1997. Approximately $19.5 million of
this increase was attributable to the acquisition of Marathon on August 8,
1997. New business initiatives along with continued strength in airline
traffic and airline capital spending resulted in a $7.4 million increase in
aftermarket sales, principally for large commercial transport aircraft, and a
$5.9 million increase in sales to OEMs.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $22.6
million, or 78.2%, to $51.5 million for fiscal 1998 from $28.8 million for
fiscal 1997. Approximately $9.5 million of this increase was attributable to
the acquisition of Marathon, including a $0.4 million reduction in the charge
to Marathon's cost of sales resulting from the write-up of Marathon's
inventory in place at the time of the acquisition. In addition, the higher
sales discussed above resulted in $7.8 million of additional gross profit from
aftermarket sales, principally for large commercial transport aircraft, and
$5.3 million from sales to OEMs. Gross profit increased as a percentage of net
sales from 36.9% in the 1997 period to 46.4% in fiscal 1998. Approximately,
3.8% of this increase was attributable to the acquisition of Marathon and the
remainder due to the higher sales discussed above.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expense increased by
$2.9 million, or 38.2%, to $10.5 million for fiscal 1998 from $7.6 million for
fiscal 1997. This increase was primarily attributable to the Marathon
acquisition partially offset by reduction in bad debt and environmental
expenses of $0.3 million each. Selling and administrative expenses as a
percentage of net sales remained relatively constant at 9.7% in fiscal 1997
and 9.4% in fiscal 1998.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $0.3
million, or 14.3%, to $2.4 million for fiscal 1998 from $2.1 million for
fiscal 1997. The increase in the amortization of intangibles resulted from
$0.5 million of additional goodwill amortization relating to the acquisition
of Marathon offset by a $0.2 million reduction in the amortization of other
intangible assets which became fully amortized in fiscal 1997.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.6
million, or 54.5%, to $1.7 million for fiscal 1998 from $1.1 million for
fiscal 1997. This increase was primarily attributable to the acquisition of
Marathon. Research and development expense as a percentage of net sales
remained relatively constant at 1.4% in fiscal 1997 and 1.6% in fiscal 1998.
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- - OPERATING INCOME. Operating income increased by $18.7 million, or 103.3%, to
$36.8 million for fiscal 1998 from $18.1 million for fiscal 1997.
Approximately $4.6 million of this increase was attributable to the
acquisition of Marathon and the remainder to the other increases in gross
profit discussed above. As a percentage of revenues, operating income
increased to 33.2% in fiscal 1998 from 23.1% in fiscal 1997.
- - INTEREST EXPENSE. Interest expense for fiscal 1998 approximated the amount for
fiscal 1997 at $3.2 million and $3.5 million, respectively. The $2.1 increase
in interest expense resulting from the additional borrowings made in
connection with acquisition of Marathon was more than offset by a $2.4
decrease in interest expense caused by the refinancing of TransDigm's
subordinated notes and a general decline in interest rates.
- - INCOME TAXES. Income tax expense as a percentage of income before income taxes
and the non-deductible warrant put value adjustment increased to 38.6% in
fiscal 1998 from 35.5% in fiscal 1997. The increase in the effective rate
resulted from higher non-deductible expenses, including the amortization of
goodwill recognized in connection with the Marathon acquisition.
- - NET INCOME. Net income increased by $10.9 million, or 340.6%, to $14.1 million
for fiscal 1998 from $3.2 million for fiscal 1997 primarily as a result of the
factors referred to above and an extraordinary loss in 1997 of $1.5 million
partially offset by a $1.7 million increase in the warrant put value
adjustment during fiscal 1998.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1996
- - NET SALES. Net sales increased by $15.3 million, or 24.3%, to $78.2 million
for fiscal 1997 from $62.9 million for fiscal 1996. Approximately $3.0 million
of this increase was attributable to the acquisition of Marathon. New business
initiatives along with an industry-wide increase in demand resulted in a $7.2
million increase in aftermarket sales, principally for large commercial
transport aircraft, and a $5.1 million increase in sales to OEMs.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $7.9
million, or 37.6%, to $28.9 million for fiscal 1997 from $21.0 million for
fiscal 1996. Approximately $0.5 million of this increase was attributable to
the acquisition of Marathon. The higher sales discussed above resulted in $5.2
million of additional gross profit from aftermarket sales, principally for
large commercial transport aircraft, and $2.2 million from sales to OEMs.
Gross profit also increased as a percentage of net sales from 33.4% in the
1996 period to 36.9% in fiscal 1997. This increase was primarily attributable
to the higher sales discussed above offset by an approximate 1% decline in
gross margins due to higher cost of sales resulting from the write-up of
Marathon's inventory in place at the time of the acquisition.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expense increased by
$1.1 million, or 16.9%, to $7.6 million for fiscal 1997 from $6.5 million for
fiscal 1996. Approximately $0.4 million of this increase was due to the
acquisition of Marathon, $0.3 million resulted from the relocation of
TransDigm's corporate headquarters and the remainder was caused by the
increase in sales volume which generated larger commission expenses. Selling
and administrative expenses declined as a percentage of net sales from 10.3%
in fiscal 1996 to 9.7% in fiscal 1997 due to the increase in net sales
referred to above coupled with an effort to control expenses.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $1.7
million, or 44.7%, to $2.1 million for fiscal 1997 from $3.8 million for
fiscal 1996. Amortization of intangibles decreased by $2.0 million as a result
of the termination of an agreement not to compete at the end of fiscal 1996,
partially offset by higher amortization of goodwill relating to the
acquisition of Marathon.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.3
million, or 37.5%, to $1.1 million for fiscal 1997 from $0.8 million for
fiscal 1996. This increase was primarily
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attributable to continued new product development. Research and development
expense as a percentage of net sales remained relatively constant at 1.3% in
fiscal 1996 and 1.4% in fiscal 1997.
- - OPERATING INCOME. Operating income increased by $8.2 million, or 82.8%, to
$18.1 million for fiscal 1997 from $9.9 million for fiscal 1996. As a
percentage of revenues, operating income increased to 23.1% in fiscal 1997
from 15.7% in fiscal 1996. This increase was primarily attributable to the
increase in sales volume and gross profits referred to above.
- - INTEREST EXPENSE. Interest expense decreased by $1.0 million, or 22.2%, to
$3.5 million for fiscal 1997 from $4.5 million for fiscal 1996 as a result of
a decrease in the average level of outstanding borrowings during fiscal 1997.
- - INCOME TAXES. Income tax expense as a percentage of income before income taxes
and the non-deductible warrant put value adjustment decreased to 35.5% in
fiscal 1997 from 38.0% in fiscal 1996. Foreign sales corporation earnings in
fiscal 1997 decreased the effective rate by 2.7%; however, higher
non-deductible expenses, including the amortization of goodwill recognized in
connection with the Marathon acquisition, increased the effective rate by
0.2%.
- - NET INCOME. Net income increased by $2.0 million, or 166.7%, to $3.2 million
for fiscal 1997 from $1.2 million for fiscal 1996 primarily as a result of the
factors referred to above partially offset by a $2.6 million increase in the
warrant put value adjustment during fiscal 1997.
- - EXTRAORDINARY LOSS. The extraordinary loss in fiscal 1997 of $1.5 million
represents prepayment costs and the write-off of unamortized debt issuance
costs, net of income tax benefits, related to the redemption of the
subordinated notes which were refinanced with a new $70.0 million credit
facility in September 1997.
LIQUIDITY AND CAPITAL RESOURCES
TransDigm generated $23.5 million of cash from operating activities in
fiscal 1998 compared to $17.5 million in fiscal 1997 and $18.7 million in 1996.
Such increase in operating cash flows is due to improved operating results
partially offset by higher working capital. TransDigm used approximately $32.7
million of cash in operating activities during the thirteen weeks ended January
1, 1999 compared to approximately $6.5 million generated during the thirteen
weeks ended December 26, 1997. Such decrease in operating cash flows is due to
the one-time merger expenses of $39.6 million partially offset by improved
operating results.
Cash used in investing activities was approximately $4.3 million in fiscal
1998 compared with $43.2 million in fiscal 1997 and $2.5 million in fiscal 1996.
Cash used in investing activities in fiscal 1997 includes $40.9 million related
to the acquisition of Marathon, net of cash acquired of $0.7 million.
TransDigm's expenditures for property, plant and equipment were $2.5 million in
fiscal 1996, $2.3 million in fiscal 1997 and $5.1 million in fiscal 1998. Cash
used in investing activities was approximately $0.7 million during the thirteen
weeks ended January 1, 1999 compared to approximately $0.1 million generated
during the thirteen weeks ended December 26, 1997. The change in investing cash
flows is primarily due to post-closing purchase price adjustment of
approximately $0.7 million received during the thirteen weeks ended December 26,
1997 as a result of the Marathon acquisition.
Cash used in financing activities for fiscal 1998 was $5.1 million compared
to cash provided by financing activities of $28.2 million for fiscal 1997 and
cash used in financing activities of $13.5 million for fiscal 1996. During
fiscal 1997, the Company obtained a $70.0 million credit facility, the
outstanding balance under which has been repaid in connection with the
Transactions. Borrowings under this facility of $50.0 million in fiscal 1997
were used to help finance the Marathon acquisition and redeem the Company's
outstanding subordinated notes. Cash provided by financing activities during the
thirteen weeks ended January 1, 1999 was approximately $16.1 million compared to
approximately $20 thousand used during the thirteen weeks ended December 26,
1997. This change in financing cash flows was due
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to incurrence and refinancing of substantial indebtedness as a result of the
Recapitalization and Merger.
As a result of the Recapitalization and the acquisition of ZMP, the Company
incurred substantial indebtedness and refinanced certain other indebtedness
including all borrowings under the prior credit facility. See the
"Capitalization" section. As of January 1, 1999 on a pro forma basis after
giving effect to the acquisition of ZMP and the related borrowings under New
Credit Facility as if they had occurred on January 1, 1999, Holdings would have
had indebtedness consisting of $20.2 million in Holdings PIK Notes and TransDigm
would have had indebtedness consisting of (1) $125.0 million in principal amount
of the Old Notes and (2) $133.0 million of borrowings under the New Credit
Facility, which would have consisted of $9.0 million under a $30.0 million
Revolving Credit Facility, a $62.0 million term loan under the Tranche A
Facility and a $62.0 million term loan under the Tranche B Facility.
The interest rate for the New Credit Facility is, at TransDigm's option,
either (A) a floating rate equal to the Base Rate (as defined in this Prospectus
under the heading "Description of Other Indebtedness--The Company's New Credit
Facility") plus the Applicable Margin (as defined in this paragraph), or (B) the
Eurodollar Rate (as defined in this Prospectus under the heading "Description of
Other Indebtedness--The Company's New Credit Facility") for fixed periods of
one, two, three, or six months, plus the Applicable Margin. The "Applicable
Margin" means the percentage per year equal to (1) in the case of Tranche A
Facility and Revolving Credit Facility, (A) bearing an interest rate determined
by the Base Rate, 2.50% through February 16, 1999 and 2.25%, 2.00%, 1.75% or
1.50% thereafter depending on Holdings' ability to achieve the respective debt
coverage ratio specified in the New Credit Facility, as amended, and (B) bearing
an interest rate determined by the Eurodollar Rate, 3.50% through February 16,
1999 and 3.25%, 3.00%, 2.75% or 2.50% thereafter depending on Holdings' ability
to achieve the respective debt coverage ratio specified in the New Credit
Facility, as amended, and (2) in the case of Tranche B Facility (A) bearing an
interest rate determined by the Base Rate, 2.50% and (B) bearing an interest
rate determined by the Eurodollar Rate, 3.50%. The New Credit Facility is
subject to mandatory prepayment with a defined percentage of net proceeds from
certain asset sales, insurance proceeds or other awards that are payable in
connection with the loss, destruction or condemnation of any assets, certain new
debt and equity offerings and 50% of excess cash flow (as defined in the New
Credit Facility) in excess of a predetermined amount under the New Credit
Facility.
The Old Notes bear, and the New Notes will bear, interest at 10 3/8%. The
New Notes and the Old Notes will not require principal payments prior to
maturity. The Revolving Credit Facility and the Tranche A Facility will each
mature on the six year anniversary of the initial borrowing date and the Tranche
B Facility will mature on the seven and a half year anniversary of the initial
borrowing date. The New Credit Facility requires TransDigm to amortize the
outstanding indebtedness under each of the Tranche A Facility and the Tranche B
Facility, commencing in year 1999, and contains restrictive covenants that will,
among other things, limit the incurrence of additional indebtedness, the payment
of dividends, transactions with affiliates, asset sales, acquisitions, mergers
and consolidations, liens and encumbrances, and prepayments of other
indebtedness. See the "Description of the New Notes" and "Description of Other
Indebtedness--The Company--The New Credit Facility" section.
TransDigm's primary cash needs will consist of capital expenditures and debt
service. TransDigm incurs capital expenditures for the purpose of maintaining
and replacing existing equipment and facilities and, from time to time, for
facility expansion. Capital expenditures totaled approximately $2.5 million,
$2.3 million, $5.1 million, $0.6 million and $0.7 million in fiscal 1996, fiscal
1997, fiscal 1998, the thirteen weeks ended December 26, 1997 and the thirteen
weeks ended January 1, 1999, respectively. TransDigm estimates that capital
expenditures, excluding those of Adams Rite Aerospace, will total approximately
$5.6 million in fiscal 1999.
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TransDigm intends to pursue additional acquisitions that present
opportunities to realize significant synergies, operating expense economies or
overhead cost savings or to increase TransDigm's market position. TransDigm
regularly engages in discussions with respect to potential acquisitions and
investments. However, there are no binding agreements with respect to any
material acquisitions at this time, and we cannot assure you that we will be
able to reach an agreement with respect to any future acquisition. TransDigm's
acquisition strategy may require substantial capital, and no assurance can be
given that TransDigm will be able to raise any necessary funds on terms
acceptable to TransDigm or at all. If TransDigm incurs additional debt to
finance acquisitions, its total interest expense will increase. See "Risk
Factors--Risks Related to Potential Future Acquisitions."
TransDigm's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, including the New Notes and
the Old Notes, or to fund planned capital expenditures and research and
development will depend on their future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond their control. Based upon the current level of
operations and anticipated cost savings and revenue growth, management believes
that cash flow from operations and available cash, together with available
borrowings under the New Credit Facility, will be adequate to meet TransDigm's
future liquidity needs for at least the next few years. TransDigm may, however,
need to refinance all or a portion of the principal of the New Notes and the Old
Notes on or prior to maturity. There can be no assurance that TransDigm's
business will generate sufficient cash flow from operations, that anticipated
revenue growth and operating improvements will be realized or that future
borrowings will be available under the New Credit Facility in an amount
sufficient to enable TransDigm to service its indebtedness, including the New
Notes and the Old Notes, or to fund its other liquidity needs. In addition,
there can be no assurance that TransDigm will be able to effect any such
refinancing on commercially reasonable terms or at all. See the "Risk Factors"
section.
BACKLOG
Management believes that sales order backlog (i.e. orders for products that
have not yet been shipped) is a useful indicator of sales to OEMs. As of January
1, 1999, TransDigm estimated its sales order backlog at $45.9 million compared
to an estimated $43.7 million as of December 26, 1997. The majority of the
purchase orders outstanding as of January 1, 1999 are scheduled for delivery
within the next twelve months. Purchase orders are generally subject to
cancellation by the customer prior to shipment. The level of unfilled purchase
orders at any given date during the year will be materially affected by the
timing of TransDigm's receipt of purchase orders and the speed with which those
orders are filled. Accordingly TransDigm's backlog as of January 1, 1999 is not
necessarily indicative of actual shipments or sales for any future period, and
period-to-period comparisons may not be meaningful.
FOREIGN OPERATIONS
TransDigm manufactures virtually all of its products in the United States.
However, a significant portion of TransDigm's current sales are conducted
abroad. Approximately 16%, 20%, and 20% of TransDigm's net sales in fiscal 1998,
fiscal 1997, and fiscal 1996, respectively, were made directly to foreign
end-users. These sales are subject to numerous additional risks, including the
impact of foreign government regulations, currency fluctuations, political
uncertainties and differences in business practices. There can be no assurance
that foreign governments will not adopt regulations or take other action that
would have a direct or indirect adverse impact on the business or market
opportunities of TransDigm within such governments' countries. Furthermore,
there can be no assurance that the political, cultural and economic climate
outside the United States will be favorable to TransDigm's operations and growth
strategy.
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INFLATION
Many of TransDigm's raw materials and operating expenses are sensitive to
the effects of inflation, which could result in higher operating costs. The
effects of inflation on TransDigm's businesses during fiscal 1998, 1997 and 1996
were not significant.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. TransDigm adopted this standard
during the first quarter of fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. TransDigm will adopt this standard for its fiscal 1999
year-end financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employer's Disclosures about Pensions and Other Postretirement Benefits."
The statement requires an enterprise to disclose certain information in its
year-end financial statements about its pension and postretirement benefits,
including a reconciliation of beginning and ending balances of the benefit
obligation, the funded status of the plans, and the amount of net periodic
benefit cost recognized. TransDigm will adopt this standard in fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. TransDigm will adopt this
standard during fiscal 2000.
While management has not completed its analysis of these new accounting
standards contained in SFAS No. 131, SFAS No. 132 and SFAS No. 133, the adoption
of these standards is not expected to have a material effect on TransDigm's
financial statements.
IMPACT OF YEAR 2000 ISSUE
TransDigm has completed a review of its information technology systems in
the Waco, Texas site and is completing a review of its information technology
systems in the Los Angeles, California site and the Cleveland, Ohio site.
TransDigm is also completing a review of its embedded systems at each of the
three sites, in order to assess its exposure to Year 2000 issues. These reviews,
including testing and verification, will be completed internally. Management
anticipates that these reviews, including testing and verification will be
completed by June 1999. Prior to the acquisition of ZMP, ZMP represented to
TransDigm that the review of Adams Rite Aerospace's information technology
systems and embedded systems have been completed and that it believes the plan
to make those systems Year 2000 compliant can be fully implemented by December
1999. However, TransDigm has not initiated its independent review of Adams Rite
Aerospace's information technology systems or embedded systems. Although
management believes that any repairs necessary to make their embedded systems
Year 2000 compliant
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can be completed internally, until TransDigm has completed its review, testing
and verification of its embedded systems, TransDigm will not be in a position to
assess the extent of repairs that will be required or the parts that will need
to be replaced in order to make its embedded systems Year 2000 compliant.
TransDigm purchased all of its computer software from third party vendors and is
relying on those vendors to make their software Year 2000 compliant. Except for
the vendor of its e-mail system, those vendors have provided TransDigm with
third party certifications that their systems are Year 2000 compliant.
TransDigm has distributed questionnaires to assess the Year 2000 compliance
of its suppliers and customers; including various agencies of the United States
government. However, TransDigm has not currently gathered sufficient data to
determine to what extent those suppliers and customers are Year 2000 compliant.
Prior to the acquisition of ZMP, ZMP represented to TransDigm that it has
received confirmation from the material suppliers and customers of Adams Rite
Aerospace of their respective Year 2000 compliance.
In the event that Year 2000 problems arise within TransDigm or that its
significant suppliers or customers, including various agencies of the United
States government, do not successfully and timely achieve Year 2000 compliance,
the result may be a delay in its receiving orders and collecting payments,
leading to a temporary loss of revenue. TransDigm has incurred $180,000 in costs
associated with Year 2000 compliance and, excluding Adams Rite Aerospace,
anticipates incurring $150,000 of additional costs in the future. Because
TransDigm has not independently reviewed the information technology systems and
the embedded systems of Adams Rite Aerospace, management does not currently have
adequate data to estimate the additional cost that may have to be incurred by
TransDigm in order to make Adams Rite Aerospace's systems Year 2000 compliant.
However, since the anticipated additional cost reflects the cost of the review,
testing, verification and repair to be completed internally, TransDigm has not
allocated such cost between its embedded systems and its information technology
systems. TransDigm may, however, have to bear further Year 2000 costs and
expenses which could have a material adverse effect on its business.
TransDigm has no formal contingency plan in the event Year 2000 problems
arise with respect to its information technology systems; however, TransDigm's
accounting and business information systems are not complex and manual
procedures could be performed for a period of time to provide the information
necessary to continue to operate the business. In the event that Year 2000
problems arise within our embedded systems, TransDigm intends to employ their
existing subcontractor machinists to manufacture the affected components.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of TransDigm's outstanding indebtedness at September 30, 1998 was repaid
in connection with the Merger and Recapitalization. At January 1, 1999,
TransDigm is subject to interest rate risk with respect to borrowings under its
New Credit Facility as the interest rates on such borrowings vary with market
conditions and, thus, the amount of outstanding borrowings approximates the fair
value of the indebtedness. On a historical basis, the weighted average interest
rate on the $91.0 million of borrowings outstanding under the New Credit
Facility at January 1, 1999 was 8.75%. Also outstanding at January 1, 1999 was
$125.0 million of TransDigm indebtedness in the form of the Old Notes and $20.0
million of Holdings PIK Notes. The interest rates on both of these borrowings
are fixed at 10 3/8% and 12% per year, respectively. Although management
believes that the fair value of these debt obligations approximates their
outstanding balance at January 1, 1999, the effect of a hypothetical one
percentage point decrease in interest rates would increase the estimated fair
value of the borrowings by $13.2 million and $2.4 million, respectively.
The acquisition of ZMP, including all of its outstanding common stock, on
April 23, 1999 and the related expenses were funded entirely through $42 million
of additional borrowings under the New Credit Facility. The weighted average
interest rate on all borrowings outstanding under the New Credit Facility on
April 23, 1999 was 8.50%. The effect of a hypothetical one percentage point
decrease in interest rates would increase the estimated fair value of the
borrowings outstanding under the New Credit Facility on April 23, 1999 by
approximately $6 million.
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BUSINESS
THE COMPANY
TransDigm is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. TransDigm sells its products
to commercial airlines, aircraft maintenance facilities, aircraft OEMs and to
various agencies of the United States government. TransDigm generates most of
its EBITDA, As Defined, from sales of replacement parts in the aftermarket
including sales to airlines. This is because most of TransDigm's OEM sales are
on an exclusive sole source basis; therefore, in most cases, TransDigm is the
only certified provider of these parts in the aftermarket. Because aftermarket
parts sales are driven by the size of the worldwide aircraft fleet, they are
relatively stable and generate recurring revenues over the life of an aircraft
that are many times the size of the original OEM purchases. In addition, because
TransDigm has over 40 years of experience in most of its product lines, it
benefits from a large and growing installed base of aircraft. For fiscal 1998 on
a pro forma basis as if the Transactions had occurred on October 1, 1997,
TransDigm would have generated net sales, operating income and EBITDA, As
Defined, of $145.0 million, $39.3 million and $49.0 million, respectively. For
the thirteen weeks ended January 1, 1999 on a pro forma basis as if the
Transactions had occurred on October 1, 1998, TransDigm would have generated net
sales, operating income and EBITDA, As Defined, of $37.9 million, $10.3 million
and $12.8 million, respectively.
TransDigm differentiates itself based on its engineering and manufacturing
capabilities, and typically will not bid on non-proprietary "build to print"
business. TransDigm has developed strong product brand names within the airline
industry and a reputation for high quality, reliability and customer service.
TransDigm focuses on developing highly customized products to solve specific
problems of aircraft operators and manufacturers. Management estimates that over
80% of the TransDigm's products are of proprietary design. TransDigm provides
its products to commercial airlines, such as United Airlines and Continental
Airlines, large commercial transport and regional and business aircraft OEMs
such as Boeing, Bombardier and Cessna and various agencies of the United States
government. While aftermarket and OEM sales each typically account for
approximately half of Transdigm's revenues, aftermarket sales typically carry a
substantially higher gross margin than sales to OEMs.
TransDigm is comprised of four business units: (1) AdelWiggins, (2)
AeroControlex, (3) Marathon, and (4) Adams Rite Aerospace, each of which has a
long history in the aircraft components industry. AdelWiggins manufactures an
extensive line of fuel and hydraulic system connectors and specialized clamps,
heaters and refueling systems. AeroControlex manufactures customized fuel pumps,
compressors, valves, couplings and mechanical and electromechanical controls.
Adams Rite Aerospace manufactures mechanical hardware, fluid controls, lavatory
hardware, electromechanical controls and oxygen systems related products.
Marathon manufactures nickel cadmium batteries and static inverters. Marathon
and ZMP, the corporate parent of Adams Rite Aerospace, were acquired in August
1997 and April 1999, respectively as a strategic complement to the AdelWiggins
and AeroControlex businesses.
TransDigm was formed in 1993 through a management-led buyout of IMO. Since
its formation, TransDigm has successfully established leadership positions in
well-defined, profitable niches of the aircraft components market that it
believes offer sustainable growth opportunities.
INDUSTRY OVERVIEW
The aircraft components industry is highly fragmented, consisting of a large
number of small, specialized companies and a limited number of well-capitalized
companies. TransDigm competes in niche individual aircraft component markets
that it estimates range in size from $10 million to $100 million in annual
revenues. TransDigm believes that the small size of its markets, combined with
the industry's stringent regulatory approvals and the need to make significant
investments in research
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and development reduces the risk of new entrants. Management believes
TransDigm's markets are too small to attract large aerospace companies. In
addition, management believes the financial resources and technical expertise
required to compete in these markets are beyond the reach of most small
companies. Finally all potential competitors must meet the certification
requirements and qualification approvals required by the FAA and aircraft OEMs.
AFTERMARKET
Aircraft components need to be serviced regularly to meet FAA standards and
aircraft reliability requirements. Demand for aftermarket parts depends on
revenue passenger miles and, to a lesser extent, on airline profitability, each
of which has historically been correlated with changes in general economic
conditions, and the size and age of the worldwide aircraft fleet. Since certain
modern aircraft can have useful lives of 30 years or more, spare parts and
repair and overhaul services can often generate more sales than the OEM program
at significantly higher margins. Management further believes that aftermarket
sales help to offset declines in OEM demand as historically airlines and air
cargo operators have increased repair and overhaul spending to prolong the life
of older aircraft when they delay purchasing new aircraft. Customers in the
aftermarket segment include airlines, air cargo operators, aircraft leasing
companies, corporate and individual owners of aircraft as well as maintenance,
repair and overhaul facilities and various agencies of the United States
government, including the military. Management believes that aftermarket sales
will continue to be an attractive market as a result of the following factors:
- - Air travel traffic continues to increase. In the United States, large
commercial transport revenue passenger miles have increased from approximately
431 billion in 1987 to approximately 604 billion in 1997, with 1991
representing the only year in the last ten years in which annual revenue
passenger miles decreased. On a worldwide basis, revenue passenger miles have
increased from approximately 978 billion in 1985 to 1,719 billion in 1996.
- - Total aircraft fleet size has continued to increase despite the volatility of
orders and deliveries. At the end of 1997 the large commercial aircraft fleet
consisted of approximately 11,900 aircraft, a 4.5% compound annual increase
from approximately 7,700 aircraft in 1987. Similarly, the regional aircraft
fleet, which consists of turbo-prop and jet aircraft, has increased from
approximately 4,900 units in 1987 to approximately 7,500 units in 1997 and the
business aircraft fleet has increased from approximately 6,100 units in 1987
to approximately 8,700 units in 1997.
- - Aircraft capacity utilization remains at high levels. Passenger load factors,
measured as the percentage of occupied seats per flight, for U.S. carriers
have increased from 62% in 1987 to 68% in 1996, a record for the industry.
During 1997, carriers achieved 69% load factors on a worldwide basis.
OEM
Demand for OEM components depends on new aircraft deliveries. Demand for new
aircraft is a function of (1) demand for air travel, (2) aircraft operator
profitability, (3) fleet age, (4) regulatory mandates such as noise reduction,
and (5) the lag time between order and delivery, which causes airlines to order
aircraft according to perceived future need.
- - In the early 1990's, many airlines significantly reduced spending on new
aircraft and extended the average age of their fleets due to weakened
financial performance. With the return of airline profitability, commercial
OEMs have experienced a surge in aircraft orders and deliveries which resulted
in large commercial transport deliveries growing from a low of 370 aircraft in
1995 to estimated 774 aircraft by the end of 1998.
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- - The regional jet aircraft market has grown significantly in recent years as
turbo-jet powered aircraft have made substantial inroads in a market
traditionally served by the turboprop powered aircraft and some smaller
commercial transports. Regional jets have greater range, faster speed and
lower noise levels and are perceived as safer and more comfortable by
passengers. U.S. regional revenue passenger miles have increased from
approximately 4.0 billion miles in 1987 to approximately 7.7 billion miles in
1996. Regional aircraft deliveries have increased significantly to 115 in 1997
since their introduction in 1988. Industry forecasts by the U.S. Regional
Airline Association concluded that approximately 1,280 regional and commuter
aircraft will be delivered between 1998 and 2008.
- - The business jet market is driven by, among other factors, the increasing
popularity of fractional ownership and the increasing demand for more
expedient and convenient travel. Deliveries of executive jets have increased
significantly since 1987.
- - The FAA has mandated that aircraft flying in U.S. airspace comply with Stage 3
noise standards by December 31, 1999. Other countries, particularly in Western
Europe, have instituted similar restrictions. As a result, it is expected that
there will be an increased demand for aircraft during the next several years
as the aircraft which are not retrofitted with "hush kits" are replaced.
- - While military spending for new aircraft has significantly declined with the
end of the cold war, military parts and repair spending has been relatively
stable for the last several years as existing platforms require parts to
remain operational.
COMPETITIVE STRENGTHS
TransDigm believes that its key competitive strengths are:
- - LARGE INSTALLED PRODUCT BASE AND RECURRING REVENUE STREAM. Management believes
that approximately 70% of TransDigm's sales are derived from parts for which
it has achieved sole source designation and approximately 80% of TransDigm's
products are of proprietary design. As a result, TransDigm has a large and
growing installed base of products on large commercial transport and regional,
business and military platforms. This installed base affords TransDigm the
opportunity to capture a long-term stream of highly profitable aftermarket
revenues. Over the life of an aircraft, sales of replacement parts can
generate revenues many times the size of the original OEM purchases.
Aftermarket sales generate most of TransDigm's EBITDA, As Defined, because
they typically carry gross margins that are significantly higher than those
generated from OEM sales.
- - PROVEN ABILITY TO DEVELOP NEW PRODUCTS. TransDigm has a successful record of
introducing solutions-oriented products. TransDigm works closely with aircraft
operators and OEMs to identify their unmet needs, such as a component that
fails to meet performance expectations or that requires excessive maintenance.
TransDigm then utilizes its engineering and design capabilities to develop a
prototype for a component that increases the value of the product to the
customer. After rigorous testing requirements have been fulfilled and
TransDigm has obtained necessary regulatory approvals, the product is made
available for sale in the aftermarket and to OEMs. Management believes that
its ability to successfully develop new products has contributed to its
significant growth.
- - DIVERSIFIED BUSINESS MIX. TransDigm's business is fairly evenly distributed
between sales in the aftermarket and sales to OEMs. Each of these segments are
further distributed among the large commercial transport and regional,
business and military aircraft markets. As a result, TransDigm is not overly
dependent on any one segment, with the large commercial transport OEM market
accounting for less than 20% of sales in fiscal 1998 and the thirteen weeks
ended January 1, 1999.
- - LEADING POSITIONS IN NICHE MARKETS. With over 40 years of experience in most
of its product lines, TransDigm has well-established and highly regarded
products and trade names, such as "Adel," "Wiggins," "Controlex," "Marathon"
and "SuperPower," and is a leader in many of its product lines.
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For example, TransDigm believes that it is the leading supplier of tube
connectors for use in the flexible fluid systems found on most aircraft
platforms.
- - EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. TransDigm's management team
collectively has over 125 years of industry experience and brings a
disciplined approach to the business. Management has a proven track record of
consolidating operations, reducing overhead and rationalizing costs. Since
TransDigm was created in 1993, management has successfully integrated four
distinct operating divisions and formed AdelWiggins and AeroControlex. Most
recently management has successfully integrated Marathon into TransDigm. The
management team has dramatically improved the operating performance and
strategic position of TransDigm. EBITDA, As Defined, margins have improved
from 19.0% in fiscal 1994 to 39.3% in fiscal 1998. In addition, management
owns approximately 12.5% of the capital stock of Holdings on a fully diluted
basis, which amount is subject to an increase to approximately 21.3% if
certain performance targets are met.
BUSINESS STRATEGY
Key elements of TransDigm's strategy are:
- - PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. TransDigm will continue to focus on
marketing and manufacturing highly engineered products to customers that place
a premium on TransDigm capabilities. TransDigm has been effective in
communicating to aircraft operators the value of TransDigm's products in terms
of cost savings generated by their greater reliability and performance and
reduced maintenance requirements. TransDigm's reputation for quality and sole
supplier status for many parts has allowed it to achieve substantial gross
margins on its aftermarket products. TransDigm intends to continue to develop
and market high value added products that carry higher gross margins by
emphasizing their benefits to the customer.
- - GENERATE NEW BUSINESS INITIATIVES. TransDigm has been successful in
identifying and commercializing new business opportunities to drive revenue
growth. TransDigm has been particularly effective in creating aftermarket
opportunities by developing superior products to retrofit aircraft already in
service. New business has contributed significantly to TransDigm's 14%
compound annual net sales growth rate, excluding Marathon's net sales growth,
since fiscal 1994, which TransDigm believes is well in excess of the industry
average growth rate during the same period. TransDigm intends to continue to
aggressively pursue growth opportunities through its new business initiatives.
- - REALIZE PRODUCTIVITY SAVINGS. Management will continue to focus on improving
operating margins through manufacturing improvements and increases in employee
productivity. Management has achieved significant increases in productivity
since fiscal 1994. Manufacturing facilities have been rationalized and
manufacturing and other business practices have been redesigned to maximize
efficiency. For example, TransDigm encourages its employees through
performance incentives to learn to operate multiple manufacturing stations in
order to minimize overall labor costs. This initiative and others like it have
enabled TransDigm to significantly increase sales without material increases
in headcount.
- - PURSUE STRATEGIC ACQUISITIONS. TransDigm intends to aggressively pursue
acquisitions where it believes that it can enhance value, reduce costs and
develop new business. The aircraft component industry is highly fragmented,
with many of the companies in the industry being owned by small operators.
TransDigm believes the industry is experiencing consolidation due to customer
requirements, inherent economies of scale and technological advancements that
favor more sophisticated competitors. TransDigm completed the Marathon
acquisition and the acquisition of ZMP in August 1997 and April 1999,
respectively. TransDigm regularly engages in discussions with respect to other
acquisition and investment opportunities. See the section "Risk Factors" under
the heading "Risk Related to Potential Future Acquisitions."
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OPERATING GROUPS
TransDigm was formed in 1993 through a management-led buyout of IMO.
TransDigm operates four business units: Adelwiggins, AeroControlex, Marathon and
Adams Rite Aerospace. AdelWiggins, which is located in Los Angeles, CA and had
177 full time employees at September 30, 1998, manufactures an extensive line of
proprietary fuel and hydraulic system connectors and specialized clamps, heaters
and refueling systems. AdelWiggins was formed in 1994 from the consolidation of
the Adel Fasteners and Wiggins Connectors divisions acquired from IMO. Founded
in 1938 and 1925, respectively, both Adel Fasteners and Wiggins Connectors have
had a long history in the aircraft components industry and enjoy strong brand
name recognition.
AeroControlex, which is located in Cleveland, OH and had 183 full-time
employees at September 30, 1998, manufactures proprietary pumps, compressors,
valves, couplings and mechanical controls for commercial and military aircraft
and marine applications. AeroControlex was formed in 1994 from the consolidation
of the Aeroproducts and Controlex divisions acquired from IMO.
Marathon, which is located in Waco, TX and had 178 full-time employees at
September 30, 1998, was acquired by TransDigm in August 1997 as a strategic
addition to its AdelWiggins and AeroControlex business lines. Marathon has been
a leading manufacturer of nickel-cadmium batteries and static inverters to the
aerospace industry since its founding in 1923. Management has successfully
integrated the Marathon business unit into the TransDigm culture and believes
that, over the next several years, Marathon offers upside potential similar to
that achieved with the integration of AdelWiggins and AeroControlex.
Adams Rite Aerospace, which is located in Fullerton, CA and had 253
employees at April 24, 1998, was acquired in April 1999 as a strategic addition
to TransDigm's other three business lines. Adams Rite Aerospace is a leading
manufacturer of mechanical hardware, fluid controls, lavatory hardware,
electromechanical controls and oxygen systems related products and sells its
products to substantially the same customer base, primarily on a sole source
basis, as that of TransDigm's other three business lines.
PRODUCTS
TransDigm's products are found on virtually all types of aircraft, and
TransDigm supplies components to all major domestic and international airlines.
Management estimates that over 80% of TransDigm's products are of proprietary
design and approximately 70% of TransDigm's sales are derived from parts for
which it has achieved sole source designation. TransDigm's products are grouped
into fifteen major product lines, each of which is profitable and is operated as
a semiautonomous business unit.
Much of TransDigm's recent success has been due to its identification and
development of new products for sale in the commercial aftermarket. TransDigm
works closely with customers to identify their unmet needs, such as a component
that fails to meet performance expectations or that requires excessive
maintenance. TransDigm then utilizes its engineering and design capabilities to
develop a prototype for a component that increases value of the product to the
customer. After rigorous testing requirements have been fulfilled and TransDigm
has obtained necessary regulatory approvals, the product is made available for
sale in the aftermarket and to OEMs.
ADELWIGGINS. Adelwiggins manufactures over 8,000 SKUs, representing 40% of
TransDigm's sales for fiscal 1998, which constitute five of TransDigm's fifteen
major product lines: (A) flexible tube connectors, (B) special connectors, (C)
Adel clamps, (D) Wiggins service systems and (E) heaters and hoses. Tube
connectors are fluid line connectors that provide leak tight joints and are
found in flexible fluid systems on most aircraft platforms including fuel,
water, waste and environmental systems. Special connectors are connectors
designed to allow breaking and reconnecting of fluid lines under pressure
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and are found in quick disconnect applications including refueling and other
fluid management systems for military, space and rocket launch applications and
in frangible connectors for large commercial transports. Adel clamps include
cushioned clamps, engineered elastomers, bare metal clamps, clampshells, block
clamps and quick release clamps used to support fuel, hydraulic, fluid and
electric lines and are found in a broad variety of clamps located throughout the
airplane, including in engines to address high temperature and high vibration
requirements. Wiggins service systems include proprietary refueling nozzles and
systems, vents, receivers and quick disconnects and are found in mine refueling
equipment and military applications such as tanks and armored vehicles that
require high flow capabilities and universal compatibility. Heaters and hoses
consists of specialized hoses and heaters, including blanket and ribbon heaters,
heater cuffs, heated nipples and gaskets and heated tanks throughout the
aircraft and are designed to prevent freezing of fluids such as potable water
and waste and to provide heat for hot water service applications.
AdelWiggins designs its products specifically to meet the engineering
requirements of its customers, focusing on aspects such as: reduced-profile or
low-profile geometry, broad ranges of high-temperature service, ease of
installation and, where possible, utilization of advanced materials to maximize
the strength-to-weight ratios of its components. These factors are critical to
both OEMs and commercial airlines given their emphasis on reducing both
acquisition and operating costs. In addition, TransDigm believes AdelWiggins'
products have a reputation for long service lives and extremely high reliability
in stressful operating environments.
Approximately 60% of AdelWiggins' products are proprietary products designed
to meet specific customer needs. The remaining 40% are industry standard
designs. Roughly 55% of AdelWiggins' products are sole sourced, which is
advantageous to TransDigm because it creates significant switching costs
associated with the development and qualification of alternative engineered
solutions. This sole sourced status has contributed to AdelWiggins achieving
aftermarket sales of 30% of its net sales in fiscal 1998. See
"Business--Customers."
AEROCONTROLEX. AeroControlex manufactures over 13,000 SKUs, representing
39% of TransDigm's sales for fiscal 1998, which constitute three of TransDigm's
fifteen major product lines: (A) mechanical controls, (B) pumps and (C) valves
and quick disconnects. Mechanical controls include electromechanical control
systems, sliding and ball bearing control cables and gearboxes which are found
in the lavatory drain, throttle control, engine feedback, landing gear release
and in ejection seats and fuel and air systems. Pumps primarily include gear
pumps which are found in hydraulic and fuel systems applications. Valves and
quick disconnects include fuel and air system valves, compressors and quick
disconnects which are found in air conditioning packages and fuel, radar and
potable water systems.
AeroControlex designs, manufactures and sells pumps, compressors, valves,
couplings and mechanical controls primarily for the commercial and military
aircraft markets. AeroControlex has developed a reputation for providing
high-quality, reliable products consistently delivered on time. AeroControlex
works closely with customers to leverage its engineering expertise to create
technical solutions to customer-specific problems. About 95% of AeroControlex
products are proprietary and over 90% are sold on a sole-source basis, which is
advantageous to TransDigm because its creates significant switching costs
associated with the development and qualification of alternative engineered
solutions. This sole sourced status has contributed to AeroControlex achieving
aftermarket sales of 68% of its net sales in fiscal 1998. See
"Business--Customers."
MARATHON. Marathon manufactures over 5,000 SKUs, representing 21% of
TransDigm's sales for fiscal 1998, which constitute three of TransDigm's fifteen
major product lines: (A) vented cell nickel-cadmium batteries, (B) static
inverters and (C) sealed cell nickel-cadmium batteries. Vented cell nickel-
cadmium batteries and sealed cell batteries are used for engine starting and
emergency power aboard various aircraft while static inverters convert direct
current to alternating current for use in applications
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such as flight instrumentation and communication. Marathon products are used for
numerous military applications, such as the F-16, F-18, Blackhawk, Apache and
Cobra programs. Approximately 50% of Marathon's products have achieved sole
sourcing status with its customers.
Marathon is one of the worlds leading manufacturers of vented cell
nickel-cadmium batteries, which require frequent maintenance, as individual
cells within a battery are replaced throughout the life of the battery.
Marathon, which manufactures and sells both entire batteries and individual
cells, realizes replacement revenue in the aftermarket throughout the life of
the battery as a result of its position as a sole source supplier of products
that accounted for over 50% of its sales. Over 95% of Marathon's sales are
proprietary, the status of which has contributed to Marathon achieving
aftermarket sales of 69% of its net sales in fiscal 1998. Vented cell batteries
are marketed under the Marathon-TM- and SuperPower-TM- brand names.
ADAMS RITE AEROSPACE. Adams Rite Aerospace manufactures over 6,000 SKUs,
which constitute four of TransDigm's fifteen major product lines: (A) mechanical
hardware, (B) fluid control products, (C) electromechanical control products and
(D) oxygen systems related products. Mechanical hardware include hardware
installed inside the aircraft, such as overhead stowage bin latches, lavatory
indicator and door latches, seat control cables and decompression latches, and
hardware installed outside of the aircraft, such as door bolting systems. Fluid
control products include various aircraft water system components, such as
spigots, soap dispensers and water shut-off valves as well as entire
self-contained water systems. Electromechanical control products include
throttle quadrants, control wheels, electric strikes, speed brake controls and a
variety of handle grips. Oxygen systems related products include oxygen
cylinders, masks, reducers and control panels.
SALES AND MARKETING
Consistent with TransDigm's overall strategy, TransDigm's sales and
marketing organization is structured to understand and anticipate the needs of
customers in order to continually develop a stream of technical solutions that
generate significant value. Particular focus is on the high-margin, repeatable
aftermarket segment.
TransDigm has structured AdelWiggins', AeroControlex's and Marathon's sales
efforts along their collective eleven major product lines, assigning a Product
Line Manager to each line. Management anticipates that Adams Rite Aerospace's
sales efforts will be structured in a similar fashion. The Product Line Managers
are expected to grow the sales and profitability of their product line faster
than the served market and to achieve the targeted annual level of booking,
sales, new business and profitability for each product. Assisting the Product
Line Managers are Account Managers and Sales Engineers who are responsible for
covering both major OEM and airline accounts. They are expected to be familiar
with the personnel, organization and needs of specific customers, for achieving
total bookings and new business goals at each account, and, in conjunction with
the Product Line Managers, for determining when additional resources are
required at customer locations. All of TransDigm's sales personnel are
compensated in part on their bookings and sales and ability to identify and
convert new business opportunities.
Though the majority are employees, the Account Manager function may be
performed by independent representatives depending on the specific customer,
product and geographic location. TransDigm also uses a limited number of
distributors to provide logistical support as well as primary customer contact
with certain smaller accounts. TransDigm's largest distributor is Aviall, which
provides logistic services to the commercial airlines.
MANUFACTURING AND ENGINEERING
TransDigm maintains four manufacturing facilities. Each facility serves its
respective operating group, and comprises manufacturing, distribution and
engineering as well as corporate functions,
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including management, sales and finance. The AdelWiggins, AeroControlex,
Marathon and Adams Rite Aerospace facilities encompass approximately 105,000,
44,000, 150,000 and 100,000 square feet of manufacturing space in Los Angeles,
California, Cleveland, Ohio, Waco, Texas and Fullerton, California,
respectively. In the last several years, management has taken a number of steps
to improve productivity and reduce costs, including consolidating operations,
developing improved control systems that allow for accurate product line profit
and loss accounting, investing in equipment and tooling, installing modern
information systems and implementing a broad-based employee training program.
Management believes that TransDigm's manufacturing systems and equipment are
critical competitive factors that permit it to meet the rigorous tolerances and
cost sensitive price structure of aircraft customers. TransDigm concentrates in
manufacturing by product line, alternating its equipment among designs as demand
requires. TransDigm is in the process of applying its proven manufacturing
strategy to the Marathon facility, where its expects to be able to substantially
improve Marathon's performance.
Each of TransDigm's operating groups attempts to differentiate itself from
its competitors by producing highly engineered products at a low cost.
TransDigm's proprietary products are designed by its engineering staff and
intended to serve an unmet need in the aircraft component industry, particularly
through its new product initiatives. See "--Products." These proprietary designs
must withstand the extraordinary conditions and stresses that will be endured by
products during use and meet the rigorous demands of TransDigm's customers
tolerance and quality requirements.
TransDigm uses sophisticated equipment and procedures to ensure the quality
of its products and to comply with military specifications and FAA and OEM
certification requirements. TransDigm performs a variety of testing procedures,
including testing under different temperature, humidity and altitude levels,
shock and vibration testing and X-ray fluorescent measurement. These procedures,
together with other customer approved techniques for document, process and
quality control, are used throughout TransDigm's manufacturing facilities.
CUSTOMERS
TransDigm's customers include (A) commercial airlines, including national
and regional airlines, particularly for aftermarket MRO components, (B) large
commercial transport and regional and business aircraft OEMs, (C) various
agencies of the United States' government, including the United States military,
and (D) various other industrial customers. TransDigm's three largest customers
for fiscal 1998, were Aviall, a distributor of aftermarket parts to airlines
throughout the world, Boeing which includes, McDonnell Douglas, and various
agencies of the United States' government, which accounted for approximately
20%, 14% and 9%, respectively, of TransDigm's net sales in fiscal 1998.
TransDigm's top ten customers accounted for approximately 61% of TransDigm's net
sales for fiscal 1998.
TransDigm has strong customer relationships with virtually all important
large commercial transport, general aviation and military OEMs. The demand for
TransDigm's aftermarket parts and services is related to TransDigm's extensive
installed base and to revenue passenger miles and, to a lesser extent, to
airline profitability and the size and age of the worldwide aircraft fleet. See
"Business--Industry Overview." Some of TransDigm's business is executed under
long-term agreements with customers which encompass many products under a common
agreement. See "Risk Factors-- Customer Contracts." TransDigm is also a leading
supplier of components used on United States' designed military aircraft.
TransDigm's products are used on a variety of fighter aircraft, and helicopters.
Military aircraft using TransDigm's products include the Lockheed F-15 and F-16,
the E2C (Hawkeye) and Blackhawk and Apache helicopters.
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COMPETITION
TransDigm competes with a number of established companies, including
divisions of larger companies, that have significantly greater financial,
technological and marketing resources than TransDigm. The niche markets within
the aerospace industry served by TransDigm are relatively fragmented with
several competitors for each of the products and services provided by each of
AdelWiggins, AeroControlex and Marathon. Due to the global nature of the
commercial aircraft industry, competition in these categories comes from both
U.S. and foreign companies. However, TransDigm knows of no single competitor
that provides the same range of products and services as those provided by
TransDigm. Competitors in TransDigm's product lines range in size from divisions
of large corporations to small privately held entitles, with only one or two
components in their entire product line. Some of TransDigm's competitors have
significantly greater financial, technological and marketing resources than
TransDigm. TransDigm believes that its ability to compete depends on high
product performance, short lead-time and timely delivery, competitive price, and
superior customer service and support. There can be no assurance that TransDigm
will be able to compete successfully with respect to these or other factors. See
"Risk Factors--Competition."
GOVERNMENTAL REGULATION
The commercial aircraft component industry is highly regulated by both the
FAA in the United States and by the Joint Aviation Authorities in Europe, while
the military aircraft component industry is governed by military quality
specifications. TransDigm, and the components it manufacturers, are required to
be certified by one or more of these entities, and, in some cases, by individual
OEMs in order to engineer and service parts and components used in specific
aircraft models. If material authorizations or approvals were revoked or
suspended, the operations of TransDigm would be adversely affected. In the
future, new and more stringent government regulations may be adopted, or
industry oversight may be heightened, which may have an adverse impact on
TransDigm.
TransDigm must also satisfy the requirements of its customers, including
OEMs and airlines, that are subject to FAA regulations, and provide these
customers with products and services that comply with the government regulations
applicable to commercial flight operations. In addition, the FAA requires that
various maintenance routines be performed on aircraft components, and TransDigm
currently satisfies or exceeds these maintenance standards in its repair and
overhaul services. Several of TransDigm's operating divisions include
FAA-approved repair stations.
TransDigm's operations are also subject to a variety of worker and community
safety laws. OSHA mandates general requirements for safe workplaces for all
employees. In addition, OSHA provides special procedures and measures for the
handling of certain hazardous and toxic substances. TransDigm believes that its
operations are in material compliance with OSHA's health and safety requirement.
RAW MATERIALS AND PATENTS
The components that TransDigm manufactures require the use of various raw
materials including titanium, aluminum, nickel powder, nickel screen, stainless
steel and cadmium, the availability and prices of which may fluctuate. The price
of raw materials and outside processing represented approximately 20% of the
sales price of the Company's products for fiscal 1998. Price increases in these
supplies may not be able to be recovered. TransDigm also purchases a variety of
manufactured component parts from various suppliers although TransDigm is
concentrating its orders among fewer suppliers to strengthen its supplier
relationships. Raw materials and component parts are generally available from
multiple suppliers at competitive prices. However, any delay in TransDigm's
ability to obtain necessary raw materials and component parts may affect its
ability to meet customer production needs.
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TransDigm has various trade secrets, proprietary information, trademarks,
trade names, patents, copyrights and other intellectual property rights which
TransDigm believes, in the aggregate but not individually, are important to its
business.
ENVIRONMENTAL MATTERS
TransDigm's operations and current and/or former facilities are subject to
federal, state and local environmental laws and to regulation by government
agencies, including the Environmental Protection Agency. Among other matters,
these regulatory authorities impose requirements that regulate the emission,
discharge, generation, management, transportation and disposal of hazardous
materials and pollutants, govern response actions to hazardous materials which
may be or have been released to the environment, and require TransDigm to obtain
and maintain permits in connection with its operations. The extensive regulatory
framework imposes significant compliance burdens and risks on TransDigm.
Although management believes that TransDigm's operations and its facilities are
in compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations thereof or the nature of TransDigm's operations will not require
TransDigm to make significant additional expenditures to ensure compliance in
the future. According to some environmental laws, a current or previous owner or
operator of real property may be liable for the costs of investigations, removal
or remediation of hazardous materials at such property. Those laws typically
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous materials. Persons who arrange,
or are deemed to have arranged, for disposal or treatment of hazardous materials
also may be liable for the costs of investigation, removal or remediation of
those substances at the disposal or treatment site, regardless of whether the
affected site is owned or operated by that person. Because TransDigm owns and/or
operates a number of facilities, and because TransDigm arranges for the disposal
of hazardous materials at many disposal sites, TransDigm may incur costs for
investigation, removal and remediation, as well as, capital costs associated
with compliance. Although those environmental costs have not been material in
the past and are not expected to be material in the future, there can be
assurance that changes in environmental laws or unexpected investigations and
clean-up costs will not be material. See "Risk Factors--Potential Exposure to
Environmental Liabilities." TransDigm does not currently contemplate material
capital expenditures for environmental compliance remediation for fiscal 1999 or
fiscal 2000.
The soil and groundwater beneath TransDigm's facility in Waco, Texas, have
been impacted by releases of hazardous materials. Because the majority of the
contaminants identified to date are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission, TransDigm does not believe
the condition of the soil and groundwater at the Waco facility will require
incurrence of material capital expenditures; however, there can be no assurance
that additional contamination will not be discovered or that the remediation
required by the Texas Natural Resources Conservation Commission will not be
material to the financial condition, results of operations or cash flows of
TransDigm.
PROPERTIES AND FACILITIES
TransDigm owns and operates a 130,000 square foot facility in Los Angeles,
California, a 63,000 square foot facility in Cleveland, Ohio and a 219,000
square foot facility in Waco, Texas which is also TransDigm's headquarters. In
addition, TransDigm leases and operates a 100,000 square foot facility in
Fullerton, California. TransDigm also leases certain of its other facilities.
Management believes that its machinery, plants and offices are in satisfactory
operating condition, and, upon completion of its planned 10,000-20,000 square
foot expansion of the AeroControlex manufacturing facility, will have sufficient
capacity to meet foreseeable future needs without incurring significant
additional capital expenditures.
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EMPLOYEES
As of September 30, 1998, TransDigm had approximately 540 full-time
employees and 45 temporary employees. Approximately 11% of TransDigm employees
were represented by the United Steelworkers Union, and approximately 19% were
represented by the United Automobile, Aerospace and Agricultural Implement
Workers of America. Collective bargaining agreements between TransDigm and these
labor unions expire on April 2002 and November 2000, respectively. TransDigm
considers its relationship with its employees generally to be satisfactory and
does not expect any difficulty in reaching new collective bargaining agreements.
LEGAL PROCEEDINGS
During the ordinary course of business, TransDigm is from time to time
threatened with, or may become a party to, legal actions and other proceedings.
While TransDigm is currently involved in some legal proceedings, management
believes the results of these proceedings will not have a material effect of the
results of operations of TransDigm, in part due to indemnification arrangements.
TransDigm believes that its potential exposure to those legal actions is
adequately covered by its aviation product and general liability insurance.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The directors, executive officers, and other key employees of TransDigm and
its subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Douglas W. Peacock................................... 60 Chairman of the Board of Directors and Chief
Executive Officer
W. Nicholas Howley................................... 46 President, Chief Operating Officer and Director
John D. Peterson, Sr. ............................... 54 President, AdelWiggins Group
Raymond F. Laubenthal................................ 37 President, AeroControlex Group
Robert S. Henderson.................................. 42 President, Marathon Power Technologies Company
Peter B. Radekevich.................................. 47 Chief Financial Officer
Stephen Berger....................................... 58 Director
Muzzafar Mirza....................................... 40 Director
William Hopkins...................................... 35 Director
Thomas R. Wall, IV................................... 40 Director
John W. Paxton....................................... 62 Director
</TABLE>
MR. PEACOCK has been Chairman of the Board and Chief Executive Officer of
TransDigm since its inception in September 1993. He is also a director of
Microporous Products, L.P. Prior to joining TransDigm, Mr. Peacock spent six
years with IMO Industries Inc. as Executive Vice President of IMO's Instruments
and Aerocomponents Group from 1991-1993, Executive Vice President of Power
Systems from 1989-1991, and managed IMO's turbomachinery business from
1987-1989. Prior to joining IMO, Mr. Peacock spent 15 years in various
managerial positions at Westinghouse Electric Corp. Mr. Peacock received a B.S.
degree in chemical engineering from Washington State and a Ph.D. in physical
chemistry from the University of Illinois. Mr. Peacock holds an Airline
Transport Pilot Rating and routinely commands flights in TransDigm's corporate
aircraft.
MR. HOWLEY has been President, Chief Operating Officer and Director of
TransDigm since the consummation of the Recapitalization. Mr. Howley served as
Executive Vice President of TransDigm and President of AeroControlex Group from
TransDigm's inception in September 1993 to the date of the consummation of the
Recapitalization. Prior to joining TransDigm, Mr. Howley served as General
Manager of IMO Industries Inc. Aeroproducts division, and Director of Finance
for the 15 divisions of IMO's Turbomachinery, Aerospace, and Power Transmission
groups. Prior to joining IMO, he held various executive positions at Lansdowne
Steel/Lansco Corp., a manufacturer of defense and oil drilling products, and the
Engineering and Construction Group of Raytheon Co. Mr. Howley received his B.S.
in engineering from Drexel University and an MBA from the Harvard University
Graduate School of Business.
MR. PETERSON has been Vice President and President of AdelWiggins Group
since June 1996. From 1990 to June 1996, Mr. Peterson was President of the
Aerospace Fastener Division of Huck
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International. Mr. Peterson received his B.S. in marketing from Western Illinois
University and an MBA from Northwestern University, Kellogg Graduate School of
Management.
MR. LAUBENTHAL has been President of AeroControlex Group since November
1998. From December 1996 until November 1998, Mr. Laubenthal served as Director
of Manufacturing and Engineering for the AeroControlex Group. From October 1993
to December 1996, Mr. Laubenthal served as Director of Manufacturing for the
AeroControlex group. Mr. Laubenthal received a B.S. degree in mechanical
engineering from Case Western Reserve University and an MBA from Northern
Illinois University.
MR. HENDERSON has been President of Marathon Power Technologies Company
since April 1997. From November 1994 until April 1997, he served as Manager of
Operations for the AdelWiggins Group. From 1991 until 1994 Mr. Henderson served
as Operations Manager at RainBird Sprinkler. Mr. Henderson received his B.A. in
mathematics from Brown University and attended the Harvard University Graduate
School of Business.
MR. RADEKEVICH has been Chief Financial Officer of TransDigm since
TransDigm's inception in September 1993. He served as Vice Chairman and Chief
Financial Officer of RDK Capital from 1990 to 1993. Prior to joining RDK
Capital, Mr. Radekevich spent 16 years with General Electric in various
executive and managerial positions in the field of operations, distribution and
finance. Mr. Radekevich holds a bachelor of administration degree from Case
Western Reserve University.
MR. BERGER has served as a Director of TransDigm since the consummation of
the Transactions. He is also currently serving as chairman of Odyssey Investment
Partners, LLC. Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was
a general partner of Odyssey Partners, LP. From 1990 to 1993, Mr. Berger served
as Chairman and CEO of FGIC, a wholly-owned subsidiary of GE Capital Corp. and
subsequently became Executive Vice President of GE Capital Corp. From 1985 to
1990, Mr. Berger was Executive Director of the Port Authority of New York and
New Jersey Mr. Berger presently serves as a member of the Board of Trustees of
Brandeis University.
MR. MIRZA has served as a Director of TransDigm since the consummation of
the Transactions. Mr. Mirza is also currently a member of Odyssey Investment
Partners, LLC and has been a principal in the private equity investing group of
Odyssey Partners, LP since 1993. From 1988 to 1993, Mr. Mirza was employed by
the merchant banking group of GE Capital Corp.
MR. HOPKINS has served as a Director of TransDigm since the consummation of
the Transactions. Mr. Hopkins is also currently a member of Odyssey Investment
Partners, LLC and has been a principal in the private equity investing group of
Odyssey Partners, LP since 1994. Prior to joining Odyssey Mr. Hopkins was a
member of the merchant banking group of GE Capital Corp.
MR. WALL joined Kelso & Company in 1983 and has served as a Managing
Director of Kelso & Company since 1990. Mr. Wall presently serves as a member of
the Board of Directors of AMF Bowling, Inc., Consolidated Vision Group, Inc.,
Cygnus Publishing, Inc., iXL Enterprises, Inc., Mitchell Supreme Fuel Company
Mosler Inc., Peebles, Inc., and 21st Century Newspapers, Inc.
MR. PAXTON has served as a Director of TransDigm since the consumation of
the Transactions. Mr. Paxton is also currently chairman of Odyssey Industrial
Technologies, LLC, which is a joint venture with Odyssey Investment Partners,
LLC and Chairman of the Board, President and Chief Executive Officer of Telxon
Corporation. Prior to joining TransDigm as a Director, Mr. Paxton was a member
of the Board of Directors of Paxar Corporation ('Paxar") and President of
Paxar's Printing Solution Group from October 1997 to the calendar year end 1998.
Mr. Paxton served as President and Chief Executive Officer of Monarch Marking
Systems from October 1995 to October 1997. Prior to joining Monarch Marking
Systems, Mr. Paxton joined Litton Industries ("Litton") as a Corporate Vice
President in 1991 when Litton acquired Intermec Corporation. During his years at
Litton, Mr. Paxton had responsibility
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for the Industrial Automation Group. He became Corporate Executive Vice
President and Chief Operating Officer of the Industrial Automation Systems group
of Western Atlas, Inc. when Western Atlas, Inc. was spun off by Litton in March
1994. Mr. Paxton presently serves as a member of the Board of Directors of AIM,
National Association of Manufacturers, World Economic Forum and Telxon
Corporation.
BOARD COMMITTEES
Holdings' Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee, which is comprised of Messrs. Berger,
Mirza and Hopkins, establishes salaries, incentives and other forms of
compensation for executive officers and administers incentive compensation and
benefit plans provided for employees. The Audit Committee, which is comprised of
Messrs. Berger, Mirza and Hopkins, reviews Holdings' and TransDigm's audit
policies and oversees the engagement of the Holdings' and TransDigm's
independent auditors.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by
TransDigm for services rendered during fiscal 1998, 1997 and 1996 to the Chief
Executive Officer of TransDigm and each of the four other most highly paid
executive officers of TransDigm (collectively the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------- UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) SARS COMPENSATION
- --------------------------------------- ----------- ---------- ------------ ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Peacock..................... 1998 $ 305,000 $ 2,857,500 $ -- -- $ 23,518(3)
Chairman of the Board 1997 290,000 220,000 -- 3,097 20,400
and CEO 1996 275,000 140,000 -- -- 20,200
W. Nicholas Howley..................... 1998 185,000 2,080,000 -- -- 14,446(4)
President, Chief Operating 1997 175,000 125,000 -- 1,900 13,316
Officer and Director 1996 165,000 85,000 -- -- 12,360
John D. Peterson, Sr................... 1998 175,000 280,000 -- -- 12,392(5)
President of AdelWiggins 1997 166,400 80,000 -- 800 14,216
Group 1996 160,000 25,000 -- -- 4,315
Robert S. Henderson.................... 1998 125,000 450,000 -- -- 10,663(6)
President of Marathon Power 1997 109,000 45,900 -- 200 6,192
Technologies Company 1996 103,000 28,800 -- 800 5,942
Peter B. Radekevich.................... 1998 113,000 196,250 -- -- 8,326(7)
Chief Financial 1997 108,000 40,000 -- 200 7,434
Officer 1996 102,000 25,000 -- 1,200 7,185
</TABLE>
- ------------------------
(1) Bonus for fiscal year 1998 includes a one-time bonus paid by Holdings in
connection with the Recapitalization.
(2) Does not include perquisites and other personal benefits because the value
of these items did not exceed the lesser of $50,000 or 10% of reported
salary and bonus of any of the listed executives.
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<PAGE>
(3) Includes $17,200 in contribution by TransDigm, as projected to calendar year
end 1998, to a plan established under Section 401(k) of the Internal Revenue
Code (the "401(k) plan") and $6,318 in company-paid life insurance.
(4) Includes $12,880 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $1,566 in company-paid life insurance.
(5) Includes $9,800 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $2,592 in company-paid life insurance.
(6) Includes $10,000 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $663 in company-paid life insurance.
(7) Includes $7,320 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $1,006 in company-paid life insurance.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES VALUE OF UNEXERCISED IN-
ACQUIRED UNDERLYING UNEXERCISED THE MONEY OPTIONS/SARS
EXERCISE ON OPTIONS/SAR AT FISCAL AT
NAME PRICE EXERCISE VALUE REALIZED YEAR-END FISCAL YEAR-END
- --------------------------- ----------- ----------- --------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Douglas W. Peacock $ 100 -- $ -- Exercisable: 9,200 Exercisable: $8,666,400
Chairman of the Board and Unexercisable: 4,200 Unexercisable: 3,956,400
CEO
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 3,097 Unexercisable: 2,189,579
W. Nicholas Howley 100 -- -- Exercisable: 6,900 Exercisable: 6,499,800
President, Chief Unexercisable: 3,150 Unexercisable: 2,967,300
Operating Officer and
Director
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 1,900 Unexercisable: 1,343,300
John D. Peterson, Sr. 200 -- -- Exercisable: 1,250 Exercisable: 1,052,500
President of AdelWiggins Unexercisable: 1,250 Unexercisable: 1,052,500
Group
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 500 Unexercisable: 353,500
Robert S. Henderson 154 -- -- Exercisable: 200 Exercisable: 177,600
President of Marathon Unexercisable: 200 Unexercisable: 177,600
Power Technologies
200 -- -- Exercisable: 200 Exercisable: 168,400
Unexercisable: 200 Unexercisable: 168,400
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 200 Unexercisable: 141,400
Peter B. Radekevich 100 -- -- Exercisable: 400 Exercisable: 376,800
Chief Financial Officer Unexercisable: 400 Unexercisable: 376,800
200 -- -- Exercisable: 200 Exercisable: 168,400
Unexercisable: 200 Unexercisable: 168,400
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 200 Unexercisable: 141,400
</TABLE>
MANAGEMENT STOCKHOLDERS AGREEMENT
Together with the consummation of the Recapitalization, Holdings, Odyssey
and the employee stockholders of Holdings, including the Named Executive
Officers (the "Management Stockholders")
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entered into a Management Stockholders' Agreement (the "Management Stockholders'
Agreement") which governs the shares of common stock of Holdings (the "Common
Stock") and options to purchase Common Stock, in each case, held by such persons
and including the Rollover Investment and new options and shares obtained in
connection with the Recapitalization, and shares acquired thereafter, including
upon exercise of options. See "--Stock Option Plan."
The Management Stockholders' Agreement provides that, except for certain
transfers to family members and family trusts, no Management Stockholder may
transfer Common Stock until the fifth anniversary of the Recapitalization, and
thereafter, any proposed transfer will be subject to Holdings' right of first
refusal.
The Management Stockholders' Agreement also provides that upon termination
of the employment of a Management Stockholder, that Management Stockholder will
have certain put rights and Holdings will have certain call rights regarding any
Common Stock or any options to purchase Common Stock, in each case, owned by him
at that time.
Upon Mr. Peacock's cessation of active service as Chief Executive Officer on
or after the third anniversary of the Recapitalization, if TransDigm has
achieved specified financial targets, he may require Holdings to repurchase up
to 80% of his Common Stock during the period, if any, for which he is serving as
non-executive Chairman of the Board. See "--Employment Agreements." Mr. Peacock
may thereafter require repurchase of the remaining 20% of his Common Stock on or
after the fifth anniversary of the Recapitalization or his later termination of
services to Holdings. Holdings will be permitted to honor its obligation to Mr.
Peacock by issuing notes under certain circumstances.
If the provisions of any law, the terms of credit and financing arrangements
or Holdings' financial circumstances would prevent Holdings from making a
repurchase of shares pursuant to the Management Stockholders' Agreement,
Holdings will not make such purchase until all such prohibitions lapse, and will
then also pay the Management Stockholder a specified rate of interest on the
repurchase price.
The Management Stockholders' Agreement further provides that in the event of
certain types of transfers of Common Stock by Odyssey the Management
Stockholders may participate in those transfers and/or Odyssey may require the
Management Stockholders to transfer their shares in those transactions, in each
case, on a pro rata basis.
Pursuant to the Management Stockholders' Agreement, the Management
Stockholders are entitled to participate on a pro rata basis with, and on the
same terms as, Odyssey in any future offering of Common Stock. Those
participation rights will lapse following a public offering of Common Stock if
the Common Stock so offered is then listed on a national exchange or if the
public offering includes 50% or more of the outstanding Common Stock that will
have been issued following the offering.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, Holdings will enter into an
employment agreement with each of Messrs. Peacock and Howley. Pursuant to the
agreement with Mr. Peacock, Mr. Peacock will continue to serve as Chairman of
the Board and Chief Executive Officer for a period of at least five years,
provided that after three years, Mr. Peacock may elect to continue his service
either as Chief Executive Officer or as a non-executive Chairman. It is intended
that Mr. Howley will be Mr. Peacock's successor. Pursuant to the agreement with
Mr. Howley, Mr. Howley will continue to serve as President and Chief Operating
Officer of Holdings for a period of at least five years. Those employment
agreements also will provide specified severance benefits in the event of
termination of employment under certain circumstances.
Each of those employment agreements will provide that in the event the
respective executive's employment terminates by reason of death, disability,
termination without "cause" or resignation with
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<PAGE>
"good reason" (all as defined in those employment agreements), Holdings will
continue payment of base salary, bonus and other perquisites and benefits, in
the case of Mr. Howley, for 15 months thereafter and, in the case of Mr.
Peacock, for 18 months thereafter or, if terminated prior to the third
anniversary of the Recapitalization, until such third anniversary, whichever is
longer.
Pursuant to those employment agreements, Messrs. Peacock and Howley will
receive annual base salaries no less than $330,000 and $225,000, respectively,
in each case, subject to annual increases as determined by the Compensation
Committee, and annual cash bonuses based on achievement of performance criteria
established by the Board of Directors.
STOCK OPTION PLAN
Holdings intends to adopt the 1998 Stock Option Plan (the "Option Plan"),
pursuant to which stock options may be granted to Independent Directors (as
defined in the Option Plan), employees and consultants of Holdings, TransDigm
and any subsidiary of Holdings or TransDigm (the "Plan Participants"). In
addition, the Option Plan will govern those options retained pursuant to the
Rollover Investment (the "Rollover Options"). A total of 12.5% of the fully
diluted shares of Common Stock of Holdings as of the Recapitalization was
reserved for issuance under the Option Plan exclusive of the Rollover
Investment. The Chief Executive Officer will have discretion to select the Plan
Participants and to specify the terms of such options, including the number of
shares, the exercise price and the vesting and expiration of options, subject to
approval by the Compensation Committee.
The Compensation Committee will have discretion under the Option Plan to
adjust options to reflect certain specified events such as stock dividends,
stock splits, recapitalizations, mergers or reorganizations of, or by Holdings.
In addition, the Board of Directors will have the right to amend, suspend or
terminate the Option Plan, subject to stockholder approval for certain
amendments.
The Rollover Options are fully vested and nonforfeitable. In connection with
the Recapitalization, Holdings will grant options to certain employees of
TransDigm including the Named Executive Officers for the purchase of shares of
Common Stock of Holdings (the "New Options"). Such New Options are intended to
qualify as "incentive stock options" to the extent permitted under the Internal
Revenue Code, and will have an exercise price equal to the price per share paid
by Odyssey in connection with the Recapitalization. Twenty percent of each of
Messrs. Peacock's and Howley's New Options will become vested as of the date of
grant. Subject to the executive's continued employment with and, in the case of
Mr. Peacock, continued service as non-executive Chairman of the Board of the
Company, the remaining 80% of his New Options will become exercisable upon the
earlier of (1) the Company's achievement of specified financial targets or (2)
certain specified dates in the Option Agreement. Furthermore, in the event of a
"change of control" (as defined in the Option Agreement), a specified percentage
of the New Options may become exercisable based upon the terms of such
transaction. The New Options generally will expire 10 years after grant and may
expire earlier in the event of the executive's earlier termination of
employment.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of Holdings with respect to each beneficial owner
of more than 5.0% of the outstanding common stock of Holdings and beneficial
ownership of the Common Stock of Holdings by each director and Named Executive
Officer and all directors and executive officers as a group:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
- ---------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Stephen Berger.................................................................... 100,240 (7) 83.9%
--------- ---
Robert S. Henderson............................................................... 783(2) *
--------- ---
William Hopkins................................................................... 100,240 (7) 83.9
--------- ---
W. Nicholas Howley................................................................ 5,943(4) 4.8
--------- ---
Kelso (as defined in footnote (5))................................................ 18,422(5) 15.3
--------- ---
Muzzafar Mirza.................................................................... 100,240 (7) 83.9
--------- ---
Odyssey Investment Partners Fund, LLC............................................. 100,240(7) 83.9
--------- ---
Douglas W. Peacock................................................................ 6,900(8) 5.4
--------- ---
John D. Peterson.................................................................. 1,302(9) 1.1
--------- ---
Peter B. Radekevich............................................................... 587 10) *
--------- ---
Thomas R. Wall, IV................................................................ 18,422(5) 15.3
--------- ---
All officers and directors as a group (14 members)................................ 135,476 11) 99.0
--------- ---
</TABLE>
- ------------------------
* Less than 1.0%
(1) Includes 100,240 shares and votes deemed to be beneficially owned by the
General Partner of Odyssey (as defined), of which Mr. Berger is a senior
managing member. As a result, Mr. Berger may be deemed to share voting and
investment power with respect to such shares. Mr. Berger disclaims
beneficial ownership of such shares.
(2) Includes 772 shares purchasable within 60 days upon the exercise of options
held by Mr. Henderson.
(3) Includes 100,240 shares and votes deemed to be beneficially owned by the
General Partner of Odyssey, of which Mr. Hopkins is a managing member. As a
result, Mr. Hopkins may be deemed to share voting and investment power with
respect to such shares. Mr. Hopkins disclaims beneficial ownership of such
shares.
(4) Includes 5,790 shares purchasable within 60 days upon the exercise of
options held by Mr. Howley.
(5) KIA IV-TD, LLC ("KIA IV-TD) and Kelso Equity Partners II, L.P. ("KEP II")
have beneficial ownership of 17,473 and 949 shares, respectively. Due to
their common control, KIA IV-TD, Kelso Partners IV, L.P., the managing
member of KIA IV-TD ("KP IV" and, together with KIA IV-TD and KEP II,
"Kelso"), and KEP II could be deemed to beneficially own each other's
shares, but each disclaims such beneficial ownership. In addition, Mr.
Wall, Joseph S. Schuchert, Frank T. Nickell, George E. Matelich, Michael B.
Goldberg, David I. Wahrhaftig and Frank K. Bynum, Jr. may be deemed to
share beneficial ownership of shares beneficially owned by KIA IV-TD, KP IV
and KEP II by virtue of their status as general partners of KP IV, which is
the managing member of KIA IV-TD, and as general partners of KEP II, but
each disclaims such beneficial ownership. The address of each of KIA IV-TD,
KP IV, KEP II and Messrs. Wall, Schuchert, Nickell, Matelich,
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<PAGE>
Goldberg, Wahrhaftig and Bynum is c/o Kelso & Company, 320 Park Avenue,
24th Floor, New York, New York 10022.
(6) Includes 100,240 shares and votes deemed to be beneficially owned by the
General Partner of Odyssey, of which Mr. Mirza is a managing member. As a
result, Mr. Mirza may be deemed to share voting and investment power with
respect to such shares. Mr. Mirza disclaims beneficial ownership of such
shares.
(7) The principal business address for Odyssey Investment Partners Fund, LLC is
280 Park Avenue, West Tower, 38th Floor, New York, NY 10017. The general
partner of Odyssey Investment Partners Fund LLC, is Odyssey Capital
Partners, LLC, a Delaware limited liability company (the "General Partner
of Odyssey"). In addition to Messrs. Berger, Hopkins and Mirza, Paul D.
Barnett, Brian Kwait and Brian F. Wruble are managing members of the
General Partner of Odyssey and, therefore, may each be deemed to share
voting and investment power with respect to 100,240 share and votes deemed
to be owned by the General Partner of Odyssey. Each of Messrs. Barnett,
Kwait and Wruble disclaims beneficial ownership of such shares.
(8) Includes 6,089 shares purchasable within 60 days upon the exercise of
options held by Mr. Peacock and 811 shares and votes owned by TD Equity
LLC, of which Mr. Peacock is the managing member. Mr. Peacock disclaims
ownership of the 811 shares and votes owned by TD Equity LLC.
(9) Includes 1,270 shares purchasable within 60 days upon the exercise of
options held by Mr. Peterson.
(10) Includes 568 shares purchasable within 60 days upon the exercise of options
held by Mr. Radekevich.
(11) As described in footnotes (1), (3), (5), (6), (7) and (8), Messrs. Berger,
Hopkins and Mirza may each be deemed to share investment and voting power
with respect to 100,240 shares deemed to be beneficially owned by the
General Partner of Odyssey, Mr. Wall may be deemed to share investment and
voting power with respect to 18,422 shares owned by Kelso and Mr. Peacock
may be deemed to share investment and voting power with respect to 811
shares owned by TD Equity LLC. Each of Messrs. Berger, Hopkins, Mirza, Wall
and Peacock disclaims ownership of such shares. Excluding such shares, all
officers and directors as a group beneficially own 17,030 shares or 12.5%.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX ALLOCATION AGREEMENT
TransDigm and Holdings entered into a Tax Allocation Agreement concurrently
with the consummation of the Recapitalization. Under the terms of the Tax
Allocation Agreement, TransDigm is obligated to make payments to Holdings equal
to the amount of income taxes that TransDigm would have owed in respect of
federal and state income taxes on behalf of TransDigm and its subsidiaries if
TransDigm and its subsidiaries were, for tax purposes, a separate consolidated
group.
ONE-TIME MANAGEMENT BONUSES
Following the consummation of the Recapitalization, TransDigm paid certain
members of senior management an aggregate of $5.9 million as a one-time bonus in
connection with the Recapitalization. See "Management--Executive Compensation."
TERMINATION OF FINANCIAL ADVISORY SERVICES AGREEMENT
TransDigm paid $6.0 million to Kelso & Company, an affiliate of Kelso, in
consideration for the termination of a Financial Advisory Services Agreement.
This payment was made upon consummation of the Recapitalization.
Kelso may be deemed, collectively, to beneficially own 15.4% of the Common
Stock of Holdings on a fully diluted basis. In addition, Mr. Wall, a director of
Holdings and TransDigm, is a general partner of each of the Kelso entities.
KELSO STOCKHOLDERS AGREEMENT
Pursuant to the Merger Agreement, Holdings, Odyssey and KIA IV-TD and KEP II
entered into a stockholders agreement (the "Stockholders Agreement")
concurrently with consummation of the Recapitalization. The Stockholders
Agreement provides for customary transfer restrictions, tag-along and drag-along
rights, registration rights and an agreement among the parties to vote their
shares of Common Stock, including the agreement of Odyssey to designate a
representative of Kelso to the Board of Directors of Holdings. See also
"Management" for a description of certain agreements that have been entered into
with certain members of management in connection with the Recapitalization. See
"-Termination of Financial Advisory Services Agreement."
ODYSSEY FINANCIAL SERVICES
As part of the Recapitalization, TransDigm paid Odyssey a fee of
approximately $3.5 million. Odyssey is the majority stockholder of Holdings. In
addition, Messrs. Berger, Hopkins and Mirza, each a director of Holdings and
TransDigm, are managing members of the General Partner of Odyssey.
RECAPITALIZATION
As part of the Recapitalization and under the terms of the Merger Agreement,
Phase II Acquisition Corp., a wholly-owned subsidiary of Odyssey, merged with
and into Holdings.
Also, together with the Recapitalization and as part of the consideration
for the Merger, Holdings (1) issued $20.0 million in Holdings PIK Notes and
common stock of Holdings and (2) paid $215.4 million in cash, in each case, to
Kelso. See "Transactions," "--Odyssey Financial Services" and "--Termination of
Financial Advisory Services Agreement."
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DESCRIPTION OF OTHER INDEBTEDNESS
TRANSDIGM
THE NEW CREDIT FACILITY
The New Credit Facility, as amended, consists of (1) a $30.0 million
Revolving Credit Facility maturing six years from the date of the execution of
the New Credit Facility (the "Execution Date") and (2) a term loan facility in
an aggregate principal amount of $124.0 million, consisting of the $62.0 million
Tranche A Facility maturing six years from the Execution Date and the $62.0
million Tranche B Facility maturing seven and a half years from the Execution
Date.
The New Credit Facility provides that TransDigm shall repay, to the extent
then outstanding, (1) with respect to the Tranche A Facility, the specified
amount set forth in the New Credit Facility for each quarter beginning on August
15, 1999 and (2) with respect to the Tranche B Facility, (A) $310,000 each of
the first two quarters beginning on August 15, 1999, (B) $155,000 each of the
remaining quarters during the first six years after the Execution Date and (C)
$9,713,333 each of the following six quarters. In addition, subject to some
exceptions, the New Credit Facility requires mandatory repayment of the
outstanding indebtedness under the New Credit Facility and concurrent reduction
to the commitments under the New Credit Facility with the proceeds from (1)
assets sales, (2) issuance of debt, (3) issuance of equity interests and capital
contributions, (4) insurance and condemnation claims, (5) 50% of annual excess
cash flow (as defined in the New Credit Facility) from operations in excess of a
predetermined amount and (6) 100% of any purchase price adjustment in favor of
TransDigm with respect to the acquisition of ZMP, in each case, by or of
Holdings, TransDigm or their subsidiaries. TransDigm will have the option at any
time and from time to time to prepay the outstanding indebtedness under the New
Credit Facility without penalty or premium.
Indebtedness under the New Credit Facility bears interest at the sum of the
(1) Applicable Margin and (2) at the option of TransDigm either the Base Rate or
the Eurodollar Rate (as defined in the New Credit Facility). The "Base Rate"
means the higher of (i) the rate that Bankers Trust Company ("BTCo") announces
from time to time as its prime lending rate, as in effect from time to time, and
(ii) 1/2 of 1% in excess of the overnight federal funds rate. The "Applicable
Margin" means the percentage per year equal to (1) in the case of Tranche A
Facility and Revolving Credit Facility, (A) bearing an interest rate determined
by the Base Rate, 2.50% through February 16, 1999 and 2.25%, 2.00%, 1.75% or
1.50% thereafter depending on Holdings' ability to achieve the respective debt
coverage ratio specified in the New Credit Facility and (B) bearing an interest
rate determined by the Eurodollar Rate, 3.50% through February 16, 1999 and
3.25%, 3.00%, 2.75% or 2.50% thereafter depending on Holdings' ability to
achieve the respective debt coverage ratio specified in the New Credit Facility
and (2) in the case of Tranche B Facility (A) bearing an interest rate
determined by the Base Rate, 2.50% and (B) bearing an interest rate determined
by the Eurodollar Rate, 3.50%.
The New Credit Facility contains various covenants, customary for similar
credit facilities or otherwise appropriate under the circumstances, that (1)
restrict Holdings, TransDigm and their subsidiaries from various actions,
including, among others, mergers and sales of assets, use of proceeds, granting
of liens, incurrence of indebtedness, voluntary prepayment of indebtedness,
including the Old Notes and the New Notes, capital expenditures, paying
dividends, business activities, investments and acquisitions, transactions with
affiliates, certain types of restrictions affecting subsidiaries, voluntary
prepayment of other Indebtedness and amendments or modifications to instruments
governing such other Indebtedness and (2) require TransDigm to achieve and
maintain certain financial covenants.
The New Credit Facility includes events of default provisions that are
typical for senior credit facilities or otherwise appropriate under the
circumstances. All obligations under the New Credit Facility are guaranteed by
Holdings and each of the subsidiaries, direct and indirect, of TransDigm. The
indebtedness under the New Credit Facility are secured by a pledge of the stock
of TransDigm and all
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of its domestic subsidiaries and a perfected lien and security interest in
assets other than real estate (tangible and intangible) of TransDigm, its direct
and indirect subsidiaries and Holdings.
HOLDINGS
HOLDINGS PIK NOTES
Concurrently with the issuance of the Old Notes by TransDigm, Holdings
issued $20.0 million in aggregate face value of its pay-in-kind notes due 2009
(the "Holdings PIK Notes") to KIA IV-TD and KEP II as part of the
Recapitalization. The Holdings PIK Notes were issued to KIA IV-TD and KEP II
together with shares of Common Stock of Holdings. The Holdings PIK Notes are
unsecured obligations of Holdings, subordinated to the guarantee of the New
Credit Facility by Holdings, but senior to the guarantee of each of the Old
Notes and the New Notes by Holdings.
Interest on the Holdings PIK Notes accrues at an annual fixed rate of 12%
and is payable semiannually in the form of additional Holdings PIK Notes for
five years after their issuance. Thereafter, cash interest is payable
semi-annually commencing in the year 2004. The Holdings PIK Notes are redeemable
at the option of Holdings, in whole or in part, at a price equal to 100% of the
principal amount of the Holdings PIK Notes for five years after their issuance
and thereafter at the prices set forth in the indenture under the terms of which
the Holdings PIK Notes were issued (the "Holdings Indenture"). If Holdings
experiences specific kinds of changes in control, it must offer to repurchase
the Holdings PIK Notes at a price equal to 101% of the principal amount of the
Holdings PIK Notes.
The Holdings PIK Notes contain some covenants on a consolidated basis,
including covenants that limit (i) indebtedness, (ii) restricted payments, (iii)
distributions by subsidiaries, (iv) transactions with affiliates, (v) sales of
assets and subsidiary stock, (vi) dividend and other payment restrictions, and
(vii) mergers or consolidations. The Holdings PIK Notes contain customary events
of default and the holders of the Holdings PIK Notes have customary registration
rights commencing on the third anniversary of the closing date. The covenants
and default provisions in the Holdings Indenture are substantially similar to
those contained in the Indenture governing the Old Notes and the New Notes, but
are less restrictive in some respects.
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DESCRIPTION OF THE NEW NOTES
TransDigm will issue the New Notes under an indenture (the "Indenture")
among itself, the Guarantors and State Street Bank and Trust Company, as Trustee
(the "Trustee"). The following is a summary of the material provisions of the
Indenture. It does not include all of the provisions of the Indenture. We urge
you to read the Indenture because it defines your rights. The form and terms of
the New Notes will be the same as the form and terms of the Old Notes except
that the New Notes will be freely transferable by you except as otherwise
provided in this Prospectus. See "The Exchange Offer--Purpose and Effect". The
terms of the New Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act as in effect on the
date of the Indenture. A copy of the Indenture may be obtained from TransDigm.
You can find definitions of certain capitalized terms used in the following
summary under "--Certain Definitions." For purposes of this section, references
to (1) "TransDigm" means TransDigm Inc. and not its Subsidiaries or Holdings and
(2) the "Notes" mean the New Notes and the Old Notes, in each case, outstanding
at any given time and issued under the Indenture.
These New Notes will be unsecured obligations of TransDigm, ranking
subordinate in right of payment to all Senior Debt of the Company.
TransDigm will issue the New Notes in fully registered form in denominations
of $1,000 and integral multiples of $1,000. The Trustee will initially act as
Paying Agent and Registrar. The New Notes may be presented for registration of
transfer and exchange at the offices of the Registrar. TransDigm may change any
Paying Agent and Registrar without notice to holders of the New Notes (the
"Holders"). TransDigm will pay principal, and premium, if any, on the New Notes
at the Trustee's corporate office in New York, New York. At TransDigm's option,
interest also may be paid by mailing a check to the Holders registered address.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the New Notes issued as part of the Exchange Offer, will be
treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $200.0 million, of
which up to $125.0 million in aggregate principal amount of the Notes will be
outstanding immediately following the Exchange Offer. The Notes will mature on
December 1, 2008. Additional Notes may be issued from time to time, subject to
the limitations set forth under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness." Interest on the Notes will accrue at the rate of
10 3/8% per annum and will be payable semiannually in cash on each June 1 and
December 1, commencing on June 1, 1999. TransDigm will make interest payments to
the persons who are registered Holders at the close of business on the May 15
and November 15 immediately preceding the applicable interest payment date.
Interest on the New Notes will accrue from December 3, 1998 or from the date of
the last payment of interest on the Old Notes, whichever is later. No additional
interest will be paid on Old Notes tendered and accepted for exchange.
The Notes do not contain any mandatory sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below, these New Notes are not
redeemable before December 1, 2003. Thereafter, TransDigm may redeem the New
Notes at its option, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the following redemption prices, in each
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case, expressed as percentages of the principal amount of the Notes, if redeemed
during the twelve month period commencing on December 1 of the year set forth
below.
<TABLE>
<S> <C>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2003.............................................................................. 105.188%
2004.............................................................................. 103.458%
2005.............................................................................. 101.729%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, TransDigm must pay all accrued and unpaid interest on the Notes
redeemed.
OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. On one or more occasions prior
to December 1, 2001, TransDigm may use the net cash proceeds of one or more
Equity Offerings to redeem up to 35% of the principal amount of the Notes,
including the New Notes, issued under the Indenture at a redemption price of
110.375% of the principal amount of the Notes, plus accrued and unpaid interest
on the notes, if any, to the date of redemption; PROVIDED that:
(1) at least 65% of the aggregate principal amount of Notes issued under the
Indenture remains outstanding immediately after any such redemption; and
(2) TransDigm makes such redemption not more than 120 days after the
consummation of such Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that TransDigm chooses to redeem less than all of the Notes,
selection of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed; or
(2) on a PRO RATA basis, by lot or by such method as the Trustee shall deem fair
and appropriate. No Notes of a principal amount of $1,000 or less shall be
redeemed in part.
If a partial redemption is made with the proceeds of an Equity Offering, the
Trustee will select the Notes only on a PRO RATA basis or on as nearly a PRO
RATA basis as is practicable. Notice of redemption will be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at its registered address. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as TransDigm has deposited with the Paying Agent
funds in satisfaction of the applicable redemption price.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt of TransDigm including its obligations under the New
Credit Facility.
The holders of Senior Debt will be entitled to receive payment in full in
cash of all Obligations due in respect of Senior Debt, including interest after
the commencement of any bankruptcy or other like proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in any such proceeding, before the Holders of Notes will be
entitled to receive any payment with respect to the Notes in the event of any
distribution to creditors of TransDigm:
(1) in a liquidation or dissolution of TransDigm;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to TransDigm or its property;
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(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of TransDigm's assets and liabilities.
TransDigm also may not make any payment in respect of the Notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt that
permits holders of the Designated Senior Debt to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Representative of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived (so long as no other event of default
exists) or 180 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has
been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 days.
TransDigm must promptly notify holders of Senior Debt if payment of the
Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of TransDigm, Holders of these Notes
may recover less ratably than creditors of TransDigm who are holders of Senior
Debt. See "Risk Factors--Subordination."
At January 1, 1999 on a pro forma basis as if the aquisition of ZMP and the
related borrowings under the New Credit Facility had occurred on January 1,
1999, the aggregate principal amount of Senior Debt outstanding of TransDigm and
Holdings would have been $133.0 million and $153.2 million, respectively.
GUARANTEE
The obligations of the Company under the Notes and the Indenture will be
fully and unconditionally guaranteed (the "Guarantees") on a senior subordinated
basis and on a joint and several basis by Holdings and all of the direct and
indirect Domestic Restricted Subsidiaries of TransDigm. The Guarantees will be
subordinated in right of payment to all Senior Debt of Holdings and the Domestic
Restricted Subsidiaries, respectively, to the same extent that the Notes are
subordinated to Senior Debt of TransDigm. Since Holdings is a holding company
with no significant operations, the Guarantee by Holdings provides little, if
any, additional credit support for the Notes, and investors should not rely on
the Guarantee by Holdings in evaluating an investment in the Notes.
CHANGE OF CONTROL
If a Change of Control occurs, each Holder will have the right to require
that TransDigm purchase all or a portion of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer"), at a purchase price equal
to 101% of the principal amount of the Notes plus accrued interest to the date
of purchase. Within 30 days following the date upon which the Change of Control
occurred, TransDigm must send, by first class mail, a notice to each Holder,
which notice shall govern the terms
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of the Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third business day prior to the Change of
Control Payment Date.
Prior to the mailing of the notice referred to above, but in any event
within 30 days following any Change of Control, TransDigm covenants to:
(1) repay in full all Indebtedness under the New Credit Facility and all other
Senior Debt the terms of which require repayment upon a Change of Control;
or
(2) obtain the requisite consents under the New Credit Facility and all such
other Senior Debt to permit the repurchase of the Notes as provided below.
TransDigm's failure to comply with the covenant described in the immediately
preceding sentence shall constitute an Event of Default described in clause
(3) and not in clause (2) under "Events of Default" below.
TransDigm will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner in compliance with the Indenture.
If a Change of Control Offer is made, there can be no assurance that
TransDigm will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event TransDigm is required to
purchase outstanding Notes pursuant to a Change of Control Offer, TransDigm
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that TransDigm would be able to obtain such financing.
You should note that this provision will not protect you from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction.
TransDigm will comply with the requirements of Rule 14e-1 under the Exchange
Act to the extent such laws and regulations are applicable in connection with
the repurchase of Notes pursuant to a Change of Control Offer. To the extent
that TransDigm complies with the provisions of any such securities laws or
regulations, TransDigm shall not be deemed to have breached its obligations
under the "Change of Control" provisions of the Indenture.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. TransDigm will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively "incur") any Indebtedness, other than Permitted
Indebtedness; PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, TransDigm and the Guarantors may incur
Indebtedness, including, without limitation, Acquired Indebtedness, and
Restricted Subsidiaries of TransDigm that are not Guarantors may incur Acquired
Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of TransDigm would have been greater than 2.0 to
1.0.
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LIMITATION ON RESTRICTED PAYMENTS. TransDigm will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Qualified Capital Stock of TransDigm) on or in
respect of shares of TransDigm's Capital Stock to holders of such Capital
Stock;
(2) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of TransDigm or any direct or indirect parent of TransDigm or any warrants,
rights or options to purchase or acquire shares of any class of such Capital
Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay, decrease
or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of TransDigm that is subordinate or junior in right of payment
to the Notes; or
(4) make any Investment, other than Permitted Investments (each of the foregoing
actions set forth in clauses (1), (2), (3) and (4) being referred to as a
"Restricted Payment");
if at the time of such Restricted Payment or immediately after giving effect
thereto:
(i) a Default or an Event of Default shall have occurred and be continuing; or
(ii) TransDigm is not able to incur at least $1.00 of additional Indebtedness,
other than Permitted Indebtedness, in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments, including such proposed
Restricted Payment, made subsequent to the Issue Date, other than
Restricted Payments made pursuant to clauses (2)(i), (3), (4), (5), (6),
(7), (8), (9) and (10) of the following paragraph, shall exceed the sum,
without duplication, of:
(w) 50% of the cumulative Consolidated Net Income, or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss, of
TransDigm earned subsequent to the beginning of the first fiscal quarter
commencing after the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as
a single accounting period); plus
(x) 100% of the aggregate net cash proceeds, including the fair market value
of property other than cash that would constitute Marketable Securities
or a Permitted Business, received by TransDigm from any Person, other
than a Subsidiary of TransDigm, from the issuance and sale subsequent to
the Issue Date and on or prior to the Reference Date of Qualified Capital
Stock of TransDigm; plus
(y) without duplication of any amounts included in clause (iii)(x) above,
100% of the aggregate net cash proceeds of any equity contribution
received by TransDigm from a holder of TransDigm's Capital Stock and
excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds
from an Equity Offering to the extent used to redeem the Notes in
compliance with the provisions set forth under "--Redemption--Optional
Redemption Upon Equity Offerings"; plus
(z) 100% of the aggregate net proceeds, including the fair market value of
property other than cash that would constitute Marketable Securities or a
Permitted Business, of any (A) sale or other disposition of any
Investment, other than a Permitted Investment, made by TransDigm and its
Restricted Subsidiaries or (B) dividend from, or the sale of the stock
of, an Unrestricted Subsidiary.
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Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such dividend or
notice of such redemption if the dividend or payment of the redemption
price, as the case may be, would have been permitted on the date of
declaration or notice;
(2) if no Default or Event of Default shall have occurred and be continuing or
shall occur as a consequence thereof, the acquisition of any shares of
Capital Stock of TransDigm (the "Retired Capital Stock") either (A) solely
in exchange for shares of Qualified Capital Stock of TransDigm (the
"Refunding Capital Stock") or (B) through the application of net proceeds of
a substantially concurrent sale for cash, other than to a Subsidiary of
TransDigm, of shares of Qualified Capital Stock of TransDigm and, in the
case of subclause (A) of this clause (2), if immediately prior to the
retirement of the Retired Capital Stock the declaration and payment of
dividends thereon was permitted under clause (5) of this paragraph, the
declaration and payment of dividends on the Refunding Capital Stock in an
aggregate amount per year no greater than the aggregate amount of dividends
per annum that was declarable and payable on such Retired Capital Stock
immediately prior to such retirement; PROVIDED that at the time of the
declaration of any such dividends on the Refunding Capital Stock, no Default
or Event of Default shall have occurred and be continuing or would occur as
a consequence thereof;
(3) if no Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of TransDigm that is subordinate or junior
in right of payment to the Notes either (A) solely in exchange for shares of
Qualified Capital Stock of TransDigm, or (B) through the application of net
proceeds of a substantially concurrent sale for cash, other than to a
Subsidiary of TransDigm, of (a) shares of Qualified Capital Stock of
TransDigm or (b) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof, the declaration and payment of
dividends to holders of any class or series of Designated Preferred Stock,
other than Disqualified Capital Stock, issued after the Issue Date,
including, without limitation, the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable and payable
thereon pursuant to clause (2) of this paragraph; PROVIDED that, at the time
of such issuance, TransDigm, after giving effect to such issuance on a pro
forma basis, would have had a Consolidated Fixed Charge Coverage Ratio of at
least 2.0 to 1.0;
(5) payments to Holdings for the purpose of permitting, and in an amount equal
to the amount required to permit, Holdings to redeem or repurchase Holdings'
common equity or options in respect thereof, in each case in connection with
the repurchase provisions of employee stock option or stock purchase
agreements or other agreements to compensate management employees; PROVIDED
that all such redemptions or repurchases pursuant to this clause (5) shall
not exceed $2.0 million in any fiscal year, which amount shall be increased
by the amount of any net cash proceeds received from the sale since the
Issue Date of Capital Stock, other than Disqualified Capital Stock, to
members of TransDigm's management team that have not otherwise been applied
to the payment of Restricted Payments pursuant to the terms of clause (iii)
of the immediately preceding paragraph and by the cash proceeds of any
"key-man" life insurance policies which are used to make such redemptions or
repurchases) since the Issue Date; PROVIDED, FURTHER, that the cancellation
of Indebtedness owing to TransDigm from members of management of TransDigm
or any of its Restricted Subsidiaries in connection with any repurchase of
Capital Stock of Holdings, or warrants or options or rights to acquire such
Capital Stock, will not be deemed to constitute a Restricted Payment under
the Indenture;
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(6) the making of distributions, loans or advances to Holdings in an amount not
to exceed $1.0 million PER ANNUM in order to permit Holdings to pay the
ordinary operating expenses of Holdings, including, without limitation,
directors' fees, indemnification obligations, professional fees and
expenses;
(7) payments to Holdings in respect of taxes pursuant to the terms of the Tax
Allocation Agreement as in effect on the Issue Date and as amended from time
to time pursuant to amendments that do not increase the amounts payable by
TransDigm or any of its Restricted Subsidiaries thereunder;
(8) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price
thereof;
(9) other Restricted Payments in an aggregate amount not to exceed $7.5 million;
and
(10) distributions to Holdings to fund the Transactions described under "Use of
Proceeds" subsequent to the issuance of the Notes.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, (a) amounts expended pursuant to clauses (1) and (2)(ii) shall be
included in such calculation, PROVIDED such expenditures pursuant to clause (5)
shall not be included to the extent of the cash proceeds received by TransDigm
from any "key-man" life insurance policies and (b) amounts expended pursuant to
clauses (2)(i), (3), (4), (5), (6), (7), (8), (9) and (10) shall be excluded
from such calculation.
LIMITATION ON ASSET SALES. TransDigm will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) TransDigm or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of, as determined
in good faith by TransDigm's Board of Directors;
(2) at least 75% of the consideration received by TransDigm or the Restricted
Subsidiary, as the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such disposition;
PROVIDED that the amount of:
(a) any liabilities, as shown on TransDigm's or such Restricted Subsidiary's
most recent balance sheet, of TransDigm or any such Restricted
Subsidiary, other than liabilities that are by their terms subordinated
to the Notes, that are assumed by the transferee of any such assets;
(b) any notes or other obligations received by TransDigm or any such
Restricted Subsidiary from such transferee that are converted by
TransDigm or such Restricted Subsidiary into cash within 90 days of the
receipt thereof, to the extent of the cash received; and
(c) any Designated Noncash Consideration received by TransDigm or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (c) that is at that time
outstanding, not to exceed 5% of Total Assets at the time of the receipt
of such Designated Noncash Consideration, with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value, shall
be deemed to be cash for the purposes of this provision or for purposes
of the second paragraph of this covenant; and
(3) upon the consummation of an Asset Sale, TransDigm shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 365 days of receipt thereof either (A) to prepay any Senior
Debt, or Indebtedness of a Restricted Subsidiary that is not a Guarantor
and, in the case of any such Indebtedness under any revolving credit
facility, effect a corresponding reduction in the availability under such
revolving credit facility, or effect a
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permanent reduction in the availability under such revolving credit facility
regardless of the fact that no prepayment is required in order to do so, in
which case no prepayment should be required, (B) to reinvest in Productive
Assets, or (C) a combination of prepayment and investment permitted by the
foregoing clauses (3)(A) and (3)(B). Pending the final application of any
such Net Cash Proceeds, TransDigm or such Restricted Subsidiary may
temporarily reduce Indebtedness under a revolving credit facility, if any,
or otherwise invest such Net Cash Proceeds in Cash Equivalents. On the 366th
day after an Asset Sale or such earlier date, if any, as the Board of
Directors of TransDigm or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (3)(A), (3)(B) and (3)(C) of the preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger
Date as permitted in clauses (3)(A), (3)(B) and (3)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by TransDigm
or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 60 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a PRO RATA basis, the maximum amount of
Notes that may be purchased with the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase;
PROVIDED, HOWEVER, that if at any time any non-cash consideration (including
any Designated Noncash Consideration) received by TransDigm or any
Restricted Subsidiary of TransDigm, as the case may be, in connection with
any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall
be applied in accordance with this covenant. Notwithstanding the foregoing,
if a Net Proceeds Offer Amount is less than $10.0 million, the application
of the Net Cash Proceeds constituting such Net Proceeds Offer Amount to a
Net Proceeds Offer may be deferred until such time as such Net Proceeds
Offer Amount plus the aggregate amount of all Net Proceeds Offer Amounts
arising subsequent to the Net Proceeds Offer Trigger Date relating to such
initial Net Proceeds Offer Amount from all Asset Sales by TransDigm and its
Restricted Subsidiaries aggregates at least $10.0 million, at which time
TransDigm or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to
make a Net Proceeds Offer (the first date the aggregate of all such deferred
Net Proceeds Offer Amounts is equal to $10.0 million or more shall be deemed
to be a Net Proceeds Offer Trigger Date).
Notwithstanding the immediately preceding paragraph, TransDigm and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraph to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes Productive
Assets, cash, Cash Equivalents and/or Marketable Securities; and
(2) such Asset Sale is for fair market value; PROVIDED that any consideration
consisting of cash, Cash Equivalents and/or Marketable Securities received
by TransDigm or any of its Restricted Subsidiaries in connection with any
Asset Sale permitted to be consummated under this paragraph shall constitute
Net Cash Proceeds subject to the provisions of the preceding paragraph.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a PRO RATA basis, based on
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amounts tendered. A Net Proceeds Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the extent
that the aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is
less than the Net Proceeds Offer Amount, TransDigm may use any remaining Net
Proceeds Offer Amount for general corporate purposes or for any other purpose
not prohibited by the Indenture. Upon completion of any such Net Proceeds Offer,
the Net Proceeds Offer Amount shall be reset at zero.
TransDigm will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, TransDigm shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue of its compliance with the
applicable securities laws and regulations.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. TransDigm will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary of TransDigm to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(2) make loans or advances or pay any Indebtedness or other obligation owed to
TransDigm or any other Restricted Subsidiary of TransDigm; or
(3) transfer any of its property or assets to TransDigm or any other Restricted
Subsidiary of TransDigm, except for such encumbrances or restrictions
existing under or by reason of:
(a) applicable law;
(b) the Indenture;
(c) non-assignment provisions of any contract or any lease of any Restricted
Subsidiary of TransDigm entered into in the ordinary course of business;
(d) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person or the properties or assets of the
Person so acquired;
(e) the New Credit Facility;
(f) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
(g) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets or Capital Stock
permitted under the Indenture to any Person pending the closing of such
sale;
(i) any agreement or instrument governing Capital Stock of any Person that
is acquired;
(j) any Purchase Money Note or other Indebtedness or other contractual
requirements of a Securitization Entity in connection with a Qualified
Securitization Transaction; provided that such restrictions apply only to
such Securitization Entity;
(k) other Indebtedness or Permitted Subsidiary Preferred Stock outstanding
on the Issue Date or permitted to be issued or incurred under the
Indenture; PROVIDED that any such restrictions are
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ordinary and customary with respect to the type of Indebtedness being
incurred or Preferred Stock being issued (under the relevant
circumstances);
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business; and
(m) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (a) through (l) above; PROVIDED that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of TransDigm's Board of Directors (evidenced by a Board
Resolution) whose judgment shall be conclusively binding, not materially
more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment
restrictions prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. TransDigm will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock,
other than to TransDigm or to a Restricted Subsidiary of TransDigm, or permit
any Person, other than TransDigm or a Restricted Subsidiary of TransDigm, to own
any Preferred Stock of any Restricted Subsidiary of TransDigm, other than
Permitted Subsidiary Preferred Stock. The provisions of this covenant will not
apply to any of the Guarantors.
LIMITATION ON LIENS. TransDigm will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets or any proceeds therefrom, of TransDigm or any of its Restricted
Subsidiaries whether owned on the Issue Date or acquired after the Issue Date,
in each case to secure Indebtedness or trade payables, unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the Notes are equally and ratably secured,
except for:
(a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(b) Liens securing Senior Debt;
(c) Liens securing the Notes;
(d) Liens of TransDigm or a Wholly Owned Restricted Subsidiary of
TransDigm on assets of any Restricted Subsidiary of TransDigm;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness that was secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions
of the Indenture; PROVIDED, HOWEVER, that such Liens do not extend to or
cover any categories of property or assets of TransDigm or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; and
(f) Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. TransDigm will not,
and will not permit any Restricted Subsidiary that is a Guarantor to, incur or
suffer to exist Indebtedness that is senior in right of payment to the Notes or
such Guarantor's Guarantee, as the case may be, and subordinate in right of
payment to any other Indebtedness of TransDigm or such Guarantor, as the case
may be.
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MERGER CONSOLIDATION AND SALE OF ASSETS. TransDigm will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of or
cause or permit any Restricted Subsidiary of TransDigm to sell, assign,
transfer, lease, convey or otherwise dispose of, all or substantially all of
TransDigm's assets, in each case, determined on a consolidated basis for
TransDigm and TransDigm's Restricted Subsidiaries, whether as an entirety or
substantially as an entirety to any Person unless:
(1) either:
(a) TransDigm shall be the surviving or continuing corporation; or
(b) the Person, if other than TransDigm, formed by such consolidation
or into which TransDigm is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the
properties and assets of TransDigm and of TransDigm's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity"):
(x) shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia; and
(y) shall expressly assume, by supplemental indenture in form and
substance satisfactory to the Trustee, executed and delivered to the
Trustee, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Notes and the performance
of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of TransDigm to be performed or
observed;
(2) except in the case of a merger of TransDigm with or into a Wholly
Owned Restricted Subsidiary of TransDigm and except in the case of a merger
entered into solely for the purpose of reincorporating TransDigm in another
jurisdiction, immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred in connection with or
in respect of such transaction), TransDigm or such Surviving Entity, as the
case may be, shall be able to incur at least $1.00 of additional
Indebtedness pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant;
(3) except in the case of a merger of TransDigm with or into a Wholly
Owned Restricted Subsidiary of TransDigm and except in the case of a merger
entered into solely for the purpose of reincorporating TransDigm in another
jurisdiction, immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above, including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred and any Lien granted in connection with or in respect of the
transaction, no Default or Event of Default shall have occurred or be
continuing; and
(4) TransDigm or the Surviving Entity shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply with
the applicable provisions of the Indenture and that all conditions precedent
in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of TransDigm the Capital Stock of which constitutes all or
substantially all of the properties and assets of TransDigm, shall be deemed to
be the transfer of all or substantially all of the properties and assets of
TransDigm. However, transfer of assets between or among TransDigm and its
Restricted Subsidiaries will not be subject to the foregoing covenant.
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The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of TransDigm in
accordance with the foregoing, in which TransDigm is not the continuing
corporation, the successor Person formed by such consolidation or into which
TransDigm is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
TransDigm under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such and that, in the event of a conveyance,
lease or transfer, the conveyor, lessor or transferor will be released from the
provisions of the Indenture.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. TransDigm will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or permit to occur any transaction or series of related transactions,
including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service, with, or for the benefit of, any of
its Affiliates (an "Affiliate Transaction"), other than Affiliate Transactions
on terms that are not materially less favorable than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of TransDigm; PROVIDED, HOWEVER,
that for a transaction or series of related transactions with an aggregate value
of $2.5 million or more, at TransDigm's option, either:
(1) a majority of the disinterested members of the Board of Directors of
TransDigm shall determine in good faith that such Affiliate Transaction is
on terms that are not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of TransDigm or
(2) the Board of Directors of TransDigm or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received an
opinion from a nationally recognized investment banking, appraisal or
accounting firm that such Affiliate Transaction is on terms not materially
less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of TransDigm;
and PROVIDED, FURTHER, that for an Affiliate Transaction with an aggregate value
of $10.0 million or more the Board of Directors of TransDigm or any such
Restricted Subsidiary party to such Affiliate Transaction shall have received an
opinion from a nationally recognized investment banking, appraisal or accounting
firm that such Affiliate Transaction is on terms not materially less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
TransDigm.
The restrictions set forth in the first paragraph of this covenant shall not
apply to:
(1) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of TransDigm or any
Restricted Subsidiary of TransDigm as determined in good faith by
TransDigm's Board of Directors or senior management;
(2) transactions exclusively between or among TransDigm and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby, including pursuant to any
amendment thereto, in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date;
(4) Restricted Payments or Permitted Investments permitted by the
Indenture;
(5) transactions effected as part of a Qualified Securitization
Transaction;
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(6) the payment of customary annual management, consulting and advisory
fees and related expenses to the Permitted Holders and their Affiliates made
pursuant to any financial advisory, financing, underwriting or placement
agreement or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which
are approved by the Board of Directors of TransDigm or such Restricted
Subsidiary in good faith;
(7) payments or loans to employees or consultants that are approved by
the Board of Directors of TransDigm in good faith;
(8) sales of Qualified Capital Stock;
(9) the existence of, or the performance by TransDigm or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement, including any registration rights agreement or
purchase agreement related thereto, to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter;
PROVIDED, HOWEVER, that the existence of, or the performance by TransDigm or
any of its Restricted Subsidiaries of obligations under, any future
amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause (9)
to the extent that the terms of any such amendment or new agreement are not
disadvantageous to the Holders of the Notes in any material respect; and
(10) transactions permitted by and complying with, the provisions of the
"Merger, Consolidation and Sale of Assets" covenant.
FUTURE GUARANTEES BY RESTRICTED SUBSIDIARIES. TransDigm will not create or
acquire another Domestic Restricted Subsidiary unless such Domestic Restricted
Subsidiary executes and delivers a supplemental indenture to the Indenture,
providing for a senior subordinated guarantee of payment of the Notes by such
Restricted Subsidiary (the "Guarantee").
Notwithstanding the foregoing, any such Guarantee by a Domestic Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon any sale or other
disposition, by merger or otherwise, to any Person which is not a Restricted
Subsidiary of TransDigm of all of TransDigm's Capital Stock in, or all or
substantially all of the assets of, such Domestic Restricted Subsidiary;
PROVIDED that such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the Indenture. A form of such
Guarantee will be attached as an exhibit to the Indenture.
CONDUCT OF BUSINESS. The Indenture provides that TransDigm will not, and
will not permit any of its Restricted Subsidiaries to, engage in any businesses
a majority of whose revenues are not derived from businesses that are the same
or reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which TransDigm and its
Restricted Subsidiaries are engaged on the Issue Date.
REPORTS TO HOLDERS. The Indenture provides that, whether or not required by
the rules and regulations of the Commission, so long as any Notes are
outstanding, TransDigm will furnish to the Holders of Notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if TransDigm were required to file those Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of TransDigm and its consolidated Subsidiaries, showing in reasonable
detail, either on the face of the financial statements or in the footnotes
thereto and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the financial condition and results of operations
of
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TransDigm and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of
TransDigm, and, with respect to the annual information only, a report
thereon by TransDigm's certified independent accountants and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if TransDigm were required to file such reports, in
each case, within the time periods specified in the Commission's rules and
regulations. For so long as Holdings is a guarantor of the Notes, the
Indenture permits TransDigm to satisfy its obligations under this covenant
by furnishing financial information relating to Holdings; PROVIDED that the
same is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to Holdings, on the
one hand, and the information relating to TransDigm and its Restricted
Subsidiaries on a stand-alone basis, on the other hand.
In addition, following the consummation of this exchange offer, whether or
not required by the rules and regulations of the Commission, TransDigm will file
a copy of all those information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations, unless the Commission will not accept such a filing, and make such
information available to securities analysts and prospective investors upon
request. In addition, TransDigm has agreed that, for so long as any Old Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d) (4) under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days, whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture;
(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise,
including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer on the date specified
for such payment in the applicable offer to purchase and whether or not such
payment shall be prohibited by the subordination provisions of the
Indenture;
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after TransDigm receives written notice specifying the default and
demanding that such default be remedied from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the Notes, except in the
case of a default with respect to the "Merger, Consolidation and Sale of
Assets" covenant, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement;
(4) the failure to pay at final stated maturity, after giving effect to
any applicable grace periods and any extensions of the grace periods, the
principal amount of any Indebtedness of TransDigm or any Restricted
Subsidiary of TransDigm other than a Securitization Entity, which failure
continues for at least 20 days, or the acceleration of the final stated
maturity of any such Indebtedness, which acceleration remains uncured or
unrescinded for at least 20 days, if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, in each case, with respect to which the 20-day
period described above has passed, aggregates $5.0 million or more at any
time;
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(5) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against TransDigm or any of its Significant
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable; or
(6) certain events of bankruptcy affecting TransDigm or any of its
Significant Subsidiaries.
If an Event of Default, other than an Event of Default specified in clause
(6) above with respect to TransDigm, shall occur and be continuing, the Trustee
or the Holders of at least 25% in principal amount of outstanding Notes may
declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to TransDigm and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same:
(1) shall become immediately due and payable or
(2) if there are any amounts outstanding under the New Credit Facility,
shall become immediately due and payable upon the first to occur of an
acceleration under the New Credit Facility or 5 business days after receipt
by TransDigm and the Representative under the New Credit Facility of such
Acceleration Notice but only if such Event of Default is then continuing. If
an Event of Default specified in clause (6) above with respect to TransDigm
occurs and is continuing, then all unpaid principal of, and premium, if any,
and accrued and unpaid interest on all of the outstanding Notes shall IPSO
FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the Holders
of a majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid;
(4) if TransDigm has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
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Under the Indenture, TransDigm is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
TransDigm may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that TransDigm shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, except
for:
(1) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when such payments
are due;
(2) TransDigm's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
TransDigm's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, TransDigm may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) TransDigm must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2) in the case of Legal Defeasance, TransDigm shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that
(a) TransDigm has received from, or there has been published by the
Internal Revenue Service a ruling or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, TransDigm shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the
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Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit, other than a Default or an Event of Default
resulting from the borrowing of funds to be applied to such deposit and the
grant of any Lien securing such borrowing, or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture, other
than a Default or an Event of Default resulting from the borrowing of funds
to be applied to such deposit and the grant of any Lien securing such
borrowing, or any other material agreement or instrument to which TransDigm
or any of its Subsidiaries is a party or by which TransDigm or any of its
Subsidiaries is bound;
(6) TransDigm shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by TransDigm with the
intent of preferring the Holders over any other creditors of TransDigm or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of TransDigm or others;
(7) TransDigm shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) TransDigm shall have delivered to the Trustee an opinion of counsel
to the effect that:
(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture; and
(b) after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all Notes not
therefore delivered to the Trustee for cancellation (1) have become due and
payable, or (2) will become due and payable on the maturity date within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of TransDigm.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture, as to all outstanding Notes
when
(1) either:
(a) all the Notes theretofore authenticated and delivered, except
lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by TransDigm and thereafter repaid to
TransDigm or discharged from such trust, have been delivered to the
Trustee for cancellation or
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(b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, pursuant to an optional
redemption notice or otherwise, and TransDigm has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient
to pay and discharge the entire Indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if
any, and interest on the Notes to the date of deposit together with
irrevocable instructions from TransDigm directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case
may be; and
(2) TransDigm has paid all other sums payable under the Indenture by
TransDigm,
The Trustee will acknowledge the satisfaction and discharge of the Indenture
if TransDigm has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, TransDigm and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or reduce the redemption price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in the provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes to
waive Defaults or Events of Default;
(6) after the Company's obligation to purchase Notes arises thereunder,
amend, change or modify in any material respect the obligation of TransDigm
to make and consummate a Change of Control Offer in the event of a Change of
Control or modify any of the provisions or definitions with respect thereto
after a Change of Control has occurred; or
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes in a manner
which adversely affects the Holders.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of TransDigm, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
TransDigm or at the time it merges or consolidates with or into TransDigm or any
of its Subsidiaries or that is assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of TransDigm or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
Notwithstanding the foregoing, no Person, other than TransDigm or any Subsidiary
of TransDigm, in whom a Securitization Entity makes an Investment in connection
with a Qualified Securitization Transaction shall be deemed to be an Affiliate
of TransDigm or any of its Subsidiaries solely by reason of such Investment.
"ASSET ACQUISITION" means (a) an Investment by TransDigm or any Restricted
Subsidiary of TransDigm in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of TransDigm, or shall be merged with or into
TransDigm or any Restricted Subsidiary of TransDigm, or (b) the acquisition by
TransDigm or any Restricted Subsidiary of TransDigm of the assets of any Person,
other than a Restricted Subsidiary of TransDigm, other than in the ordinary
course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease, other than operating leases entered into in the ordinary course
of business, assignment or other transfer for value by TransDigm or any of its
Restricted Subsidiaries in each case, including any Sale and Leaseback
Transaction to any Person other than TransDigm or a Restricted Subsidiary of
TransDigm of:
(1) any Capital Stock of any Restricted Subsidiary of TransDigm, or
(2) any other property or assets of TransDigm or any Restricted
Subsidiary of TransDigm other than in the ordinary course of business;
PROVIDED, HOWEVER, that Asset Sales or other dispositions shall not include:
(a) a transaction or series of related transactions for which
TransDigm or its Restricted Subsidiaries receive aggregate consideration
of less than $1.0 million;
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(b) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of TransDigm as permitted under
"--Certain Covenants--Merger, Consolidation and Sale of Assets" or any
disposition that constitutes a Change of Control;
(c) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(d) disposals or replacements of obsolete equipment in the ordinary
course of business;
(e) the sale, lease, conveyance, disposition or other transfer by
TransDigm or any Restricted Subsidiary of assets or property to one or
more Restricted Subsidiaries in connection with Investments permitted
under the "Limitation on Restricted Payments" covenant or pursuant to any
Permitted Investment; and
(f) sales of accounts receivable, equipment and related assets,
including contract rights, of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof as determined in accordance with
GAAP. For the purposes of this clause (f), Purchase Money Notes shall be
deemed to be cash.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"CAPITAL STOCK" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents, however designated
and whether or not voting, of corporate stock, including each class of
Common Stock and Preferred Stock, of such Person and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
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(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through (5)
above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer in each case, in one
transaction or a series of related transactions, of all or substantially all
of the assets of TransDigm or Holdings to any Person or group of related
Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other
than to the Permitted Holders or their Related Parties or any Permitted
Group;
(2) the approval by the holders of Capital Stock of TransDigm or
Holdings, as the case may be, of any plan or proposal for the liquidation or
dissolution of TransDigm or Holdings, as the case may be, whether or not
otherwise in compliance with the provisions of the Indenture;
(3) any Person or Group, other than the Permitted Holders or their
Related Parties or any Permitted Group, shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 40%
of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of TransDigm or Holdings at a time where the
Permitted Holders and their Related Parties in the aggregate own a lesser
percentage of the aggregate ordinary voting power represented by such issued
and outstanding Capital Stock; or
(4) the first day on which a majority of the members of the Board of
Directors of TransDigm or Holdings are not Continuing Directors.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents, however designated and whether voting
or non-voting, of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum, without duplication, of such Person's:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes and foreign withholding taxes of such Person and
its Restricted Subsidiaries paid or accrued in accordance with GAAP for
such period;
(b) Consolidated Interest Expense;
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, other than normal accruals in
the ordinary course of business, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with
GAAP; and
(d) any cash charges resulting from the Transactions that are
incurred prior to the six month anniversary of the Issue Date.
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"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four-Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person and, in the case of
TransDigm and the Guarantors, for the Four-Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness or the issuance of
any Designated Preferred Stock of such Person or any of its Restricted
Subsidiaries, and the application of the proceeds of such incurrence,
repayment or issuance, giving rise to the need to make such calculation and
any incurrence or repayment of other Indebtedness or the issuance or
redemption of other Preferred Stock and the application of the proceeds of
such incurrence, repayment, issuance or redemption, other than the
incurrence or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to revolving credit facilities,
occurring during the Four-Quarter Period or at any time subsequent to the
last day of the Four-Quarter Period and on or prior to the Transaction Date,
as if such incurrence or repayment or issuance or redemption, as the case
may be and the application of the proceeds of such incurrence, repayment,
issuance or redemption, had occurred on the first day of the Four-Quarter
Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions
including, without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated EBITDA
(including any pro forma expense and cost reductions and other operating
improvements that have occurred or are reasonably expected to occur, all as
determined in accordance with Regulation S-X promulgated under the
Securities Act) attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale or other disposition and without regard to
clause (4) of the definition of Consolidated Net Income) occurring during
the Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or other disposition or Asset Acquisition, including the
incurrence or assumption of any such Acquired Indebtedness, occurred on the
first day of the Four-Quarter Period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Restricted Subsidiary
of such Person had directly incurred or otherwise assumed such other
Indebtedness that was so guaranteed.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator, but not the numerator, of this "Consolidated Fixed
Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date; and
(2) notwithstanding clause (1) of this paragraph, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
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"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; PLUS
(2) the product of (x) the amount of all cash dividend payments on any
series of Preferred Stock of such Person times (y) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal; PLUS
(3) the product of (x) the amount of all dividend payments on any series
of Permitted Subsidiary Preferred Stock times (y) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal; PROVIDED that with respect to any series of
Preferred Stock that was not paid cash dividends during such period but that
is eligible to be paid cash dividends during any period prior to the
maturity date of the Notes, cash dividends shall be deemed to have been paid
with respect to such series of Preferred Stock during such period for
purposes of this clause (3).
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of all cash and non-cash interest expense with respect
to all outstanding Indebtedness of such Person and its Restricted
Subsidiaries, including the net costs associated with Interest Swap
Obligations, for such period determined on a consolidated basis in
conformity with GAAP, but excluding amortization or write-off of debt
issuance costs;
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; and
(3) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the aggregate net income or
loss of TransDigm and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP and without any deduction
in respect of Preferred Stock dividends; PROVIDED that there shall be excluded
therefrom:
(1) gains and losses from Assets Sales, without regard to the $1.0
million limitation set forth in the definition of Asset Sale, and the
related tax effects according to GAAP;
(2) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP;
(3) all extraordinary, unusual or nonrecurring charges, gains and
losses, including, without limitation, all restructuring costs and any
expense or charge related to the repurchase of Capital Stock or warrants or
options to purchase Capital Stock, and the related tax effects according to
GAAP;
(4) the net income or loss of any Person acquired in a pooling of
interests transaction accrued prior to the date it becomes a Restricted
Subsidiary of TransDigm or is merged or consolidated with or into TransDigm
or any Restricted Subsidiary of TransDigm;
(5) the net income but not loss of any Restricted Subsidiary of
TransDigm to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of TransDigm of that income is
prohibited by contract, operation of law or otherwise;
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(6) the net loss of any Person, other than a Restricted Subsidiary of
TransDigm;
(7) the net income of any Person, other than a Restricted Subsidiary of
TransDigm, except to the extent of cash dividends or distributions paid to
TransDigm or a Restricted Subsidiary of TransDigm by such Person;
(8) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or transfer
of assets; and
(9) any non-cash compensation charges, including any arising from
existing stock options resulting from any merger or recapitalization
transaction.
For purposes of clause (iii)(w) of the first paragraph of the "Limitation on
Restricted Payments" covenant, Consolidated Net Income shall be reduced by any
cash dividends paid with respect to any series of Designated Preferred Stock.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash charges and
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, excluding any such
charges that require an accrual of or a reserve for cash payments for any future
period other than accruals or reserves associated with mandatory repurchases of
equity securities.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of TransDigm or Holdings who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors by
any of the Permitted Holders or with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"CREDIT FACILITIES" means one or more debt facilities, including, without
limitation, the New Credit Facility, or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term loans,
receivables financing, including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables, and/or letters of credit or banker's acceptances.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
TransDigm or any Restricted Subsidiary of TransDigm against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means any noncash consideration received
by TransDigm or one of its Restricted Subsidiaries in connection with an Asset
Sale that is designated as Designated Noncash Consideration pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of TransDigm or such Restricted Subsidiary at the
time of such Asset Sale. Any particular item of Designated Noncash Consideration
will cease to be considered to be outstanding once it has been sold for cash or
Cash Equivalents. At the time of receipt of any Designated Noncash
Consideration, TransDigm shall deliver an Officers' Certificate to the Trustee
which shall state the fair market value of such Designated Noncash Consideration
and shall state the basis of such valuation, which shall be a report of a
nationally recognized investment banking, appraisal or accounting firm with
respect to the receipt in one or a series of related transactions of Designated
Noncash Consideration with a fair market value in excess of $10.0 million.
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"DESIGNATED PREFERRED STOCK" means Preferred Stock that is so designated as
Designated Preferred Stock, pursuant to an Officers' Certificate executed by the
principal executive officer and the principal financial officer of TransDigm, on
the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (iii)(x) of the first paragraph of the
"Limitation on Restricted Payments" covenant.
"DESIGNATED SENIOR DEBT" means
(1) Indebtedness under or in respect of the New Credit Facility and
(2) any other Indebtedness constituting Senior Debt which, at the time
of determination, has an aggregate principal amount of at least $25.0
million and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by TransDigm.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder of that security, or upon
the happening of any event, other than an event which would constitute a Change
of Control, matures, excluding any maturity as the result of an optional
redemption by the issuer of that security, or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole
option of the holder of that security (except, in each case, upon the occurrence
of a Change of Control) on or prior to the final maturity date of the Notes.
"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
TransDigm that is incorporated under the laws of the United States or any state
thereof or the District of Columbia.
"EQUITY OFFERING" means any offering of Qualified Capital Stock of Holdings
or TransDigm; provided that:
(1) in the event of an offering by Holdings, Holdings contributes to the
capital of TransDigm the portion of the net cash proceeds of such offering
necessary to pay the aggregate redemption price plus accrued interest to the
redemption date of the Notes to be redeemed pursuant to the provisions
described under "--Redemption--Optional Redemption upon Equity Offerings"
and,
(2) in the event such equity offering is not in the form of a public
offering registered under the Securities Act, the proceeds received by
TransDigm directly or indirectly from such offering are not less than $10.0
million.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 or any successor
statute or statutes to the Securities Exchange Act of 1934.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of TransDigm acting reasonably and
in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of TransDigm delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect from time to time.
"GUARANTEE" means:
(1) the guarantee of the Notes by Holdings and the Domestic Restricted
Subsidiaries of TransDigm; and
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(2) the guarantee of the Notes by any Restricted Subsidiary required
under the terms of the "Future Guarantees by Restricted Subsidiaries"
covenant.
"GUARANTOR" means any Restricted Subsidiary that incurs a Guarantee;
provided that upon the release and discharge of such Restricted Subsidiary from
its Guarantee in accordance with the Indenture, such Restricted Subsidiary shall
cease to be a Guarantor.
"HEDGING AGREEMENT" means any agreement with respect to the hedging of price
risk associated with the purchase of commodities used in the business of
TransDigm and its Restricted Subsidiaries, so long as any such agreement has
been entered into in the ordinary course of business and not for purposes of
speculation.
"INDEBTEDNESS" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement but excluding trade accounts
payable and other accrued liabilities arising in the ordinary course of
business;
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of that Disqualified Capital Stock as if
that Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if that price
is based upon, or measured by, the fair market value of that Disqualified
Capital Stock, that fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of that Disqualified Capital
Stock. For the purposes of calculating the amount of Indebtedness of a
Securitization Entity outstanding as of any date, the face or notional amount of
any interest in receivables or equipment that is outstanding as of that date
shall be deemed to be Indebtedness but any such interests held by Affiliates of
such Securitization Entity shall be excluded for purposes of that calculation.
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"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby directly or indirectly, that
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit, including, without limitation, a guarantee, or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by
TransDigm and its Restricted Subsidiaries in accordance with normal trade
practices of TransDigm or such Restricted Subsidiary, as the case may be. If
TransDigm or any Restricted Subsidiary of TransDigm sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of TransDigm
such that, after giving effect to any such sale or disposition, such Restricted
Subsidiary is no longer a Restricted Subsidiary of TransDigm or, in the case of
a Restricted Subsidiary that is not Wholly Owned Restricted Subsidiary of
TransDigm, such Restricted Subsidiary has a minority interest that is held by an
Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm,
TransDigm shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means December 3, 1998, the date of original issuance of the
Old Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind, including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest.
"MARKETABLE SECURITIES" means publicly traded debt or equity securities that
are listed for trading on a national securities exchange and that were issued by
a corporation whose debt securities are rated in one of the three highest rating
categories by either S&P or Moody's.
"MOODY'S" means Moody's Investors Service, Inc.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents, other
than the portion of any such deferred payment constituting interest, received by
TransDigm or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale, including, without limitation, legal, accounting and investment
banking fees and sales commissions;
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements; and
(3) appropriate amounts to be provided by TransDigm or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
TransDigm or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"NEW CREDIT FACILITY" means the Credit Agreement dated as of the Issue Date
among TransDigm, the lenders party thereto in their capacities as lenders
thereunder and Bankers Trust Company, as administrative agent, together with the
related documents to the Credit Agreement, including, without
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limitation, any guarantee agreements and security documents, in each case, as
those agreements may be amended, including any amendment and restatement of
those agreements, supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring, including increasing the amount of available borrowings
under those agreements, or adding Restricted Subsidiaries of TransDigm as
additional borrowers or guarantors under those agreements) all or any portion of
the Indebtedness under that agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any business, including stock or assets of that
business, that derives a majority of its revenues from the business engaged in
by TransDigm and its Restricted Subsidiaries on the Issue Date and/or activities
that are reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which TransDigm and its
Restricted Subsidiaries are engaged on the Issue Date.
"PERMITTED GROUP" means any group of investors that is deemed to be a
"person," as such term is used in Section 13(d)(3) of the Exchange Act, by
virtue of the Stockholders Agreements, as the same may be amended, modified or
supplemented from time to time, provided that no single Person, together with
its Affiliates, other than the Permitted Holders and their Related Parties, is
the "beneficial owner," as such term is used in Section 13(d) of the Exchange
Act, directly or indirectly, of more than 50% of the voting power of the issued
and outstanding Capital Stock of TransDigm or Holdings, as applicable, that is
"beneficially owned" (as defined above) by such group of investors.
"PERMITTED HOLDERS" means Odyssey Investment Partners Fund, LP, its
Affiliates and any general or limited partners of Odyssey Investment Partners
Fund, L.P.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(1) Indebtedness under the Notes in an aggregate principal amount not to
exceed $125.0 million;
(2) Indebtedness of TransDigm or any of its Restricted Subsidiaries
incurred pursuant to one or more Credit Facilities in an aggregate principal
amount at any time outstanding not to exceed $155.0 million, less:
(A) the aggregate amount of Indebtedness of Securitization Entities
at the time outstanding, less
(B) the amount of all mandatory principal payments actually made by
TransDigm or any such Restricted Subsidiary since the Issue Date with the
Net Proceeds of an Asset Sale in respect of term loans under a Credit
Facility, excluding any such payments to the extent refinanced at the
time of payment, and
(C) further reduced by any repayments of revolving credit borrowings
under a Credit Facility with the Net Cash Proceeds of an Asset Sale that
are accompanied by a corresponding commitment reduction thereunder;
PROVIDED that the amount of Indebtedness permitted to be incurred
pursuant to the Credit Facilities in accordance with this clause (2)
shall be in addition to any Indebtedness permitted to be incurred
pursuant to the Credit Facilities in reliance on, and in accordance with,
clauses (7), (13) and (14) below;
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(3) other indebtedness of TransDigm and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(4) Interest Swap Obligations of TransDigm or any of its Restricted
Subsidiaries covering Indebtedness of TransDigm or any of its Restricted
Subsidiaries; PROVIDED that any Indebtedness to which any such Interest Swap
Obligations correspond is otherwise permitted to be incurred under the
Indenture; and PROVIDED, FURTHER, that such Interest Swap Obligations are
entered into, in the judgment of TransDigm, to protect TransDigm or any of
its Restricted Subsidiaries from fluctuation in interest rates on its
outstanding Indebtedness;
(5) Indebtedness of TransDigm or any Restricted Subsidiary under Hedging
Agreements and Currency Agreements;
(6) the incurrence by TransDigm or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among TransDigm and any such Restricted
Subsidiaries; PROVIDED, HOWEVER, that:
(a) if TransDigm is the obligor on such Indebtedness and the payee is
a Restricted Subsidiary that is not a Guarantor, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and
(b) (1) any subsequent issuance or transfer of Capital Stock that
results in any such Indebtedness being held by a Person other than
TransDigm or a Restricted Subsidiary thereof and
(2) any sale or other transfer of any such Indebtedness to a Person
that is not either TransDigm or a Restricted Subsidiary of TransDigm,
other than by way of granting a Lien permitted under the Indenture or in
connection with the exercise of remedies by a secured creditor shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
TransDigm or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) Indebtedness, including Capitalized Lease Obligations, incurred by
TransDigm or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property, whether real or personal, or equipment,
whether through the direct purchase of assets or the Capital Stock of any
person owning such assets, in an aggregate principal amount outstanding not
to exceed $5.0 million;
(8) Refinancing Indebtedness;
(9) guarantees by TransDigm and its Restricted Subsidiaries of each
other's Indebtedness; PROVIDED that such Indebtedness is permitted to be
incurred under the Indenture and PROVIDED, FURTHER, that in the event such
Indebtedness, other than Acquired Indebtedness, is incurred pursuant to the
Consolidated Fixed Charge Coverage Ratio, such guarantees are by TransDigm
or a Guarantor only;
(10) Indebtedness arising from agreements of TransDigm or a Restricted
Subsidiary of TransDigm providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of TransDigm, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; PROVIDEDthat the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually
received by TransDigm and its Restricted Subsidiaries in connection with
such disposition;
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(11) obligations in respect of performance and surety bonds and
completion guarantees provided by TransDigm or any Restricted Subsidiary of
TransDigm in the ordinary course of business;
(12) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to TransDigm or
any Subsidiary of TransDigm, except for Standard Securitization
Undertakings;
(13) Indebtedness incurred by TransDigm or any of the Guarantors in
connection with the acquisition of a Permitted Business which Indebtedness
is incurred on or prior to September 30, 1999; PROVIDED that on the date of
the incurrence of such Indebtedness, after giving effect to the incurrence
thereof and the use of proceeds therefrom, the Consolidated Fixed Charge
Coverage Ratio of TransDigm would be greater than the greater of (x) the
Consolidated Fixed Charge Coverage Ratio of TransDigm immediately prior to
the incurrence of such Indebtedness and (y) the Consolidated Fixed Charge
Coverage Ratio of TransDigm on the Issue Date;
(14) additional Indebtedness of TransDigm and its Restricted
Subsidiaries in an aggregate principal amount does not exceed $10.0 million
at any one time outstanding, which amount may, but need not, be incurred in
whole or in part under a Credit Facility;
(15) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently, except in
the case of daylight overdrafts, drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such indebtedness is
extinguished within five business days of incurrence; and
(16) Indebtedness of TransDigm or any of its Restricted Subsidiaries
represented by letters of credit for the account of TransDigm or such
Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of TransDigm or such Restricted Subsidiary, including, without
limitation, in order to provide security for workers' compensation claims or
payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business and other Indebtedness with
respect to workers' compensation claims, self-insurance obligations,
performance, surety and similar bonds and completion guarantees provided by
TransDigm or any Restricted Subsidiary of TransDigm in the ordinary course
of business.
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (16) above or is entitled to be incurred
pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such
covenant, TransDigm shall, in its sole discretion, classify, or later
reclassify, such item of Indebtedness in any manner that complies with such
covenant. Accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Capital Stock in the form of additional shares of the same class of Disqualified
Capital Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Capital Stock for purposes of the "Limitations on
Incurrence of Additional Indebtedness" covenant.
"PERMITTED INVESTMENTS" means:
(1) Investments by TransDigm or any Restricted Subsidiary of TransDigm
in any Restricted Subsidiary of TransDigm (other than a Restricted
Subsidiary of TransDigm in which an Affiliate of TransDigm that is not a
Restricted Subsidiary of TransDigm holds a minority interest) (whether
existing on the Issue Date or created after the Issue Date) or any Person
(including by means of any transfer of cash or other property) if as a
result of that Investment that Person shall become a Restricted Subsidiary
of TransDigm, other than Restricted Subsidiary of TransDigm in which an
Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm
holds a minority interest,
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or that will merge with or consolidate into TransDigm or a Restricted
Subsidiary of TransDigm and Investments in TransDigm by any Restricted
Subsidiary of TransDigm;
(2) investments in cash and Cash Equivalents;
(3) loans and advances to employees and officers of TransDigm and its
Restricted Subsidiaries for bona fide business purposes in an aggregate
principal amount not to exceed $5.0 million at any one time outstanding;
(4) Currency Agreements, Hedging Agreements and Interest Swap
Obligations entered into in the ordinary course of business and otherwise in
compliance with the Indenture;
(5) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good
faith settlement of delinquent obligations of such trade creditors or
customers;
(6) Investments made by TransDigm or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant;
(7) Investments existing on the Issue Date;
(8) accounts receivable created or acquired in the ordinary course of
business;
(9) guarantees by TransDigm or a Restricted Subsidiary of TransDigm
permitted to be incurred under the Indenture;
(10) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (10) that
are at that time outstanding, not to exceed $10.0 million, with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value;
(11) any Investment by TransDigm or a Subsidiary of TransDigm in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest; and
(12) Investments the payment for which consists exclusively of Qualified
Capital Stock of TransDigm.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either:
(a) not delinquent; or
(b) contested in good faith by appropriate proceedings and as to
which TransDigm or its Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen and repairmen and other Liens imposed by
law incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any
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Lien securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations, exclusive of obligations for the payment of
borrowed money;
(4) judgment Liens not giving rise to an Event of Default;
(5) easements, rights-of-way zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of TransDigm or
any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation;
(7) purchase money Liens to finance property or assets of TransDigm or
any Restricted Subsidiary of TransDigm acquired, constructed or improved in
the ordinary course of business; PROVIDED, HOWEVER, that
(a) the related purchase money Indebtedness shall not exceed the cost
of such property or assets and shall not be secured by any property or
assets of TransDigm or any Restricted Subsidiary of TransDigm other than
the property and assets so acquired and
(b) the Lien securing such Indebtedness shall be created within 90
days of such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of TransDigm or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens securing Indebtedness under Currency Agreements and Hedging
Agreements;
(13) Liens incurred in the ordinary course of business of TransDigm or
any Restricted Subsidiary with respect to obligations that do not in the
aggregate exceed $5.0 million at any one time outstanding;
(14) Liens on assets transferred to a Securitization Entity or an assets
of a Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction;
(15) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of TransDigm and its
Restricted Subsidiaries;
(16) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(17) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(18) Liens securing Acquired Indebtedness incurred in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
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(19) Liens placed upon assets of a Restricted Subsidiary of TransDigm
that is not a Guarantor to secure Indebtedness of such Restricted Subsidiary
that is otherwise permitted under the Indenture; and
(20) Liens existing on the Issue Date, together with any Liens securing
Indebtedness incurred in reliance on clause (8) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by
Liens existing on the Issue Date; PROVIDED that the Liens securing the
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced.
"PERMITTED SUBSIDIARY PREFERRED STOCK" means any series of Preferred Stock
of a Restricted Subsidiary of TransDigm that constitutes Qualified Capital Stock
and has a fixed dividend rate, the liquidation value of all series of which,
when combined with the aggregate amount of Indebtedness of TransDigm and its
Restricted Subsidiaries incurred pursuant to clause (14) of the definition of
Permitted Indebtedness, does not exceed $5.0 million.
"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision of a governmental agency.
"PREFERRED STOCK" of any Person means any Capital Stock of that Person that
has preferential rights to any other Capital Stock of that Person with respect
to dividends or redemptions or upon liquidation.
"PRODUCTIVE ASSETS" means assets, including Capital Stock, that are used or
usable by TransDigm and its Restricted Subsidiaries in Permitted Businesses.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from TransDigm or any
Subsidiary of TransDigm in connection with a Qualified Securitization
Transaction to a Securitization Entity, which note shall be repaid from cash
available to the Securitization Entity other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest and principal and amounts paid in connection with the
purchase of newly generated receivables or newly acquired equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions that may be entered into by TransDigm or any of its Restricted
Subsidiaries pursuant to which TransDigm or any of its Subsidiaries may sell,
convey or otherwise transfer to:
(1) a Securitization Entity, in the case of a transfer by TransDigm or
any of its Restricted Subsidiaries; and
(2) any other Person, in the case of a transfer by a Securitization
Entity, or may grant a security interest in any accounts receivable or
equipment, whether now existing or arising or acquired in the future, of
TransDigm or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable and equipment, all contracts and contract rights and all
guarantees or other obligations in respect of such accounts receivable and
equipment, proceeds of such accounts receivable and equipment and other
assets, including contract rights, which are customarily transferred or in
respect of which security interests are customarily granted in connection
with assets securitization transactions involving accounts receivable and
equipment.
"RECAPITALIZATION" means the recapitalization of Holdings consummated on the
Issue Date.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or
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replacement for, such security or Indebtedness in whole or in part. "Refinanced"
and "Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing, modification, replacement,
restatement, refunding, deferral, extension, substitution, supplement,
reissuance or resale of existing or future Indebtedness, other than intercompany
Indebtedness, including any additional Indebtedness incurred to pay interest or
premiums required by the instruments governing such existing or future
Indebtedness as in effect at the time of issuance thereof ("Required Premiums")
and fees in connection therewith; PROVIDED that any such event shall not:
(1) directly or indirectly result in an increase in the aggregate
principal amount of Permitted Indebtedness, except to the extent such
increase is a result of a simultaneous incurrence of additional
Indebtedness:
(a) to pay Required Premiums and related fees; or
(b) otherwise permitted to be incurred under the Indenture; and
(2) create Indebtedness with a Weighted Average Life to Maturity at the
time that Indebtedness is incurred that is less than the Weighted Average
Life to Maturity at such time of the Indebtedness being refinanced,
modified, replaced, renewed, restated, refunded, deferred, extended,
substituted, supplemented, reissued or resold.
"RELATED PARTY" with respect to any Permitted Holder means:
(a) (1) any spouse, sibling, parent or child of such Permitted
Holder; or
(2) the estate of any Permitted Holder during any period in which
that estate holds Capital Stock of TransDigm for the benefit of any
Person referred to in clause (a)(1); or
(b) any trust, corporation, partnership, limited liability company or
other entity, the beneficiaries, stockholders, partners, owners or
Persons beneficially owning an interest of more than 50% of which consist
of, or the sole managing partner or managing member of which is, one or
more Permitted Holders and/or such other Persons referred to in the
immediately preceding clause (a).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to TransDigm or a Restricted Subsidiary of any property, whether owned
by TransDigm or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by TransDigm or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of TransDigm, or
another Person in which TransDigm or any Subsidiary of TransDigm makes an
Investment and to which TransDigm or any Subsidiary of TransDigm transfers
accounts receivable or equipment and related assets which engages in no
activities other than in connection with the financing of accounts receivable or
equipment and
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which is designated by the Board of Directors of TransDigm (as provided below)
as a Securitization Entity:
(1) no portion of the Indebtedness or any other Obligations, contingent
or otherwise, of which:
(a) is guaranteed by TransDigm or any Restricted Subsidiary of
TransDigm (excluding guarantees of Obligations, other than the principal
of, and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings;
(b) is recourse to or obligates TransDigm or any Restricted
Subsidiary of TransDigm in any way other than pursuant to Standard
Securitization Undertakings; or
(c) subjects any property or asset of TransDigm or any Restricted
Subsidiary of TransDigm directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings;
(2) with which neither TransDigm nor any Restricted Subsidiary of
TransDigm has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to TransDigm or such Restricted
Subsidiary than those that might be obtained at the time from Persons that
are not Affiliates of TransDigm, other than fees payable in the ordinary
course of business in connection with servicing receivables of such entity;
and
(3) to which neither TransDigm nor any Restricted Subsidiary of
TransDigm has any obligations to maintain or preserve such entity's
financial condition or cause such entity to achieve certain levels of
operating results.
Any such designation by the Board of Directors of TransDigm shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution of TransDigm giving effect to such designation and an Officers'
Certificate certifying that such designation complied with foregoing conditions.
"SENIOR DEBT" means the principal of, premium, if any, and interest,
including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect to that
Senior Debt, whether or not such interest is an allowed claim under applicable
law, on any Indebtedness of TransDigm or any Guarantor, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include the
principal of, premium, if any, interest, including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect to that Senior Debt, whether or not such interest
is an allowed claim under applicable law, on, and all other amounts owing in
respect of:
(x) all monetary obligations of every nature of TransDigm or any
Guarantor under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations and guarantees of those Interest Swap
Obligations; and
(z) all obligations and guarantees of those obligations under Currency
Agreements and Hedging Agreements, in each case whether outstanding on the
Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(i) any Indebtedness of TransDigm or a Guarantor to TransDigm or to a
Subsidiary of TransDigm;
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(ii) other than the Holdings PIK Notes, any Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee
of TransDigm or any Subsidiary of TransDigm, including, without
limitation, amounts owed for compensation, other than a shareholder who
is also a lender or an Affiliate of a lender under the Credit Facilities,
including the New Credit Facility;
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by TransDigm;
(vi) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (vi) if
the holder(s) of that obligation or their representative and the Trustee
shall have received an Officer's Certificate of TransDigm to the effect
that the incurrence of such Indebtedness does not or, in the case of
revolving credit indebtedness, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing
thereunder is made would not violate such provisions of the Indenture;
(vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is
without recourse to TransDigm; and
(viii) any Indebtedness which is, by its express terms, subordinated
in right of payment to any other Indebtedness of TransDigm.
"SIGNIFICANT SUBSIDIARY," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by TransDigm or any subsidiary of
TransDigm which are reasonably customary in an accounts receivable or equipment
transaction.
"STOCKHOLDERS AGREEMENTS" means those certain stockholders agreements
entered into in connection with the Recapitalization.
"SUBSIDIARY," with respect to any Person, means:
(i) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly by such Person; or
(ii) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"TAX ALLOCATION AGREEMENT" means the tax allocation agreement dated as of
the Issue Date between Holdings and TransDigm.
"TOTAL ASSETS" means the total consolidated assets of TransDigm and its
Restricted Subsidiaries, as set forth on TransDigm's most recent consolidated
balance sheet.
"U.S. SUBSIDIARY" means any Subsidiary of TransDigm that is incorporated
under the laws of the United States or any State thereof or the District of
Columbia.
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"UNRESTRICTED SUBSIDIARY" of any Person means:
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary, including any newly
acquired or newly formed Subsidiary, to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, TransDigm or any other Subsidiary of TransDigm that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED that:
(1) TransDigm certifies to the Trustee that such designation complies
with the "Limitation on Restricted Payments" covenant; and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of TransDigm or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if (x) immediately after giving effect to that
designation, TransDigm is able to incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such
Indebtedness; into
(2) the sum of the total of the products obtained by multiplying;
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment
at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities, other than, in the case of a
Restricted Subsidiary, that is incorporated in a jurisdiction other than a State
in the United States or the District of Columbia, directors' qualifying shares
or an immaterial amount of shares required to be owned by other Persons pursuant
to applicable law, are owned by such Person or any Wholly Owned Subsidiary of
such Person.
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REGISTRATION RIGHTS
THE SUMMARY SET FORTH BELOW OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN
ITS ENTIRETY BY, ALL THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, A COPY
OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT.
TransDigm, the Initial Guarantors and the initial purchasers entered into
the Registration Rights Agreement on December 3, 1998 (the "Issue Date") under
the terms of which each of TransDigm and the Initial Guarantors agreed that they
will, at their expense, for the benefit of holders of the Old Notes (the
"Holders");
- within 60 days after the Issue Date (the "Filing Date"), file a
registration statement on an appropriate registration form (the "Exchange
Offer Registration Statement") with respect to a registered offer (the
"Exchange Offer") to exchange the Old Notes for these New Notes,
guaranteed on a senior subordinated basis by the Guarantors, which New
Notes will have terms substantially identical in all material respects to
the Old Notes; and
- cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act within 150 days after the Issue Date. Upon the
Exchange Offer Registration Statement being declared effective, TransDigm
will offer these New Notes in exchange for surrender of the Old Notes.
TransDigm will keep the Exchange Offer open for not less than 30 days
after the date notice of the Exchange Offer is mailed to the Holders. For
each of the Old Notes surrendered to TransDigm in to the Exchange Offer,
the Holder who surrendered that Old Note will receive a New Note having a
principal amount equal to that of the surrendered Old Note. Interest on
each New Note will accrue (1) from the later of (A) the last interest
payment date on which interest was paid on the Old Note surrendered in
exchange for the New Note, or (B) if the Old Note is surrendered for
exchange on a date in a period which includes the record date for an
interest payment date to occur on or after the date of that exchange and
as to which interest will be paid, the date of that interest payment date
or (2) if no interest has been paid on that Old Note, from the Issue Date.
If, (1) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, TransDigm is not permitted to
effect an exchange offer, (2) the Exchange Offer is not consummated by June 6,
1999 or (3) in certain circumstances, certain holders of unregistered Old Notes
so request, or (4) in the case of any Holder that participates in the exchange
offer, that Holder does not receive New Notes on the date of the exchange that
may be sold without restriction under state and federal securities laws, other
than due solely to the status of such Holder as an affiliate of the Company
within the meaning of the Securities Act, then in each case, TransDigm will (A)
promptly deliver to the Holders and the Trustee written notice of that event and
(B) at its sole expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Old Notes (the "Shelf
Registration Statement"); and (b) use its best efforts to keep effective the
Shelf Registration Statement until the earlier of two years after its effective
date or such time as all of the applicable Old Notes have been sold under the
Shelf Registration Statement. TransDigm will, in the event that a Shelf
Registration Statement is filed, provide to each Holder copies of the prospectus
that is a part of the Shelf Registration Statement, notify each such Holder when
the Shelf Registration Statement for the Old Notes has become effective and take
other actions as are required to permit unrestricted resales of the Old Notes. A
Holder that sells Old Notes relying on the Shelf Registration Statement will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to some of the civil
liability provisions under the Securities Act in connection with those sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to that Holder.
If TransDigm fails to comply with the above provisions or if the Exchange
Offer Registration Statement or the Shelf Registration Statement fails to become
effective, then, as liquidated damages,
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additional interest (the "Additional Interest") shall become payable in respect
of the Old Notes as follows:
- if (A) neither the Exchange Offer Registration Statement or Shelf
Registration Statement is filed with the Commission on or prior to the
applicable filing date or (B) notwithstanding that TransDigm has
consummated or will consummate an exchange offer, TransDigm is required to
file a Shelf Registration Statement and that Shelf Registration Statement
is not filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing
dates, Additional Interest shall accrue on the principal amount of the Old
Notes at a rate of 0.50% per year for the first 90 days immediately
following each such filing date, such Additional Interest rate increasing
by an additional 0.50% per year at the beginning of each subsequent 90-day
period; or
- if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 90 days after the applicable filing deadline set for that filing in the
Registration Rights Agreement or (B) notwithstanding that TransDigm has
consummated or will consummate an exchange offer, TransDigm is required to
file a Shelf Registration Statement and such Shelf Registration Statement
is not declared effective by the Commission on or prior to the 90th day
following the filing date deadline set for such filing in the Registration
Rights Agreement, then, commencing on the day after such 90th day
following the filing deadline set for such filing in the Registration
Rights Agreement, Additional Interest shall accrue on the principal amount
of the Old Notes at a rate of 0.50% per year for the first 90 days
immediately following such date, that Additional Interest rate increasing
by an additional 0.50% per year at the beginning of each subsequent 90-day
period; or
- if (A) TransDigm has not exchanged New Notes for all Old Notes validly
tendered in accordance with the terms of the exchange offer on or prior to
the 185th day after the Issue Date or (B) if applicable, the Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of the Issue Date, unless at that time all Old Notes
have been disposed of under the Shelf Registration Statement, then
Additional Interest shall accrue on the principal amount of the Old Notes
at a rate of 0.50% per year for the first 90 days commencing on (x) the
185th day after the Issue Date, in the case of (A) above, or (y) the day
such Shelf Registration Statement ceases to be effective in the case of
(B) above, that Additional Interest rate increasing by an additional 0.50%
per year at the beginning of each subsequent 90-day period;
However, the Additional Interest rate on the Old Notes may not accrue under more
than one of the foregoing clauses at any one time and at no time shall the
aggregate amount of Additional Interest accruing exceed in the aggregate 1.0%
per year; and (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement, (2) upon the effectiveness of the Exchange
Offer Registration Statement or a Shelf Registration Statement, or (3) upon the
exchange of New Notes for all Old Notes tendered, or upon the effectiveness of
the Shelf Registration Statement which had ceased to remain effective.
Additional Interest on the Old Notes as a result of that clause, as the case may
be, shall cease to accrue.
Any amounts of Additional Interest will be payable in cash on the original
interest payment dates for the Old Notes.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons.
Except as described herein under the heading "-Certificated Securities," New
Notes will initially be represented by a permanent global New Note in fully
registered form without interest coupons (the "Global Note") and will be
deposited with the Trustee as custodian for DTC and registered in the name of a
nominee of such depositary.
THE GLOBAL NOTE
TransDigm expects that according to procedures established by DTC (A) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of the individual beneficial interests
represented by the Global Note to the respective accounts of persons who have
accounts with that depositary and (B) ownership of beneficial interests in the
Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee and the records
of participants. Ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the New
Notes, DTC or that nominee, as the case may be, will be considered the sole
owner or holder of the New Notes represented by the Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on, the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner of that Global Note. None of TransDigm, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Note or for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
TransDigm expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. TransDigm also expects that payments
by participants to owners of beneficial interests in the Global Note held
through those participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Those payments
will be the responsibility of those participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell New Notes to persons in
states that require physical delivery of the New Notes, or to pledge such
securities, that holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised TransDigm that it will take any action permitted to be taken
by a holder of New Notes, including the presentation of New Notes for exchange
as described below, only at the direction of one or more participants to whose
accounts the DTC interests in the Global Note are credited and only in respect
of that portion of the aggregate principal amount of New Notes as to which that
participant or those participants has or have given that direction. However, if
there is an Event of
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Default under the Indenture applicable to the Global Note, DTC will exchange the
Global Note for Certificated Securities, which it will distribute to its
participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform those procedures and those procedures may be
discontinued at any time. Neither TransDigm nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
Certificated securities shall be issued in exchange for the Old Notes in the
Exchange Offer or for beneficial interest in the Global Note, in each case, if
requested by a Holder of such Old Note or such beneficial interests,
respectively. In addition, certificated securities shall be issued in exchange
for beneficial interests in the Global Note if DTC is at any time unwilling or
unable to continue as a depositary for the Global Note and a successor
depositary is not appointed by TransDigm within 90 days.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material U.S. federal income
tax aspects of the exchange offer to holders of the Old Notes. This discussion
is summary for general information only and does not consider all aspects of the
Old Notes in light of such holder's personal circumstances. This discussion also
does not address the U.S. federal income tax consequences to holders subject to
special treatment under the U.S. federal income tax laws, such as dealers in
securities, or foreign currency, tax-exempt entities, banks, thrifts, insurance
companies, persons that hold the Old Notes as part of a "straddle", a "hedge"
against currency risk or a "conversion transaction"; persons that have a
"functional currency" other than the U.S. dollar, and investors in pass-through
entities. In addition, this discussion does not prescribe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing and presupposed regulations
thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decision now in effect, all of which are subject to change, possibly on
a retroactive basis. TransDigm has not and will not seek any rulings or opinions
from the IRS or counsel with respect to the matters discussed below. There can
be no assurance that the IRS will not take positions concerning the tax
consequences of the exchange offer which are difference from those discussed
herein.
HOLDERS OF THE OLD NOTES SHOULD CONSULT THEIR OWN ADVISORS CONCERNING THE
APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE,
LOCAL OR FOREIGN JURISDICTION, TO THE EXCHANGE OFFER IN LIGHT OF THEIR
PARTICULAR SITUATIONS.
The exchange of Old Notes for New Notes under the terms of the exchange
offer should not constitute a taxable exchange. As a result, a holder (A) should
not recognize taxable gains of loss as a result of exchanging Old Notes for New
Notes under the terms of the exchange offer, (B) the holding period of the New
Notes should include the holding period of the Old Notes exchanged for the New
Notes and (C) the adjusted tax basis of the New Notes should be the same as the
adjusted tax basis, immediately before the exchange of the Old Notes exchange
for the New Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus together with
any resale of those New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in the resales of
New Notes received in exchange for Old Notes where those Old Notes were acquired
as a result of market-making activities or other trading activities. TransDigm
has agreed that for a period of up to 180 days after the Expiration Date, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer that requests it in the letter of transmittal for use in any such
resale.
TransDigm and the Guarantors will not receive any proceeds from any sale of
New Notes by broker-dealers or any other persons. New Notes received by
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of those New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
TransDigm has agreed to pay all expenses incident to TransDigm's performance
of, or compliance with, the Registration Rights Agreement and will indemnify the
holders of Old Notes including any broker-dealers, and certain parties related
to such holders, against certain types of liabilities, including liabilities
under the Securities Act.
EXPERTS
The consolidated financial statements of TransDigm Holding Company as of
September 30, 1998 and 1997, and for each of the three years in the period ended
September 30, 1998, included in this prospectus and the related financial
statement schedule included elsewhere in the Registration Statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the Registration Statement, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Marathon Power Technologies Company
as of December 31, 1996 and 1995 and for each of the two years in the period
ended December 31, 1996 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of ZMP, Inc. as of June 26, 1998, and
for the year then ended, included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for
TransDigm by Latham & Watkins, New York, New York.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TRANSDIGM HOLDING COMPANY
Report of Deloitte & Touche LLP, Independent Auditors................................ F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997........................ F-3
Consolidated Statements of Income and Retained Earnings (Deficit) for each of the
three years in the period ended September 30, 1998................................. F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1998................................................................. F-5
Notes to Consolidated Financial Statements for each of the three years in the period
ended September 30, 1998........................................................... F-6
Unaudited Consolidated Balance Sheet as of January 1, 1999........................... F-19
Unaudited Consolidated Statements of Operations for the thirteen weeks ended January
1, 1999 and December 26, 1997...................................................... F-20
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the thirteen
weeks ended January 1, 1999........................................................ F-21
Unaudited Consolidated Statements of Cash Flows for the thirteen weeks ended January
1, 1999 and December 26, 1997...................................................... F-22
Notes to Unaudited Consolidated Financial Statements for the thirteen weeks ended
January 1, 1999 and December 26, 1997.............................................. F-23
MARATHON POWER TECHNOLOGIES COMPANY
Report of PricewaterhouseCoopers LLP, Independent Accountants........................ F-26
Consolidated Balance Sheets as of December 31, 1996 and 1995......................... F-27
Consolidated Statements of Operations and Retained Earnings for each of the two years
in the period ended December 31, 1996.............................................. F-28
Consolidated Statements of Cash Flows for each of the two years in the period ended
December 31, 1996.................................................................. F-29
Notes to Consolidated Financial Statements for each of the two years in the period
ended December 31, 1996............................................................ F-30
ZMP, INC.
Report of Deloitte & Touche LLP, Independent Auditors................................ F-37
Consolidated Balance Sheet as of June 26, 1998....................................... F-38
Consolidated Statement of Income and Retained Earnings for the year ended June 26,
1998............................................................................... F-39
Consolidated Statement of Cash Flows for the year ended June 26, 1998................ F-40
Notes to Consolidated Financial Statements for the year ended June 26, 1998.......... F-41
Unaudited Consolidated Balance Sheet as of December 25, 1998......................... F-47
Unaudited Consolidated Statements of Income for the twenty-six weeks ended December
25, 1998 and December 26, 1997..................................................... F-48
Unaudited Consolidated Statement of Stockholders' Equity for the twenty-six weeks
ended December 25, 1998............................................................ F-49
Unaudited Consolidated Statements of Cash Flows for the twenty-six weeks ended
December 25, 1998 and December 26, 1997............................................ F-50
Notes to Unaudited Consolidated Financial Statements for the twenty-six weeks ended
December 25, 1998 and December 26, 1997............................................ F-51
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TransDigm Holding Company
We have audited the accompanying consolidated balance sheets of TransDigm
Holding Company and its subsidiaries (the "Company") as of September 30, 1998
and 1997, and the related consolidated statements of income and retained
earnings (deficit) and of cash flows for each of the three years in the period
ended September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of TransDigm Holding Company and
its subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 17 to the consolidated financial statements, in 1998,
the Company retroactively changed its method of accounting for put warrants.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 9, 1998 (except for Note 18 for which the date is December 3, 1998)
F-2
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS (NOTE 9)
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 19,486 $ 5,397
Accounts receivable--Net (Note 4)....................................................... 12,530 12,475
Inventories (Note 5).................................................................... 18,280 17,410
Deferred income taxes (Note 11)......................................................... 3,799 3,902
Prepaid expenses and other.............................................................. 165 313
---------- ----------
Total current assets................................................................ 54,260 39,497
PROPERTY, PLANT AND EQUIPMENT--Net (Note 6)............................................... 21,951 21,022
INTANGIBLE ASSETS--Net (Note 7)........................................................... 35,294 37,508
DEBT ISSUE COSTS--Net..................................................................... 606 873
DEFERRED INCOME TAXES (Note 11)........................................................... 3,674 3,069
---------- ----------
TOTAL..................................................................................... $ 115,785 $ 101,969
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 9).............................................. $ 5,000 $ 5,000
Accounts payable........................................................................ 5,667 5,275
Accrued liabilities (Note 8)............................................................ 10,239 12,702
Put warrants (Notes 9 and 17)........................................................... 16,700 --
---------- ----------
Total current liabilities........................................................... 37,606 22,977
LONG-TERM DEBT--Less current portion (Note 9)............................................. 40,000 45,000
PUT WARRANTS (Notes 9 and 17)............................................................. -- 10,160
NON-CURRENT PORTION OF ACCRUED PENSION COSTS (Note 10).................................... 1,752 1,219
---------- ----------
Total liabilities................................................................... 79,358 79,356
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY:
Capital stock (Note 12)................................................................. 24,281 24,352
Retained earnings (deficit)............................................................. 12,900 (1,237)
Minimum pension liability adjustment (Note 10).......................................... (754) (502)
---------- ----------
Total stockholders' equity.......................................................... 36,427 22,613
---------- ----------
TOTAL..................................................................................... $ 115,785 $ 101,969
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
NET SALES (Note 4).............................................................. $ 110,868 $ 78,159 $ 62,897
COST OF SALES (Including charge of $242 in 1998 and $666 in 1997 due to
inventory purchase accounting adjustment) (Note 2)............................ 59,395 49,303 41,874
---------- --------- ---------
GROSS PROFIT.................................................................... 51,473 28,856 21,023
---------- --------- ---------
OPERATING EXPENSES:
Selling and administrative.................................................... 10,473 7,561 6,459
Amortization of intangibles................................................... 2,438 2,089 3,838
Research and development...................................................... 1,724 1,116 836
---------- --------- ---------
Total operating expenses.................................................. 14,635 10,766 11,133
---------- --------- ---------
INCOME FROM OPERATIONS.......................................................... 36,838 18,090 9,890
INTEREST EXPENSE--NET........................................................... 3,175 3,463 4,510
WARRANT PUT VALUE ADJUSTMENT (Note 17).......................................... 6,540 4,800 2,160
---------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS............................... 27,123 9,827 3,220
INCOME TAX PROVISION (Note 11).................................................. 12,986 5,193 2,045
---------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS................................................ 14,137 4,634 1,175
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $975
(Note 9)...................................................................... -- 1,462 --
---------- --------- ---------
NET INCOME...................................................................... 14,137 3,172 1,175
---------- --------- ---------
RETAINED EARNINGS (DEFICIT) BEGINNING OF YEAR:
As previously reported........................................................ -- (1,985) (4,537)
Accounting change (Note 17)................................................... -- (2,424) (1,047)
---------- --------- ---------
As restated................................................................... (1,237) (4,409) (5,584)
---------- --------- ---------
RETAINED EARNINGS (DEFICIT), END OF YEAR........................................ $ 12,900 $ (1,237) $ (4,409)
---------- --------- ---------
---------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
OPERATING ACTIVITIES:
Net income.................................................................. $ 14,137 $ 3,172 $ 1,175
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 4,029 3,677 3,485
Amortization of intangibles............................................... 2,438 2,089 3,838
Amortization of debt discount and debt issue costs........................ 267 757 1,267
Warrant put value adjustment.............................................. 6,540 4,800 2,160
Deferred income taxes..................................................... (341) (1,733) 839
Extraordinary charge for early extinguishment of debt (Note 9)............ -- 1,462 --
Changes in assets and liabilities, net of effects from acquisition of
business (Note 2):
Accounts receivable..................................................... (821) (1,343) 2,790
Inventories............................................................. (870) 337 1,794
Prepaid expenses and other assets....................................... 148 787 (361)
Accounts payable........................................................ 392 1,233 1,224
Accrued and other liabilities........................................... (2,464) 2,230 484
---------- ---------- ----------
Net cash provided by operating activities................................. 23,455 17,468 18,695
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures........................................................ (5,061) (2,285) (2,494)
Acquisition of Marathon Power Technologies Company, net of cash acquired of
$748 (Note 2)............................................................. 766 (40,875) --
---------- ---------- ----------
Net cash used in investing activities....................................... (4,295) (43,160) (2,494)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from term loan net of fees of $873................................. -- 49,127 --
Net repayments under revolving credit loans................................. -- -- (6,690)
Repayment of term and subordinated notes including prepayment charge of $867
in 1997 (Note 9).......................................................... (5,000) (20,867) (6,500)
Proceeds from issuance of capital stock..................................... -- 67 115
Purchase of capital stock................................................... (71) (174) (400)
---------- ---------- ----------
Net cash provided by (used in) financing activities......................... (5,071) 28,153 (13,475)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 14,089 2,461 2,726
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 5,397 2,936 210
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 19,486 $ 5,397 $ 2,936
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest...................................... $ 3,640 $ 2,600 $ 3,483
---------- ---------- ----------
---------- ---------- ----------
Cash paid during the year for income taxes.................................. $ 13,490 $ 5,468 $ 700
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holding Company ("Holding") through its wholly-owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary
mechanical components servicing the aircraft, mining, marine and other
manufacturing industries. TransDigm along with its wholly-owned subsidiary,
Marathon Power Technologies Company ("Marathon"), offers a broad line of
component products including tube connectors, valves, batteries, static
inverters, pumps, quick disconnects, clamps and ball bearing and sliding
controls. Holding has no operations, liabilities or assets except for its
investment in TransDigm.
On August 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity formed
by affiliates of Odyssey Investment Partners, LP ("Odyssey") and Holding entered
into a definitive agreement and plan of merger which agreement was amended on
November 9, 1998 (the "Merger Agreement" or the "Merger"). Pursuant to the terms
of the Merger, Acquiror will be merged with and into Holding, with Holding being
the surviving corporation in the Merger (the "Surviving Corporation"). In the
Merger, holders of Holding's outstanding common stock will be entitled to
receive, in exchange for each outstanding share of common stock (except for
shares held directly or indirectly by Holding or the Rolled Shares, as defined
below) the "Per Share Merger Consideration" as defined in the Merger Agreement.
The aggregate consideration payable pursuant to the Merger, including amounts
payable to holders of options and warrants, is expected to be approximately
$299.7 million.
In connection with the Merger, Kelso Investment Associates IV, LP and Kelso
Equity Partners II, LP (collectively "Kelso") will retain approximately 15.4% of
the Surviving Corporation's outstanding common stock (the "Rolled Shares")
subject to adjustment for certain transactions prior to closing. In addition,
certain members of management of Holding agreed, in connection with and as a
condition to entering into the Merger Agreement, to rollover stock options with
an estimated gross and net value of approximately $17.2 million and $13.7
million, respectively.
The Merger is intended to be treated as a recapitalization for financial
reporting purposes which will have no impact on the historical basis of
Holding's consolidated assets and liabilities. The Merger is subject to
customary closing conditions, including the termination or expiration of the
relevant waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended, Holding having a minimum consolidated net worth, as defined,
at closing of not less than $52 million and funding of committed financing.
Odyssey has received financing commitments for the transactions from Bankers
Trust Corporation, whose commitments are subject to certain conditions.
Simultaneously with the Merger, Holding and TransDigm will refinance all of
its existing debt (Note 9). The Merger, the refinancing, and payment of fees and
expenses are expected to be funded by (i) existing cash balances, (ii)
investments by Odyssey of $100.2 million, (iii) funds from a new $120 million
Senior Credit Facility, (iv) funds from $125 million senior subordinated notes
and (v) Holding PIK notes and additional common stock of $20 million issued to
certain stockholders. After consummation of the Merger, Holding anticipates that
it will have approximately $27.0 million available for working capital, certain
permitted acquisitions and for general corporate purposes under the new Senior
Credit Facility.
Upon consummation of the Merger, Odyssey and its co-investors will own
approximately 73.7% of the Surviving Corporation's common stock and Kelso and
other continuing stockholders will own approximately 26.3% of the outstanding
shares of Holdings' common stock on a fully diluted basis.
F-6
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND MERGER (CONTINUED)
During each of the years ended September 30, 1998, 1997 and 1996, TransDigm
paid Kelso a management fee of approximately $0.1 million.
2. ACQUISITION
On August 8, 1997, TransDigm acquired all of the outstanding common stock of
Marathon for approximately $41.6 million in cash (including acquisition
expenses), $4 million of which was placed into two $2 million escrow accounts
(an environmental escrow and an indemnity escrow) to indemnify TransDigm in the
event certain defined environmental and other costs were incurred by Marathon or
TransDigm subsequent to the acquisition. At September 30, 1997, a post-closing
purchase price adjustment of approximately $.8 million was due from the seller
(see Note 4), which was received during November 1997 from the indemnity escrow.
The remainder of the indemnity escrow was released to the seller during the year
ended September 30, 1998. The environmental escrow account expires after the
occurrence of certain defined events in the Stock Purchase Agreement. During
September 1998, the seller filed a lawsuit against the Company to release the
environmental escrow alleging that the Company had violated the requirements of
the Stock Purchase Agreement relating to the investigation of the presence of
certain contaminants at the Marathon facility in Texas (Note 15). The Company
has filed counter claims against the seller and the ultimate outcome of this
matter cannot presently be determined.
The acquisition has been accounted for as a purchase. Accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based upon their estimated fair value at the date of acquisition, as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets..................................................... $ 8,176
Property and equipment............................................. 9,519
Intangible and other assets........................................ 28,859
Current liabilities................................................ (4,308)
Other liabilities.................................................. (1,389)
---------
Net............................................................ $ 40,857
---------
---------
</TABLE>
The acquisition was financed with available cash of approximately $10.9
million and the proceeds of senior term debt of approximately $30 million. The
excess of the aggregate purchase price over the fair market value of net assets
acquired of approximately $28.9 million was recognized as goodwill.
F-7
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
2. ACQUISITION (CONTINUED)
Marathon's results of operations have been included in Holdings' financial
statements since the date of the acquisition. The following table summarizes the
unaudited consolidated pro forma results of operations, as if the acquisition
had occurred at the beginning of the following periods:
<TABLE>
<CAPTION>
UNAUDITED
<S> <C> <C>
YEAR ENDED SEPTEMBER
30,
--------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Net sales............................................................... $ 96,075 $ 82,425
Income before income taxes and extraordinary items...................... 11,220 9,190
Net income.............................................................. 3,894 1,522
</TABLE>
Pro forma net income for the year ended September 30, 1997 includes an
extraordinary loss from extinguishment of debt (net of income taxes of $975) of
$1,462. Pro forma net income for the year ended September 30, 1996 includes an
extraordinary gain from Marathon's extinguishment of debt (net of income taxes
of $135) of $230.
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the operations had been combined
during the periods presented and is not intended to be a projection of future
results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION--The accompanying consolidated financial statements include
the accounts of TransDigm Holding Company and subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated. Because TransDigm Holding Company has no operations of its own and,
prior to the Recapitalization, had no assets or liabilities other than its
equity interest in TransDigm, the consolidated financial statements of TransDigm
Holding Company for the three year period ended September 30, 1998 are identical
to the historical consolidated financial statements of TransDigm.
REVENUE RECOGNITION--Revenue is recognized when products are shipped to the
customer. Any anticipated losses on contracts are charged to earnings when
identified.
CASH EQUIVALENTS--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS--The Company reserves for amounts
determined to be uncollectible based on specific identification and historical
experience.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost of
inventories is determined by the average cost and the first-in, first-out (FIFO)
methods. In accordance with industry practice, all inventories are classified as
current assets even though a portion of the inventories is not expected to be
realized within one year.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method at rates based on
the estimated useful lives of the assets.
F-8
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUE COSTS AND DISCOUNTS--The cost of obtaining financing for the
acquisition as well as debt discounts are amortized using the interest method
over the respective terms of the related debt issues.
INTANGIBLE ASSETS--Intangible assets are amortized on a straight-line basis
over their respective estimated useful lives ranging from 2 to 40 years. The
Company assesses the recoverability of intangibles by determining whether the
amortization over the remaining life can be recovered through projected
undiscounted cash flows from future operations.
INCOME TAXES--The Company accounts for income taxes using an asset and
liability approach. Deferred taxes are recorded for the difference between the
book and tax basis of various assets and liabilities.
PRODUCT WARRANTY COSTS--The Company provides a one year warranty on certain
products beginning on the date the product is installed on an aircraft. A
provision for estimated sales returns and the cost of repairs is recorded at the
time of sale and periodically adjusted to reflect actual experience.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. ACCOUNTS RECEIVABLE, MAJOR CUSTOMERS AND EXPORT SALES
Accounts receivable consist of the following at September 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Due from U.S. government or prime contractors under
U.S. government programs.............................................. $ 1,217 $ 773
Commercial customers.................................................... 11,578 11,439
Marathon post-closing purchase price adjustment (Note 2)................ -- 766
Allowance for uncollectible amounts..................................... (265) (503)
--------- ---------
Accounts receivable--net................................................ $ 12,530 $ 12,475
--------- ---------
--------- ---------
</TABLE>
The Company's sales and receivables are concentrated in the aircraft
industry. The Company's customers consist primarily of original equipment
manufacturers of aircraft and aircraft subassemblies, commercial airlines,
distributors, and various agencies of the United States government, including
the U.S. military.
For the year ended September 30, 1998, two customers represented
approximately 20% and 14%, respectively, of the Company's net sales. One
customer represented approximately 15% of the Company's net sales during the
year ended September 30, 1997 and a group of related customers represented
approximately 11% of the Company's net sales for the year ended September 30,
1996.
Export sales to customers, primarily in Western Europe, were $17.8 million
in 1998, $15.5 million in 1997 and $12.3 million in 1996.
F-9
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
4. ACCOUNTS RECEIVABLE, MAJOR CUSTOMERS AND EXPORT SALES (CONTINUED)
Approximately 9.6% of the Company's receivables at September 30, 1998 were
due from one customer and approximately 14.5% of the receivables were due from
entities which principally operate outside of the United States. Credit is
extended based on an evaluation of the customer's financial condition and
collateral is generally not required.
5. INVENTORIES
Inventories consist of the following at September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Work-in-progress and finished goods............................................... $ 10,577 $ 14,913
Raw materials and purchased component parts....................................... 12,038 6,268
--------- ---------
Total........................................................................... 22,615 21,181
Reserve for excess and obsolete inventory......................................... (4,335) (3,771)
--------- ---------
Inventories--net.................................................................. $ 18,280 $ 17,410
--------- ---------
--------- ---------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30
(dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and improvements........................................................... $ 4,683 $ 4,667
Buildings and improvements...................................................... 8,125 7,575
Machinery and equipment......................................................... 26,198 21,977
Construction in progress........................................................ 150 265
---------- ----------
Total......................................................................... 39,156 34,484
Accumulated depreciation........................................................ (17,205) (13,462)
---------- ----------
Property, plant and equipment--net.............................................. $ 21,951 $ 21,022
---------- ----------
---------- ----------
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the following
at September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Goodwill.................................................................................... $ 33,341 $ 34,155
Technology and other........................................................................ 1,953 3,353
--------- ---------
Total....................................................................................... $ 35,294 $ 37,508
--------- ---------
--------- ---------
</TABLE>
Accumulated amortization of intangibles was $16.5 million at September 30,
1998 and $14 million at September 30, 1997.
F-10
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Compensation and related benefits....................................... $ 3,993 $ 4,025
Estimated losses on uncompleted contracts............................... 3,012 3,733
Sales returns and repairs............................................... 1,391 1,797
Environmental costs..................................................... 280 683
Income taxes............................................................ 380 266
Interest................................................................ 135 350
Other................................................................... 1,048 1,848
--------- ---------
Total................................................................... $ 10,239 $ 12,702
--------- ---------
--------- ---------
</TABLE>
9. DEBT
SUMMARY--The Company's long-term debt consists of the following at September
30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Term loans.............................................................. $ 45,000 $ 50,000
Current maturities...................................................... (5,000) (5,000)
--------- ---------
Long-term portion....................................................... $ 40,000 $ 45,000
--------- ---------
--------- ---------
</TABLE>
REVOLVING CREDIT, SWING LINE, AND TERM LOANS--During the year ended
September 30, 1997, the Company obtained a new $70 million credit facility with
a group of financial institutions which consist of a $20 million revolving
credit line (including $1 million of available swing line loans) and $50 million
of term loans. At September 30, 1998, the Company had $20 million of borrowings
(the entire revolving credit line) available under the credit facility. Any
amounts borrowed under the revolving credit and swing line loans mature in the
year 2003 and amounts borrowed under the term loans mature on various dates
through the year 2003.
Borrowings under the credit facility bear interest at the Company's option
of (1) the Alternate Base Rate plus .25% or (2) the LIBO rate for Eurodollar
loans plus 1.25%, payable quarterly. The Alternate Base Rate is equal to the
highest of (a) the Prime Rate, (b) the Base CD Rate plus 1% or (c) the Federal
Funds Effective Rate plus .5%. The interest rate on outstanding borrowings at
September 30, 1998 was approximately 6.9%.
Any amounts borrowed under the credit facility are collateralized by
substantially all of the tangible assets of the Company. The agreement also
contains a number of restrictive covenants that, among other things, limit the
ability of the Company to incur indebtedness, pay dividends, engage in mergers
and consolidations, engage in transactions with affiliates, make capital
expenditures, engage in sales of assets or the stock of a subsidiary company and
make certain investments. The agreement also requires the maintenance of a
minimum net worth as well as debt to adjusted earnings, interest coverage, and
other ratios. The Company is in compliance with all financial covenants of the
credit facility as of September 30, 1998.
F-11
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
9. DEBT (CONTINUED)
The maturities of the Company's term loans are as follows: 1999--$5 million;
2000 through 2003-- $10 million each year.
SUBORDINATED NOTES--During the year ended September 30, 1997, the Company
redeemed, in advance of their scheduled maturity, outstanding subordinated notes
which had a carrying value at the time of the redemption of approximately $19.3
million ($20 million principal balance net of an unamortized discount of
approximately $.7 million). As a result of the redemption, the Company
recognized an extraordinary loss of approximately $1.5 million (net of a current
income tax benefit of approximately $1 million) on the early extinguishment of
debt which included prepayment costs of approximately $.8 million and the
write-off of the remaining unamortized debt issue costs of approximately $1
million. The subordinated notes bore interest at an annual rate of 13%, payable
semi-annually.
The subordinated notes included detachable warrants to purchase
approximately 16,000 shares of non-voting common stock of TransDigm Holding
Company at a price of $.10 per share which were not affected by the redemption
of the subordinated notes. The warrants are not exercisable except in connection
with the following triggering events: public offering of TransDigm Holding
Company's common stock, a business combination in which the Company is not the
surviving entity, and a change of control (see Note 1). If no transaction
constituting a triggering event is consummated prior to July 31, 1999, warrant
holders have the right to exercise a put option requiring the Company to
repurchase all of the warrants at their then appraised fair market value. If the
warrant holders have not exercised their put option prior to September 30, 2001,
then TransDigm Holding Company will have the right to call the warrants at their
then appraised fair market value.
10. RETIREMENT PLANS
The Company has two non-contributory, defined benefit pension plans which
together cover all of its union employees. The plans provide benefits of stated
amounts for each year of service. The Company's funding policy is to contribute
actuarially determined amounts allowable under Internal Revenue Service
regulations. The plans' assets consist primarily of guaranteed investment
contracts with an insurance company.
Net periodic pension cost of the defined benefit plans consists of the
following for the years ended September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the period..................... $ 86 $ 74 $ 72
Interest cost on projected benefit obligation....................... 306 288 262
Actual return on plan assets........................................ (190) (136) (130)
Net amortization and deferral....................................... 94 101 28
--------- --------- ---------
Net periodic pension cost........................................... $ 296 $ 327 $ 232
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
10. RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets at September 30 (dollars
in thousands).
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation, substantially
all vested............................................................... $ 4,969 $ 4,096
Plan assets at fair value.................................................. 2,817 2,232
--------- ---------
Projected benefit obligation in excess of plan assets...................... 2,152 1,864
Unrecognized net loss from past experience different from that assumed..... (1,196) (791)
Unamortized prior service cost............................................. (226) (98)
Adjustment required to recognize additional minimum liability.............. 1,422 889
--------- ---------
Accrued pension cost recognized in the consolidated balance sheets (current
and long-term portions).................................................. $ 2,152 $ 1,864
--------- ---------
--------- ---------
</TABLE>
The assumptions used to determine net periodic pension cost as well as the
funded status are:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Discount rate................................................................... 6.5% 7.5%
Long-term rate of return on plan assets......................................... 7.5% 7.5%
</TABLE>
The provisions of Financial Accounting Standards Board Statement No. 87,
"Employers' Accounting for Pensions" require recognition in the balance sheet of
an additional minimum liability and related intangible asset (limited by the
amount of unamortized prior service cost) for pension plans with accumulated
benefits in excess of plan assets. At September 30, 1998 and 1997, an additional
liability of $1.4 million and $.9 million, respectively, is reflected in the
consolidated balance sheets. At September 30, 1998 and 1997, the liability
exceeded the unrecognized prior service cost resulting in a charge to
stockholders' equity, net of taxes, of $.8 million and $.5 million,
respectively.
The Company also sponsors a defined contribution employee savings plan which
covers substantially all of the Company's non-union employees. Under the plan,
the Company contributes a percentage of employee compensation and matches a
portion of employee contributions to the plan. The cost recognized for such
contributions under this plan for the years ended September 30, 1998, 1997 and
1996 was approximately $.6 million in all years.
F-13
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current......................................................... $ 13,327 $ 6,926 $ 2,897
Deferred........................................................ (341) (1,733) 839
Benefit of operating loss carryforward.......................... -- -- (1,691)
--------- --------- ---------
Total........................................................... $ 12,986 $ 5,193 $ 2,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the provision for income taxes at the federal
statutory income tax rate and the tax shown in the consolidated statements of
income and retained earnings (deficit) for the years ended September 30 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate of 35% (34% in 1997 and 1996)............. $ 9,493 $ 3,341 $ 1,095
State and local income taxes.................................... 1,053 445 160
Nondeductible warrant put value adjustment...................... 2,289 1,632 734
Benefit from foreign sales corporation.......................... (349) (394) --
Nondeductible goodwill amortization............................. 353 70 --
Other--net...................................................... 147 99 56
--------- --------- ---------
Provision for income taxes...................................... $ 12,986 $ 5,193 $ 2,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the deferred tax assets at September 30 consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSET:
Estimated losses on uncompleted contracts.................................. $ 1,175 $ 1,300
Employee benefits.......................................................... 649 743
Sales returns and repairs.................................................. 548 541
Other accrued liabilities.................................................. 1,427 1,318
--------- ---------
Total...................................................................... $ 3,799 $ 3,902
--------- ---------
--------- ---------
NON-CURRENT ASSET:
Intangible assets.......................................................... $ 3,724 $ 3,638
Retirement obligations..................................................... 596 401
Property, plant and equipment.............................................. (646) (970)
--------- ---------
Total...................................................................... $ 3,674 $ 3,069
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
12. STOCKHOLDERS' EQUITY
CAPITAL STOCK--Authorized capital stock of the Company consists of 900,000
shares of common stock (voting), par value $.01 per share and 100,000 shares of
Class A (non-voting) common stock. At September 30, 1998, outstanding common
shares were 236,120 of voting common stock and 13,750 of Class A non-voting
common stock. There was no change in the number of outstanding Class A
non-voting shares during the years ended September 30, 1998, 1997 and 1996.
During the years ended September 30, 1998, 1997, and 1996, the Company
issued voting common shares, principally to employees and members of its board
of directors, as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ---------
<S> <C> <C> <C>
Number of shares........................................................ -- 200 575
--- --- ---------
--- --- ---------
Proceeds................................................................ -- $ 67 $ 115
--- --- ---------
--- --- ---------
</TABLE>
During the years ended September 30, 1998, 1997, and 1996, the Company also
repurchased certain voting common shares, principally from terminated employees,
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- --------- ---------
<S> <C> <C> <C>
Number of shares....................................................... 175 410 1,085
--- --------- ---------
--- --------- ---------
Acquisition cost....................................................... $ 71 $ 174 $ 400
--- --------- ---------
--- --------- ---------
</TABLE>
STOCK OPTIONS--The Company has certain stock option plans for its employees.
The options generally vest upon the earlier of: (1) the occurrence of certain
events such as the achievement of certain earnings targets or a change in the
control of the Company or (2) certain specified dates in the option agreements.
A summary of the status of the Company's stock option plans as of September 30,
1998, 1997 and 1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ ------------------------------ ---------
<S> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
--------- ------------------- --------- ------------------- ---------
Outstanding at beginning of year....... 37,467 $ 158 31,150 $ 116 36,700
Granted................................ -- -- 7,597 324 4,900
Exercised.............................. -- -- (220) 145 (5,090)
Forfeited.............................. -- -- (1,060) 147 (5,360)
--------- --------- ---------
Outstanding at end of year............. 37,467 158 37,467 158 31,150
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year............. 19,670 113 17,121 110 14,792
--------- --------- ---------
--------- --------- ---------
<CAPTION>
<S> <C>
WEIGHTED-AVERAGE
EXERCISE PRICE
-------------------
Outstanding at beginning of year....... $ 105
Granted................................ 200
Exercised.............................. 100
Forfeited.............................. 100
Outstanding at end of year............. 116
Exercisable at end of year............. 106
</TABLE>
F-15
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
12. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
<S> <C> <C> <C>
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- ------------------------------------------------- ----------- --------------------- -----------
$100............................................. 25,170 5.8 17,020
154............................................. 400 6.8 200
200............................................. 4,900 7.5 2,450
335............................................. 6,997 8.5
----------- -----------
37,467 19,670
----------- -----------
----------- -----------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. No compensation cost
has been recognized for its stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method specified in
Statement of Financial Accounting Standards No. 123, the Company's net income
for the years ended September 30, 1998 and 1997 would have been reduced by
approximately $115,000 in both years.
The weighted average fair value of options granted during fiscal 1997 and
1996 was $950,000 and $340,000, respectively. The fair value of the options
granted was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants in both fiscal
1997 and 1996: risk-free interest rates ranging from 6.25% to 6.85%, expected
life of seven years, expected volatility and dividend yield of 0%.
13. LEASES
TransDigm leases office space for its corporate headquarters and one of its
divisions. The lease requires rental payments of approximately $200,000 per year
through the initial term of the lease, which expires in 1999. TransDigm may also
be required to share in the operating costs of the facility under certain
conditions. TransDigm has the option to renew the lease for an additional five
years beyond the expiration of the initial lease term. TransDigm also has
commitments under operating leases for vehicles and equipment. Rental expense
was $599,000 in 1998, $540,000 in 1997, and $570,000 in 1996. Future, minimum
rental commitments at September 30, 1998 under operating leases having initial
or remaining non-cancelable lease terms exceeding one year are $383,000 in 1999,
$166,000 in 2000, $79,000 in 2001, and $29,000 in 2002.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable and payable, and accrued liabilities approximate their fair value due
to the short-term maturities of these assets and liabilities. The Company also
believes that the aggregate fair value of its term loans approximates its
carrying amount because the interest rates on the debt are reset on a frequent
basis to reflect current market rates.
F-16
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
15. CONTINGENCIES
ENVIRONMENTAL--The soil and groundwater beneath the Company's facility in
Waco, Texas have been impacted by releases of hazardous materials. The resulting
contaminants of concern have been delineated and characterized. Because the
majority of these contaminants are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission ("TNRCC"), and because an
escrow (Note 2) was previously funded to cover the cost of remediation that
TNRCC might require for those contaminants currently in excess of action limits,
management does not believe the condition of the soil and groundwater at the
Waco facility will require incurrence of material expenditures.
OTHER--While the Company is currently involved in certain legal proceedings,
management believes the results of these proceedings will not have a material
effect on the financial condition, results of operations or cash flows of the
Company. During the ordinary course of business, the Company is from time to
time threatened with, or may become a party to, legal actions and other
proceedings. The Company believes that its potential exposure to such legal
actions is adequately covered by its aviation product and general liability
insurance.
16. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company's other comprehensive
income consists of the minimum pension liability adjustment. If the Company had
adopted SFAS No. 130, comprehensive income would have been reduced by $252,000,
$122,000, and $177,000 in 1998, 1997, and 1996, respectively. The Company will
adopt this standard during fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. The Company will adopt this standard during fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employer's Disclosures about Pensions and Other Postretirement Benefits."
The statement requires an enterprise to disclose certain information about its
pension and postretirement benefits, including a reconciliation of beginning and
ending balances of the benefit obligation, the funded status of the plans, and
the amount of net periodic benefit cost recognized. The Company will adopt this
standard during fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a
F-17
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
16. NEW ACCOUNTING STANDARDS (CONTINUED)
hedge of the exposure to variable cash flows of a forecasted transaction, or (c)
a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The Company will adopt this
standard during fiscal 2000.
While management has not completed its analysis of these new accounting
standards, the adoption of these standards is not expected to have a material
effect on the Company's financial statements.
17. ACCOUNTING CHANGE
In connection with the planned registration of the Senior Subordinated Notes
described in Note 1 with the Securities and Exchange Commission ("Commission"),
the Company has retroactively adopted a new method of accounting for the put
warrants issued in 1993 (see Note 9). The Company adopted the new method to
comply with the requirements of the Commission for put warrants. Under the new
method of accounting, the Company has recorded a liability for the estimated put
value of the warrants and is recognizing changes in the estimated put value in
earnings. Previously, the Company recognized the warrants as a component of
stockholders' equity and adjusted the carrying value of the warrants on a
straight-line basis for the difference between their original recorded amount of
$1.6 million and their estimated put value in July 1999, with an offsetting
charge to the Company's retained earnings (deficit). The Company has restated
its 1997 and 1996 consolidated financial statements for this change in
accordance with the provisions of Accounting Principles Board Opinion No. 20,
"Accounting Changes." The significant effects of the change in accounting on the
Company's consolidated statements of income and retained earnings (deficit) are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
As previously reported:
Income before extraordinary loss......................................... $ 9,434 $ 3,335
Net income............................................................... 7,972 3,335
As restated:
Income before extraordinary loss......................................... 4,634 1,175
Net income............................................................... 3,172 1,175
</TABLE>
Because the Merger described in Note 1 constitutes a "triggering event"
pursuant to the terms of the warrants, the warrant holders will be permitted to
exercise their put option in connection with the closing of the transaction.
Accordingly, the Company has adjusted the carrying value of the warrants in the
accompanying September 30, 1998 consolidated balance sheet to their estimated
fair value.
18. SUBSEQUENT EVENT
The Merger described in Note 1 was completed on December 3, 1998.
* * * * * * *
F-18
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
JANUARY 1,
1999
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................................... $ 2,103
Accounts receivable, net........................................................................... 14,403
Inventories........................................................................................ 18,180
Refundable income taxes............................................................................ 7,692
Deferred income taxes and other.................................................................... 3,992
-----------
Total current assets........................................................................... 46,370
PROPERTY, PLANT AND EQUIPMENT--Net................................................................... 21,709
INTANGIBLE ASSETS--Net............................................................................... 34,649
DEBT ISSUE COSTS--Net................................................................................ 11,101
DEFERRED INCOME TAXES AND OTHER...................................................................... 4,332
-----------
-----------
TOTAL................................................................................................ $ 118,161
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................................................. $ 4,700
Accounts payable................................................................................... 5,554
Accrued liabilities................................................................................ 9,362
-----------
Total current liabilities...................................................................... 19,616
LONG-TERM DEBT--Less current portion................................................................. 231,500
OTHER LIABILITIES.................................................................................... 2,410
-----------
Total liabilities.............................................................................. 253,526
-----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK.............................................................................. 800
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
Capital stock...................................................................................... 100,624
Retained earnings (deficit)........................................................................ (236,035)
Accumulated other comprehensive income............................................................. (754)
-----------
Total stockholders' equity (deficit)........................................................... (136,165)
-----------
TOTAL................................................................................................ $ 118,161
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------
<S> <C> <C>
JANUARY 1, DECEMBER 26,
1999 1997
----------- ------------
NET SALES.............................................................................. $ 28,194 $ 26,104
COST OF SALES.......................................................................... 14,937 14,707
----------- ------------
GROSS PROFIT........................................................................... 13,257 11,397
----------- ------------
OPERATING EXPENSES:
Selling and administrative........................................................... 2,685 2,669
Amortization of intangibles.......................................................... 645 635
Research and development............................................................. 448 339
Merger expenses...................................................................... 39,593 --
----------- ------------
Total operating expenses......................................................... 43,371 3,643
----------- ------------
INCOME (LOSS) FROM OPERATIONS.......................................................... (30,114) 7,754
INTEREST EXPENSE--Net.................................................................. 2,276 1,046
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES...................................................... (32,390) 6,708
INCOME TAX PROVISON (BENEFIT).......................................................... (7,566) 2,590
----------- ------------
NET INCOME (LOSS)...................................................................... $ (24,824) $ 4,118
----------- ------------
----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JANUARY 1, 1999
-----------------------------------------------------
ACCUMULATED
RETAINED OTHER
CAPITAL EARNINGS COMPREHENSIVE
STOCK (DEFICIT) INCOME TOTAL
---------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1998................................... $ 24,281 $ 12,900 $ (754) $ 36,427
ISSUANCE OF CAPITAL STOCK.................................. 100,200 100,200
PAYMENT OF CONSIDERATION IN RECAPITALIZATION............... (23,857) (224,111) (247,968)
NET LOSS................................................... -- (24,824) -- (24,824)
---------- ----------- ----- -----------
BALANCE, JANUARY 1, 1999................................... $ 100,624 $ (236,035) $ (754) $ (136,165)
---------- ----------- ----- -----------
---------- ----------- ----- -----------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
<S> <C> <C>
JANUARY 1, DECEMBER 26,
1999 1997
------------ ------------
OPERATING ACTIVITIES:
Net income (loss).................................................................. $ (24,824) $ 4,118
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation..................................................................... 954 1,020
Amortization of intangibles...................................................... 645 635
Amortization of debt issue costs................................................. 766 70
Interest deferral on Holdings PIK Notes.......................................... 200 --
Changes in assets and liabilities:
Accounts receivable............................................................ (1,873) (1,069)
Inventories.................................................................... 100 611
Refundable income taxes........................................................ (7,692) --
Prepaid expenses and other assets.............................................. (28) (237)
Accounts payable............................................................... (113) (369)
Accrued liabilities............................................................ (870) 1,706
------------ ------------
Net cash provided by (used in) operating activities.............................. (32,735) 6,485
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures............................................................... (712) (628)
Marathon acquisition, post-closing purchase price adjustment....................... 766
------------ ------------
Net cash provided by (used in) investing activities.............................. (712) 138
------------ ------------
FINANCING ACTIVITIES:
Proceeds from subordinated notes, net of fees of $6,155............................ 118,845 --
Proceeds from new credit facility, net of fees of $4,765........................... 87,832 --
Proceeds from Holdings PIK Notes and common stock, net of fees of $341............. 19,659 --
Payment of consideration in recapitalization--common stock and warrants............ (263,875) --
Net repayments under revolving credit loans........................................ (1,597) --
Repayment of term notes............................................................ (45,000) --
Proceeds from issuance of capital stock............................................ 100,200 --
Purchase of capital stock.......................................................... -- (20)
------------ ------------
Net cash provided by (used in) financing activities.............................. 16,064 (20)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (17,383) 6,603
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................................... 19,486 5,397
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................. $ 2,103 $ 12,000
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........................................... $ 1,293 $ 350
------------ ------------
------------ ------------
Cash paid during the period for income taxes....................................... $ 506 $ 68
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holdings Company ("Holdings") through its wholly owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary
mechanical components servicing the aircraft, mining, marine and other
manufacturing industries. TransDigm along with its wholly-owned subsidiary,
Marathon Power Technologies Company ("Marathon"), offers a broad line of
component products including tube connectors, valves, batteries, static
inverters, pumps, quick disconnects, clamps and ball bearings and sliding
controls.
On December 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity
formed by affiliates of Odyssey Investment Partners, LP ("Odyssey") and Holdings
consummated a definitive agreement and plan of merger (the "Merger Agreement" or
the "Merger"). Pursuant to the terms of the Merger, Acquiror was merged with and
into Holdings, with Holdings being the surviving corporation in the Merger (the
"Surviving Corporation"). In the Merger, owners of Holdings' outstanding common
stock received, in exchange for each outstanding share of common stock (except
for shares held directly or indirectly by Holdings or the Rolled Shares, as
defined below), the "Per Share Merger Consideration" as defined in the Merger
Agreement. The aggregate consideration payable pursuant to the Merger, including
amounts payable to holders of options and warrants, was approximately $299.7
million.
In connection with the Merger, Kelso Investment Associates IV, LP and Kelso
Equity Partners II, LP (collectively "Kelso") retained approximately 15.4% of
the Surviving Corporation's outstanding common stock (the "Rolled Shares"). In
addition, certain members of management of Holdings agreed, in connection with
and as a condition to entering into the Merger Agreement, to rollover stock
options with an estimated gross and net value of approximately $17.2 million and
$13.7 million, respectively. The Merger was treated as a recapitalization (the
"Recapitalization") for financial reporting purposes, which had no impact on the
historical basis of Holdings' consolidated assets and liabilities.
Simultaneously with the Merger, Holdings and TransDigm (collectively with
Marathon, the "Company") refinanced all of its existing debt. The Merger, the
refinancing, and payment of fees and expenses were funded by (i) existing cash
balances, (ii) investments by Odyssey of $100.2 million, (iii) funds from a new
$120 million Senior Credit Facility, (iv) funds from $125 million Senior
Subordinated Notes and (v) Holdings PIK Notes of $20 million issued to certain
stockholders. At January 1, 1999, Holdings had $29.0 million available for
working capital, certain permitted acquisitions and general corporate purposes
under the new Senior Credit Facility.
Separate financial statements of TransDigm are not presented since the
Senior Subordinated Notes are guaranteed by Holdings and all direct and indirect
subsidiaries of TransDigm, and since Holdings has no operations or assets
separate from its investment in TransDigm.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and results of operations and
cash flows for the interim periods presented. The results of operations for the
thirteen weeks ended January 1, 1999 are not necessarily indicative of the
results to be expected for the full year.
F-23
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined by the average cost and the first-in, first-out (FIFO) methods.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1,
1999
-----------
<S> <C>
Work-in-progress and finished goods............................................... $ 10,051
Raw materials and purchased component parts....................................... 12,775
-----------
Total......................................................................... 22,826
Reserve for excess and obsolete inventory......................................... (4,646)
-----------
Inventories--net.................................................................. $ 18,180
-----------
-----------
</TABLE>
4. INCOME TAXES
Income tax expense (benefit) as a percentage of income (loss) before income
taxes was (23.3)% for the first quarter of fiscal 1999 compared to 38.6% for the
first quarter of fiscal 1998. The tax benefit recorded for the first quarter of
fiscal 1999 was significantly impacted by the non-deductible expenses incurred
in connection with the Recapitalization.
5. REDEEMABLE COMMON STOCK
The redeemable common stock represents the estimated value of common stock
held by management shareholders which have certain put rights.
6. CONTINGENCIES
ENVIRONMENTAL--The soil and goundwater beneath the Company's facility in
Waco, Texas have been impacted by releases of hazardous materials. The resulting
contaminants of concern have been delineated and characterized. Because the
majority of these contaminants are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission ("TNRCC"), and because an
escrow was previously funded to cover the cost of remediation that TNRCC might
require for those contaminants currently in excess of action limits, management
does not believe the condition of the soil and groundwater at the Waco facility
will require incurrence of material expenditures.
OTHER--While the Company is currently involved in certain legal proceedings,
management believes the results of these proceedings will not have a material
effect on the financial condition, results of operations or cash flows of the
Company. During the ordinary course of business, the Company is from time to
time threatened with, or may become a party to, legal actions and other
proceedings. The Company believes that its potential exposure to such legal
actions is adequately covered by its aviation product and general liability
insurance.
F-24
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
7. NEW ACCOUNTING STANDARD
The Company adopted the provisions of Statement No. 130 of the Financial
Accounting Standards Board "Reporting Comprehensive Income" during the thirteen
weeks ended January 1, 1999. Accordingly, the Company's accumulated other
comprehensive income, consisting solely of its minimum pension liability
adjustment, is reported separately in the accompanying consolidated balance
sheet and statement of changes in stockholders' equity. There were no changes in
accumulated other comprehensive income during the thirteen weeks ended January
1, 1999 and December 26, 1997.
8. SUBSEQUENT EVENT
On April 23, 1999, TransDigm acquired ZMP, Inc, including all of its
outstanding common stock, for $41 million. The purchase price is subject to
adjustment for changes in working capital and other matters as defined in the
merger agreement.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Marathon Power Technologies Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Marathon
Power Technologies Company and its subsidiary at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Dallas, Texas
January 17, 1997
F-26
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 326 $ 79
Accounts receivable, less allowance for doubtful accounts of $25 and $24 at December 31,
1996 and 1995, respectively............................................................. 2,419 2,636
Inventories............................................................................... 3,191 3,076
Deferred income taxes..................................................................... 321 292
Prepaid income taxes...................................................................... 40 119
Other current assets...................................................................... 68 67
--------- ---------
Total current assets.................................................................. 6,365 6,269
Property, plant and equipment............................................................. 6,496 6,570
--------- ---------
Total assets.......................................................................... $ 12,861 $ 12,839
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 776 $ 719
Accrued expenses.......................................................................... 2,108 2,238
Short-term debt........................................................................... 518 476
Current maturities of long-term debt...................................................... 475 --
--------- ---------
Total current liabilities............................................................. 3,877 3,433
--------- ---------
Deferred income taxes....................................................................... 339 216
Long-term debt.............................................................................. 2,025 5,000
--------- ---------
Total long-term liabilities........................................................... 2,364 5,216
--------- ---------
Commitments and contingencies (Note 13)
Shareholders' equity:
Common stock, $.01 par value; 50,000 shares authorized, 30,000 shares issued and
outstanding............................................................................. 1 1
Capital in excess of par value............................................................ 2,999 2,999
Retained earnings......................................................................... 3,628 1,198
Treasury stock, at cost; 75 shares........................................................ (8) (8)
--------- ---------
Total shareholders' equity............................................................ 6,620 4,190
--------- ---------
Total liabilities and shareholders' equity.......................................... $ 12,861 $ 12,839
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Net sales................................................................................... $ 20,065 $ 18,072
Cost of goods sold.......................................................................... 11,833 11,280
--------- ---------
Gross profit................................................................................ 8,232 6,792
Selling expenses............................................................................ 1,286 1,024
General and administrative expenses......................................................... 3,100 2,959
--------- ---------
Income from operations...................................................................... 3,846 2,809
Interest expense............................................................................ (403) (644)
--------- ---------
Income before income taxes and extraordinary items.......................................... 3,443 2,165
Provision for income taxes.................................................................. (1,243) (759)
--------- ---------
Income before extraordinary items........................................................... 2,200 1,406
Extraordinary gain on extinguishment of debt, net of income taxes........................... 230 --
--------- ---------
Net income.................................................................................. 2,430 1,406
Retained earnings (accumulated deficit), beginning of period................................ 1,198 (208)
--------- ---------
Retained earnings, end of period............................................................ $ 3,628 $ 1,198
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Cash flows from operating activities:
Net income................................................................................. $ 2,430 $ 1,406
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary gain on early extinguishment of debt, net of income taxes................ (230) --
Depreciation and amortization.......................................................... 766 673
Deferred income tax provision.......................................................... 94 175
Other.................................................................................. (4) --
Changes in operating assets and liabilities:
Accounts receivable.................................................................... 217 (500)
Inventories............................................................................ (246) 604
Prepaid income taxes................................................................... 79 (119)
Other current assets................................................................... (1) 126
Accounts payable....................................................................... 57 313
Accrued expenses....................................................................... (130) (293)
Income taxes payable................................................................... -- (45)
--------- ---------
Net cash provided by operating activities............................................ 3,032 2,340
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions.................................................... (702) (363)
Property, plant and equipment dispositions................................................. 10 --
--------- ---------
Net cash used in investing activities................................................ (692) (363)
--------- ---------
Cash flows from financing activities:
Net increase of line of credit............................................................. 42 476
Repayment of long-term debt................................................................ (2,125) (3,000)
Other...................................................................................... (10) --
Acquisition of treasury stock.............................................................. -- (8)
--------- ---------
Net cash used in financing activities................................................ (2,093) (2,532)
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 247 (555)
Cash and cash equivalents at beginning of period............................................. 79 634
--------- ---------
Cash and cash equivalents at end of period................................................... $ 326 $ 79
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................................. $ 459 $ 672
--------- ---------
--------- ---------
Income taxes............................................................................. $ 1,198 $ 748
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FORMATION
Marathon Power Technologies Company ("Company") was organized in March 1994
and purchased substantially all of the net assets of Marathon Power
Technologies, a wholly-owned subsidiary of American Premier Underwriters, Inc.,
on May 19, 1994. The Company, located in Waco, Texas, manufactures vented and
sealed nickel cadmium rechargeable batteries which are used in aviation and
consumer electrical equipment. The Company also manufactures static inverters,
used largely in the aviation industry, which convert DC power into AC power, as
well as other items, such as battery chargers. The Company maintains a
subsidiary in the United Kingdom used primarily for distribution of vented
products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION--The financial statements include the accounts
of the Company and its wholly-owned subsidiary after elimination of intercompany
transactions and balances. Certain reclassifications were made to conform prior
year amounts to the current year presentation.
USE OF ESTIMATES--Financial statements prepared in conformity with generally
accepted accounting principles require management to make estimates and
assumptions about reported amounts of assets and liabilities; disclosure of
contingent assets and liabilities and reported amounts of revenues and expenses.
Management must also make estimates and judgments about future results of
operations related to specific elements of the business in assessing
recoverability of assets and recorded values of liabilities. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand
and short-term investments with original maturities of three months or less.
CREDIT CONCENTRATIONS--The Company sells products chiefly to aviation
companies and/or suppliers to aviation companies, generally on an unsecured
basis. The Company provides estimated reserves against accounts receivable for
collection losses.
INVENTORIES--Inventories are stated at the lower of cost or market, cost
being determined on a first-in first-out basis.
PROPERTY PLANT AND EQUIPMENT--Property, plant and equipment, including
assets under capital lease, are carried at acquisition cost. Depreciation and
amortization are computed on the straight-line basis over the estimated
remaining useful lives of the assets (ranging from 2 to 30 years) and the
remaining term of capital leases, respectively. Repair and maintenance
expenditures are charged to operations as incurred, and expenditures for major
renewals and betterments are capitalized. When units of property are disposed,
the cost and related accumulated depreciation are removed from the accounts, and
the resulting gains or losses are included in operations.
REVENUE RECOGNITION--Sales revenue and related cost of sales are recognized
as products are shipped to customers. In the normal course of business, the
Company provides for product defects through the issuance of one to two year
warranties covering its products. The costs associated with these warranties are
accrued at the time of sale which totaled $130,000 and $232,000 in 1996 and
1995, respectively.
F-30
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Deferred income taxes are provided for differences between tax
laws and financial accounting standards regarding the recognition and
measurement of assets, liabilities, revenues and expenses. Such differences
result principally from different methods of purchase price allocation for tax
and financial accounting purposes and depreciation.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Management believes the recorded values
of financial instruments approximate their current fair values as such items are
current in nature and/or generally bear variable interest rates which adjust
yield to derive current market value.
STOCK-BASED COMPENSATION--In October 1995, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123") was
issued. This statement requires the fair value of stock options and other
stock-based compensation issued to employees to either be included as
compensation in the statement of operations, or the pro forma effect on net
income of such compensation expense to be disclosed in the footnotes to the
Company's financial statements commencing with the Company's year ending
December 31, 1996. The Company has adopted SFAS 123 on a disclosure basis only.
As such, implementation of SFAS 123 is not expected to impact the Company's
consolidated balance sheet or consolidated statement of operations.
3. INVENTORIES
Inventories comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Raw materials.............................................................. $ 887 $ 716
Work-in-process............................................................ 1,601 1,731
Finished goods............................................................. 703 629
--------- ---------
$ 3,191 $ 3,076
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Land....................................................................... $ 693 $ 693
Building and improvements.................................................. 3,379 3,370
Machinery and equipment.................................................... 3,550 3,258
Other...................................................................... 678 294
--------- ---------
8,300 7,615
Less accumulated depreciation and amortization............................. 1,804 1,045
--------- ---------
$ 6,496 $ 6,570
--------- ---------
--------- ---------
</TABLE>
Routine repairs and maintenance charged to expense were $108,000 and $161,
000 for the years ended December 31, 1996 and 1995, respectively.
F-31
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Customer rebates........................................................... $ 690 $ 200
Compensation............................................................... 583 788
Warranty................................................................... 435 535
Other...................................................................... 400 715
--------- ---------
$ 2,108 $ 2,238
--------- ---------
--------- ---------
</TABLE>
6. LONG-TERM DEBT
Long-term debt comprises the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
$3,000 revolving credit facility with a bank, bearing interest at 0.25%
above prime at December 31, 1996 (8.5%) and 1.0% above prime at December
31, 1995 (9.5%) on the outstanding balance, principal and interest
payable upon deposit of available funds, available until June 1999....... $ 518 $ 476
Note payable to a bank, bearing interest at 0.25% above prime at December
31, 1996 (8.5%) and 1.0% above prime at December 31, 1995 (9.5%) payable
in varying installments through June 1999................................ 2,500 2,500
Subordinated note payable to a corporation, interest payable quarterly at
9.0%, principal due in two installments through May 2000................. -- 2,500
--------- ---------
3,018 5,476
Less current maturities.................................................... 993 476
--------- ---------
$ 2,025 $ 5,000
--------- ---------
--------- ---------
</TABLE>
The Company's revolving credit facility includes an additional $750,000
overadvance facility under which no borrowings were outstanding in 1996 or 1995.
The overadvance facility will be reduced to $500,000, $250,000 and $0 on January
1, April 1, and July 1 of 1997, respectively. The Company pays a commitment fee
of .25% per annum of the daily average of the unused portion of the revolving
credit facility. Prior to October 1996, the commitment fee paid was .5%.
The above debt is secured by the Company's assets and common stock and is
restricted by certain financial covenants including capital base, debt ratio and
current ratio requirements, among others.
F-32
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
In 1996, the Company extinguished its $2,500,000 subordinated note payable
for a cash payment of $2,125,000, obtained from a combination of operating cash
flows and an increase in borrowings under the line of credit. The difference
between the carrying amount of the note and the cash paid to the holder of such
borrowings (and related expenses of $10,000) was recorded as an extraordinary
gain on the early extinguishment of debt of $365,000 ($230,000 net of income
taxes). The effective tax rate for the extraordinary gain was 37.0%.
Aggregate maturities of long-term debt as of December 31, 1996 are as
follows (dollars in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 993
1998................................................................ 900
1999................................................................ 1,125
2000................................................................ --
2001................................................................ --
---------
$ 3,018
---------
---------
</TABLE>
7. INCOME TAXES
Income tax provision comprises the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Current
Federal.................................................................... $ 1,060 $ 536
State...................................................................... 154 48
--------- ---------
Total current............................................................ 1,214 584
--------- ---------
Deferred:
Federal.................................................................... 25 156
State...................................................................... 4 19
--------- ---------
Total deferred........................................................... 29 175
--------- ---------
Provision for income taxes before extraordinary gain..................... 1,243 759
Income tax expense from extraordinary gain................................... 135 --
--------- ---------
Total provision for income taxes......................................... $ 1,378 $ 759
--------- ---------
--------- ---------
</TABLE>
F-33
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The effective tax rate on earnings before income taxes and extraordinary
items was different than the federal statutory tax rate. The following summary
reconciles the federal statutory tax rate and provision with the actual
effective rate and provision:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Federal income tax expense................................................. 34.0% 34.0%
State taxes, net of federal expense........................................ 3.0% 3.1%
Disallowed meals and entertainment......................................... 0.2% 1.4%
Valuation allowance........................................................ -- (2.8%)
Other...................................................................... (1.1%) (0.7%)
--- ---
36.1% 35.0%
--- ---
--- ---
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's net deferred tax assets and liabilities comprise the
following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Deferred tax assets and liabilities
Accruals and reserves...................................................... $ 321 $ 292
Asset allocation difference................................................ (339) (216)
--------- ---------
Net deferred tax asset (liability)....................................... $ (18) $ 76
--------- ---------
--------- ---------
</TABLE>
8. SALES TO MAJOR CUSTOMERS
The Company made sales to various U.S. governmental agencies representing
14.0% and 7.0% of net sales in 1996 and 1995, respectively. Sales to two of the
Company's nongovernmental customers represent 25.6% and 22.8%, respectively, of
net sales in 1996 and 31.3% and 29.5% respectively, in 1995. These customers
also represented 20.4% and 34.6%, respectively, of outstanding trade receivables
at December 31, 1996 and 28.0% and 22.6%, respectively, at December 31, 1995. In
the normal course of business, the Company extends credit on open account to its
customers, including U.S. governmental agencies and distributors of the
Company's products. Extensions of credit to all customers are closely monitored
and no significant credit losses have occurred during the years ended December
31, 1996 and 1995.
9. RESEARCH AND DEVELOPMENT
The Company is engaged in several research and development projects. Costs
associated with these projects are charged to operations when incurred. Research
and development costs are included in general and administrative expenses and
totaled $362,000 and $279,000 in 1996 and 1995, respectively.
F-34
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company paid management fees of $200,000 and $181,000 during 1996 and
1995, respectively, which are included in general and administrative expenses,
to its principal shareholder under an agreement which calls for quarterly
installments equal to 1.0% of quarterly net sales. Included in accrued
liabilities other (Note 5) are management fees payable of $51,000 and $46,000 as
of December 31, 1996 and 1995, respectively.
Included in treasury stock at December 31, 1996 and 1995 are 75 shares of
the Company's common stock which were repurchased from a former employee during
1995 for approximately $8,000.
11. STOCK OPTIONS
The Company established an incentive stock option plan in 1994 under which
options to acquire an aggregate of 3,000 shares of the Company's common stock
may be granted to employees and consultants of the Company. The plan requires
that the exercise price for each stock option be not less than 100% of the fair
market value of common stock at the time the option is granted. Both
nonqualified stock options and incentive stock options, as defined by the
Internal Revenue Code of 1986, as amended, may be granted under the plan. The
options are nontransferable and are cancelable if the optionee's employment or
other association with the Company is terminated for any reason. The plan and
all underlying options terminate on January 1, 2005 or earlier. As of December
31, 1996 and 1995, options of 2,681 and 2,531, respectively, had been granted
under the plan.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
----------- -----------
<S> <C> <C>
Options granted (initially) in 1995..................................... 2,531 $ 100
Exercised............................................................. -- --
Canceled/Expired...................................................... -- --
----- -----
Outstanding at December 31, 1995........................................ 2,531 100
Options granted in 1996................................................. 150 100
Exercised............................................................. -- --
Canceled/Expired...................................................... -- --
----- -----
Outstanding at December 31, 1996........................................ 2,681 $ 100
----- -----
----- -----
</TABLE>
As of December 31, 1996 and 1995, options for 1,609 and 1,012 shares,
respectively, were exercisable under the Company's stock option plan.
The fair market values of options as of their grant dates were approximately
$49 and $42 per option in December 1996 and 1995, respectively, based on
comparison of the fair market value of the underlying shares and the net present
value of the exercise price over the period of exercisability at a risk free
market rate of 7.9% and 5.7%, respectively. No dividend payments or volatility
in stock prices were assumed in the fair market value calculations.
No compensation expense was recorded during 1996 or 1995 for options issued
under the plan since the Company accounts for such transactions in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Had the
Company included the stock-based compensation in the consolidated statement of
operations, $17,000 and $28,000 in additional employee compensation expenses,
net of the effect of income taxes, would have been recorded in 1996 and 1995,
respectively. This would result in pro forma net income of $2,413,000 and
$1,378,000, respectively.
F-35
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS
The Company sponsors a defined contribution retirement plan for Company
employees. Employees are eligible to participate in the plan on the first day of
the calendar quarter following their employment date. The Company makes annual
contributions to the plan equal to 50% of the employees contribution (up to a
maximum of 6% of each employee's compensation). The Company's expense under this
plan was $68,000 and $62,000 in 1996 and 1995, respectively.
The Company sponsors a self-funded employee welfare benefit plan which
provides comprehensive medical benefits to Company employees and their
dependents. All full-time employees become eligible on the first day of the
month following the month in which they complete 30 days of service. The Company
incurred expenses of $366,000 and $304,000 under this plan during the years
ended December 31, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENCIES
Under the terms of the May 19, 1994 asset purchase agreement, the Company is
indemnified for any preacquisition environment remediation costs. The Company
had accrued $36,000 and $25,000 at December 31, 1996 and 1995, respectively, for
additional hazardous waste disposal costs.
The Company is party to certain legal proceedings incidental to its
business. Certain claims arising in the ordinary course of business have been
filed or are pending against the Company. Management does not believe the
outcome of any of these proceedings will materially affect the Company's
financial position or results of operations. Under the terms of the May 19, 1994
asset purchase agreement, the Company is indemnified for any preacquisition
legal costs. The Company accrues for claims that are both probable and for which
expected loss can be reasonably estimated.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
ZMP, Inc.
Glendale, California
We have audited the accompanying consolidated balance sheet of ZMP, Inc. and
subsidiary (the "Company") as of June 26, 1998, and the related consolidated
statements of income and retained earnings and of cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 26,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
August 26, 1998
(except for Note 9 as to which the date is April 23, 1999)
F-37
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 26,
1998
---------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................ $ 1,267
Accounts receivable, net of allowance for doubtful accounts of $150.................................. 5,788
Inventories, net..................................................................................... 10,264
Deferred income taxes (Note 5)....................................................................... 1,988
Other current assets................................................................................. 616
---------
Total current assets............................................................................... 19,923
---------
EQUIPMENT AND IMPROVEMENTS:
Construction-in-progress............................................................................. 3,542
Machinery and equipment.............................................................................. 3,184
Furniture and fixtures............................................................................... 1,103
---------
7,829
Less accumulated depreciation and amortization....................................................... (3,514)
---------
Equipment and improvements, net.................................................................... 4,315
---------
OTHER ASSETS (Note 8).................................................................................. 424
GOODWILL, net (Note 2)................................................................................. 13,737
DEFERRED INCOME TAXES (Note 5)......................................................................... 126
---------
TOTAL.................................................................................................. $ 38,525
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................................................... $ 1,863
Accrued liabilities.................................................................................. 2,278
Income taxes payable (Note 5)........................................................................ 415
---------
Total current liabilities.......................................................................... 4,556
---------
OTHER LIABILITIES (Note 8)............................................................................. 424
---------
SENIOR SUBORDINATED NOTES PAYABLE (Note 4)............................................................. 15,196
---------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 1 and 7):
Common stock, $.001 par value; 100,000 shares authorized; 100,000 shares issued and outstanding
Additional paid-in capital........................................................................... 16,139
Retained earnings (quasi-reorganization effective June 29, 1996--$10,889 of accumulated deficit was
charged against additional paid-in-capital).......................................................... 2,210
---------
Total stockholders' equity......................................................................... 18,349
---------
TOTAL.................................................................................................. $ 38,525
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 26,
1998
-----------
<S> <C>
NET SALES............................................................................................ $ 34,154
COST OF SALES........................................................................................ 22,421
-----------
GROSS PROFIT......................................................................................... 11,733
-----------
OPERATING EXPENSES:
Selling, general and administrative (Note 8)....................................................... 6,976
Amortization (Note 2).............................................................................. 687
Facility relocation (Note 1)....................................................................... 503
-----------
Total operating expenses....................................................................... 8,166
-----------
OPERATING INCOME..................................................................................... 3,567
INTEREST EXPENSE, net (Note 4)....................................................................... 1,496
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES............................................................. 2,071
PROVISION FOR INCOME TAXES (Note 5).................................................................. 1,098
-----------
NET INCOME........................................................................................... 973
RETAINED EARNINGS, BEGINNING OF YEAR................................................................. 1,237
-----------
RETAINED EARNINGS, END OF YEAR....................................................................... $ 2,210
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 26, 1998
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................................... $ 973
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................. 1,172
Deferred income taxes.......................................................................... (302)
Loss on disposal of assets..................................................................... 1
Interest deferral on senior subordinated notes payable......................................... 1,693
Changes in operating assets and liabilities:
Accounts receivable.......................................................................... (967)
Inventories.................................................................................. (1,978)
Other current assets......................................................................... (360)
Accounts payable............................................................................. (194)
Accrued liabilities.......................................................................... 468
Income taxes payable......................................................................... (85)
Other liabilities............................................................................ 41
------
Net cash provided by operating activities.................................................. 462
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements.......................................................... (3,827)
Purchases of investments......................................................................... (41)
------
Net cash used in investing activities...................................................... (3,868)
------
NET DECREASE IN CASH AND CASH EQUIVALENTS.......................................................... (3,406)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................................... 4,673
------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................................. $ 1,267
------
------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................................................... $ --
------
------
Income taxes................................................................................... $ 1,030
------
------
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 26, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS--ZMP, Inc. (the "Company" or "ZMP"),
through its wholly-owned subsidiary, Adams Rite Aerospace (ARA), designs and
manufactures specialized parts and systems for the aerospace industry. The
Company operates only in this industry segment and does not have significant
foreign operations.
Effective June 29, 1996, the Company adopted a plan to recapitalize the
Company and restructure the senior subordinated notes payable. Under this plan,
the Company exchanged 9,308 shares of common stock for all of the previously
outstanding Series AA, Series A and Series B preferred stock. The Company also
issued 90,692 shares of common stock as payment of $9,766,000 of senior
subordinated notes payable and accrued interest to the majority stockholder.
Additionally, the terms of the remaining senior subordinated notes payable were
amended to accrue interest at 12%, payable semiannually on December 31 and June
30, with the principal due on December 31, 1998. On June 8, 1998, ZMP signed an
agreement to extend the maturity date of the senior subordinated notes payable
to December 31, 1999. The Company accounted for the recapitalization as a
deficit reclassification quasi-reorganization and eliminated the prior
accumulated deficit against additional paid-in capital. The fair value of the
Company's net assets exceeded the book value and, therefore, no adjustment to
carrying values was recorded.
On February 23, 1998, the Company relocated its primary operating facility
from Glendale, California to a 100,000-square-foot facility located in
Fullerton, California.
CONSOLIDATION POLICY--The accompanying consolidated financial statements
include the accounts of ZMP and ARA. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REPORTING PERIOD--The Company's fiscal year is the 52 or 53 week period
ending on the Friday nearest June 30. Fiscal 1998 contained 52 weeks.
REVENUE RECOGNITION, CONCENTRATION OF CREDIT RISK AND EXPORT SALES--The
Company recognizes revenue from product sales upon shipment. Substantially all
of the Company's accounts receivable are due from companies in the aerospace
industry located throughout the United States and internationally. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are generally due within 30
days; however, some European customers have payment terms ranging from 60 to 90
days. Export sales to customers, primarily in western Europe, were $6.5 million
for the year ended June 26, 1998.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid financial
instruments with an original maturity of three months or less to be cash
equivalents.
F-41
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES--Inventories are stated at the lower of cost or market, with
cost being determined on a first-in, first-out basis. Inventories consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 26,
1998
---------
<S> <C>
Raw materials...................................................................... $ 9,554
Work-in-process.................................................................... 1,844
Finished goods..................................................................... 1,272
---------
12,670
Less allowance for obsolete inventory.............................................. (2,406)
---------
Total.............................................................................. $ 10,264
---------
---------
</TABLE>
EQUIPMENT AND IMPROVEMENTS--Equipment and improvements are stated at cost.
Depreciation of equipment is provided for using the straight-line and
accelerated methods over the estimated useful lives of the equipment, which
range from three to ten years. Amortization of leasehold improvements is
provided for using the straight-line method over the shorter of the lease term
or the useful life of the improvement.
IMPAIRMENT--The Company reviews the recoverability of long-term and
intangible assets to determine if there has been any impairment. This assessment
is performed based on the estimated undiscounted future cash flows from
operating activities compared with the carrying value of the related assets. If
the future cash flows (undiscounted and without interest charges) were less than
the carrying value, a writedown would be recorded to reduce the related asset to
its estimated fair value.
MAJOR CUSTOMERS--During fiscal 1998, the Company had sales to one customer
representing 20% of net sales. Accounts receivable from such customer represent
14% of total receivables at June 26, 1998.
INCOME TAXES--Deferred income taxes represent the tax consequences of
differences between the income tax bases of assets and liabilities and their
bases for financial reporting purposes. A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LITIGATION--The Company does not anticipate that adverse outcomes in
currently pending litigation would have a material adverse effect on its
business, results of operations or financial condition.
F-42
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
2. GOODWILL
Goodwill is being amortized over 30 years using the straight-line method and
consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 26,
1998
---------
<S> <C>
Goodwill........................................................................... $ 20,692
Less accumulated amortization...................................................... (6,955)
---------
Total.............................................................................. $ 13,737
---------
---------
</TABLE>
3. LINE OF CREDIT
ARA maintains a revolving line of credit which provides for maximum
borrowings of $2,000,000, limited to 80% of eligible accounts receivable, as
defined, and includes a sub-limit feature for the issuance of commercial letters
of credit in an amount not to exceed $1,000,000. Borrowings under the revolving
credit facility bear interest at the bank's prime rate plus .25% (8.75% at June
26, 1998). The revolving credit facility was not utilized by ARA during the year
ended June 26, 1998.
4. SENIOR SUBORDINATED NOTES PAYABLE
Senior subordinated notes payable to the majority stockholder consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 26,
1998
---------
<S> <C>
12% senior subordinated notes, interest payable semiannually, principal payable at
December 31, 1999, unsecured, including deferred interest of $3,196,000 at June 26,
1998............................................................................... $ 15,196
---------
---------
</TABLE>
F-43
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
5. INCOME TAXES
The provision for income taxes is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 26,
1998
-----------
<S> <C>
Current:
Federal........................................................................ $ 1,076
State.......................................................................... 324
-----------
1,400
-----------
Deferred:
Federal........................................................................ (225)
State.......................................................................... (77)
-----------
(302)
-----------
Provision for income taxes....................................................... $ 1,098
-----------
-----------
</TABLE>
The difference between the provision for income taxes at the federal
(statutory) income tax rate and the tax shown in the consolidated statement of
income and retained earnings is as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 26,
1998
-----------
<S> <C>
Tax at statutory rate of 35%..................................................... $ 725
State franchise taxes............................................................ 270
Nondeductible goodwill amortization.............................................. 196
Benefit from foreign sales corporation........................................... (75)
Other--net....................................................................... (18)
-----------
Provision for income taxes....................................................... $ 1,098
-----------
-----------
</TABLE>
F-44
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
5. INCOME TAXES (CONTINUED)
The components of deferred income tax assets consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 26,
1998
-----------
<S> <C>
CURRENT ASSETS:
Inventories.................................................................... $ 1,450
Warranty costs................................................................. 84
Bad debt allowances............................................................ 65
Compensation and other accrued expenses........................................ 389
-----------
Total............................................................................ $ 1,988
-----------
-----------
NON-CURRENT ASSETS:
Equipment and improvements..................................................... $ 161
Other.......................................................................... (35)
-----------
Total............................................................................ $ 126
-----------
-----------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases its primary operating facility under a 15-year operating
lease. Such lease includes a minimum escalation clause based on the Consumer
Price Index.
Future minimum lease commitments for all operating leases are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING:
- -------------------------------------------------------------------------------------
<S> <C>
1999................................................................................. $ 540
2000................................................................................. 540
2001................................................................................. 556
2002................................................................................. 573
2003................................................................................. 590
Thereafter........................................................................... 6,571
---------
Total................................................................................ $ 9,370
---------
---------
</TABLE>
Total rent expense, net of sublease income, was $551,000 for the year ended
June 26, 1998. Sublease income for the year ended June 26, 1998 was
approximately $55,000.
The Company recorded a deferred rent liability of $87,000 as of June 26,
1998 in conjunction with its operating lease.
7. STOCKHOLDERS' EQUITY
On August 3, 1998, the Company entered into a series of agreements with its
Chief Executive Officer. The agreements provide, amongst other things, for a
warrant grant to the Chief Executive Officer, whereby the executive will be
granted the right to purchase 8,695 shares of common stock at a price of $39.41
per share. The warrant vested immediately with respect to 5,435 shares and the
F-45
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
remaining portion of the warrant vests over three years, with immediate vesting
of all warrants upon a change of control, as defined.
8. RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company sponsors a defined contribution retirement plan that covers
substantially all of its employees. Contributions to the plan are at the
discretion of management and may be discontinued at any time. There are no other
postretirement benefits. Included in the consolidated statement of income and
retained earnings are expenses for the retirement plan of $127,000 for the year
ended June 26, 1998.
The Company also has a deferred compensation agreement with a key employee
that provides for payment from a trust upon retirement or other termination of
employment. The Company may at any time make additional deposits of cash or
other property in trust to the plan.
As of June 26, 1998, the plan assets are invested primarily in mutual funds
and are subject to reinvestment as determined by the key employee. Based on the
nature of the investments and the ability of the key employee to alter the
investment strategy, such plan assets have been classified as trading securities
as defined in Statement of Financial Accounting Standards No. 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Additionally, the plan
assets are classified as noncurrent based on the key employee's intent of
maintaining the assets within the plan for a minimum of one year.
9. SUBSEQUENT EVENT
On April 23, 1999, TransDigm Inc. acquired ZMP, Inc., including all of its
outstanding common stock, for $41 million. The purchase price is subject to
adjustment for changes in working capital and other matters as defined in the
merger agreement.
F-46
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 25,
1998
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 3,687
Accounts receivable--net.......................................................................... 5,935
Inventories, net (Note 3)......................................................................... 10,188
Deferred income taxes............................................................................. 1,988
Other current assets.............................................................................. 84
------------
Total current assets.......................................................................... 21,882
------------
EQUIPMENT AND IMPROVEMENTS, NET..................................................................... 4,681
GOODWILL, net....................................................................................... 13,394
OTHER ASSETS........................................................................................ 550
------------
TOTAL............................................................................................... $ 40,507
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 1,645
Accrued liabilities............................................................................... 1,742
Income taxes payable.............................................................................. 422
------------
Total current liabilities..................................................................... 3,809
------------
OTHER LIABILITIES................................................................................... 424
------------
SENIOR SUBORDINATED NOTES PAYABLE................................................................... 16,128
------------
COMMITMENTS AND CONTINGENCIES....................................................................... --
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 108,695 shares authorized; 105,435 shares issued and outstanding... --
Additional paid-in capital........................................................................ 17,167
Retained earnings ($10,889 of accumulated deficit was charged against
additional paid-in-capital)..................................................................... 2,979
------------
Total stockholders' equity.................................................................... 20,146
------------
TOTAL............................................................................................... $ 40,507
------------
------------
</TABLE>
See notes to consolidated financial statements.
F-47
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
--------------------------
<S> <C> <C>
DECEMBER 25, DECEMBER 26,
1998 1997
------------ ------------
NET SALES............................................................................ $ 20,061 $ 17,774
COST OF SALES........................................................................ 12,896 11,854
------------ ------------
GROSS PROFIT......................................................................... 7,165 5,920
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses....................................... 3,527 3,528
Amortization expense............................................................... 343 343
Stock compensation expense (Note 4)................................................ 814 --
Merger expenses (Note 1)........................................................... 164 --
------------ ------------
Total operating expenses....................................................... 4,848 3,871
------------ ------------
OPERATING INCOME..................................................................... 2,317 2,049
INTEREST EXPENSE, net................................................................ 881 716
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES............................................. 1,436 1,333
PROVISION FOR INCOME TAXES........................................................... 667 707
------------ ------------
NET INCOME........................................................................... $ 769 $ 626
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-48
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 25, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN RETAINED
SHARES CAPITAL EARNINGS TOTAL
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, JUNE 27, 1998................................................ 100 $ 16,139 $ 2,210 $ 18,349
NET INCOME............................................................ 769 769
ISSUANCE OF COMMON STOCK WARRANTS..................................... 814 814
EXERCISE OF COMMON STOCK WARRANTS..................................... 5 214 214
--- ----------- ----------- ---------
BALANCE, DECEMBER 25, 1998............................................ 105 $ 17,167 $ 2,979 $ 20,146
--- ----------- ----------- ---------
--- ----------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-49
<PAGE>
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
----------------------------
DECEMBER 25, DECEMBER 26,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 769 $ 626
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 667 523
Stock compensation expense (Note 4).............................................. 814
Interest deferral on senior subordinated notes payable........................... 932 828
Changes in operating assets and liabilities:
Accounts receivable............................................................ 356 (305)
Inventories.................................................................... 76 (715)
Other current assets........................................................... 532 49
Accounts payable............................................................... (218) (344)
Accrued and other current liabilities.......................................... (519) (284)
------ ------
Net cash provided by operating activities.................................... 3,409 378
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements............................................ (690) (611)
Loans made to Executive............................................................ (503) --
Purchases of investments........................................................... (10) (45)
------ ------
Net cash used in investing activities........................................ (1,203) (656)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock warrants.................................................. 214
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. 2,420 (278)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................................... 1,267 4,673
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................. $ 3,687 $ 4,395
------ ------
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................................................... $ -- $ --
------ ------
------ ------
Income taxes..................................................................... $ 666 $ 1,033
------ ------
------ ------
</TABLE>
See notes to consolidated financial statements.
F-50
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 25, 1998 AND DECEMBER 26, 1997
1. DESCRIPTION OF BUSINESS AND MERGER
ZMP, Inc. (the "Company" or "ZMP"), through its wholly owned subsidiary,
Adams Rite Aerospace ("ARA"), designs and manufactures specialized parts and
systems for the aerospace industry.
On April 23, 1999, TransDigm Inc. acquired all of the outstanding common
stock of ZMP for $41 million. The purchase price is subject to adjustment for
changes in working capital and other matters as defined in the merger agreement.
Expenses relating to the merger are shown separately on the accompanying
consolidated statements of income.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and results of operations and
cash flows for the interim periods presented. The results of operations for the
twenty-six weeks ended December 25, 1998 are not necessarily indicative of the
results to be expected for the full year.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined by the first-in, first-out (FIFO) method. Inventories consist of
the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 25,
1998
------------
<S> <C>
Raw materials................................................................... $ 9,204
Work-in-process................................................................. 1,840
Finished goods.................................................................. 1,429
------------
Total......................................................................... 12,473
Reserve for excess and obsolete inventory....................................... (2,285)
------------
Inventories--net................................................................ $ 10,188
------------
------------
</TABLE>
4. STOCK COMPENSATION EXPENSE
On August 3, 1998, the Company entered into a series of agreements with its
Chief Executive Officer (the "Executive"). Under the agreements, the Executive
was granted the right to purchase 8,695 shares of common stock at a price of
$39.41 per share. The stock warrants vest over three years, with immediate
vesting of all warrants upon a change of control, such as the merger described
in Note 1. Compensation expense representing the difference between the fair
value of common stock and the warrant price was recognized by the Company as a
result of the warrant agreements and is presented separately on the accompanying
consolidated statement of income for the twenty-six weeks ended December 25,
1998.
In conjunction with the warrant grant, the Company provided the Executive
with a $288,000 loan evidenced by a demand note, bearing interest at 5.0%, and
collateralized by the Company's common stock held by the Executive, to pay for
the tax consequences, to the Executive, related to the warrant
F-51
<PAGE>
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 25, 1998 AND DECEMBER 26, 1997
4. STOCK COMPENSATION EXPENSE (CONTINUED)
grant. Additionally, in December 1998, the Company provided the Executive with a
second $214,000 loan evidenced by a demand note, bearing interest at the
Internal Revenue Service's permitted minimum interest rate (4.28% at December
25, 1998), and collateralized by the Company's common stock held by the
Executive. The second loan was intended to provide the Executive with sufficient
funds to retire a commercial loan obtained by the Executive in conjunction with
the exercise of 5,435 warrants that immediately vested upon the warrant grant.
Both loans are included in accounts receivable in the accompanying balance
sheet.
5. LINE OF CREDIT
In September 1998, ARA renewed a revolving line of credit through July 2000
which provides for maximum borrowings of $2,000,000, limited to 80% of eligible
accounts receivable, as defined, and includes a sub-limit feature for the
issuance of commercial letters of credit in an amount not to exceed $1,000,000.
Borrowings under the revolving credit facility bear interest at the bank's prime
rate plus .25% (7.75% at December 25, 1998). The revolving credit facility was
not utilized by ARA during the two 26 week periods ended December 25, 1998 and
December 26, 1997. The availability of funds under the revolving credit facility
terminates upon a change of control of the Company.
F-52
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------------------------------------------
PROSPECTUS
-----------------------------------------------------------------
TRANSDIGM INC.
OFFER TO EXCHANGE ITS
10 3/8% SENIOR SUBORDINATED NOTES
DUE 2008 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
, 1999
------------------------------------------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THESES
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
provides that a corporation has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) against the expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense of any action by
reason of being or having been directors or officers, if such person shall have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, provided that such person had no reasonable cause to
believe his conduct was unlawful, except that, if such action shall be in the
right of the corporation, no such indemnification shall be provided as to any
claim, issue or matter as to which such person shall have been judged to have
been liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware (the "Court of Chancery"), or any court in
such suit or action was brought, shall determine upon application that, despite
the liability judgment, but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the Court of Chancery or such other court shall deem proper.
Accordingly, each of (i) the Restated Certificate of Incorporation (dated
September 28, 1993) and the amendments thereto (dated December 21, 1993) of
TransDigm Holding Company (filed herewith as Exhibits 3.1 and 3.2,
respectively), (ii) the Certificate of Incorporation (dated July 2, 1993) and
the amendments thereto (dated July 22, 1993) of TransDigm Inc. (filed herewith
as Exhibits 3.4 and 3.5, respectively), (iii) the Certificate of Incorporation
(dated March 28, 1994) and the amendments thereto (dated May 18, 1994 and May
24, 1994) of Marathon Power Technologies Company (filed herewith as Exhibits
3.7, 3.8 and 3.9, respectively), (iv) the Amended and Restated Articles of
Incorporation (dated April 23, 1999) of ZMP, Inc. (filed herewith as Exhibit
3.10) and (v) the Articles of Incorporation (dated July 30, 1986) and the
amendments thereto (dated September 12, 1986, January 27, 1992, December 31,
1992 and August 11, 1997) of Adams Rite Aerospace, Inc. (filed herewith as
Exhibits 3.12, 3.13, 3.14, 3.15 and 3.16, respectively), provide that subject to
certain exceptions, TransDigm Holding Company, TransDigm Inc., Marathon Power
Technologies Company, ZMP, Inc. and Adams Rite Aerospace, Inc. (collectively,
the "Co-Registrants" and, individually, the "Co-Registrant") shall indemnify
each of its respective director or officer against any and all expenses
(including attorneys' fees), judgments, fines, excise taxes assessed with
respect to any employee benefit plan, or penalties and amounts paid in
settlement actually and reasonably incurred by such director or officer in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of such Co-Registrant), to which such director or officer is,
was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that such director or officer is, was or at any time becomes
a director or officer of such Co-Registrant, or is, or was serving, or at any
time serves at the request of such Co-Registrant as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise. The
Restated Certificate of Incorporation or the Certificate of Incorporation, as
applicable, and the amendments thereto also provide that the respective
Co-Registrant shall advance expenses (including attorneys' fees) actually and
reasonably incurred by its director or officer in defending any proceeding and
any judgments, fines or amounts to be paid in settlement thereof. The Restated
Certificate of Incorporation or the Certificate of Incorporation, as applicable,
and the amendments thereto provide, however, that the foregoing provisions shall
not require the respective Co-Registrant to pay any indemnity (i) for which
payment is actually made to such director or officer under a valid and
collectible insurance policy, except in respect of any excess beyond the amount
of payment under such
II-1
<PAGE>
insurance; (ii) for which such director or officer is indemnified by the
respective Co-Registrant pursuant to applicable law or otherwise than pursuant
to the Restated Certificate of Incorporation or the Certificate of
Incorporation, as applicable, of the respective Co-Registrant; (iii) for an
accounting of profits made from the purchase or sale by such director or officer
of securities of the respective Co-Registrant within the meaning of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any state statutory law or common law; (iv) on account of such
director's or officer's conduct which is finally adjudged by a court to have
been knowingly fraudulent, deliberately dishonest or willful misconduct; or (v)
if a final decision by a court having jurisdiction in the matter shall determine
that such indemnity is not lawful. Such indemnification shall not be deemed
exclusive of any other rights to which a director or officer seeking
indemnification may be entitled under any statute, the Bylaws, other provisions
of the Restated Certificate of Incorporation or the Certificate of
Incorporation, as applicable, of the respective Co-Registrant, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
such director's or officer's official capacity and as to action in any other
capacity while holding such office.
Furthermore, a director of a Co-Registrant shall not be liable to the
respective Co-Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the respective Co-Registrant or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) for the unlawful payment of a
dividend, unlawful stock purchase or unlawful redemption, (d) for any
transaction from which the director derived an improper personal benefit, or
such exemption from liability or limitation thereof is not permitted under the
DGCL as currently in effect or as the same may hereafter be amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm
Holding Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition
Corp. and TransDigm Holding Company.
2.3 Agreement and Plan of Reorganization, dated as of March 31, 1999, by and among TransDigm Inc., ARA
Acquisition Corporation, ZMP, Inc. and TCW Special Placements Fund II.
*3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company.
*3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of
TransDigm Holding Company.
*3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with
and into TransDigm Holding Company.
*3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm
Acquisition, Inc. (TransDigm Inc.).
*3.6 Certificate of Ownership and Merger, filed on September 13, 1993, merging IMO Aerospace Company with and
into TransDigm Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power
Technologies Company).
*3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
*3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
3.10 Amended and Restated Articles of Incorporation, filed on April 23, 1999, of ZMP, Inc.
3.11 Agreement of Merger, filed on April 23, 1999, merging ARA Acquisition Corporation with and into ZMP, Inc.
3.12 Articles of Incorporation, filed on July 30, 1986, of ARP Acquisition Corporation (Adams Rite Aerospace,
Inc.).
3.13 Certificate of Amendment, filed on September 12, 1986, of the Articles of Incorporation of ARP
Acquisition Corporation (Adams Rite Aerospace, Inc.).
3.14 Certificate of Amendment, filed on January 27, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.16 Certificate of Amendment, filed on August 11, 1997, of the Articles of Incorporation of Adams Rite Sabre
International, Inc. (Adams Rite Aerospace, Inc.).
*3.17 Bylaws of TransDigm Holding Company.
*3.18 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.19 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
3.20 Amended and Restated Bylaws of ZMP, Inc.
3.21 Amended and Restated Bylaws of Adams Rite Aerospace, Inc.
*4.1 Indenture, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power
Technologies Company and State Street Bank and Trust Company, as trustee, relating to $125,000,000
aggregate principal amount of 10 3/8% Senior Subordinated Notes due 2008 and the registered 10 3/8%
Senior Subordinated Notes due 2008.
4.2 Supplemental Indenture, dated April 23, 1999, among ZMP, Inc. and Adams Rite Aerospace, Inc. and State
Street Bank and Trust Company, as trustee.
*4.3 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit
4.1 hereto).
*4.4 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes")
(included in Exhibit 4.1 hereto).
*4.5 Registration Rights Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company
and Marathon Power Technologies Company and BT Alex. Brown Incorporated and Credit Suisse First Boston
Corporation.
*4.6 Indenture, dated December 3, 1998, between TransDigm Holding Company and State Street Bank and Trust
Company, as trustee, relating to $20,000,000 aggregate principal amount of 12% Pay-in-Kind Senior Notes
due 2009.
*4.7 Specimen Certificate of 12% Pay-in-Kind Senior due 2008 (included in Exhibit 4.6 hereto).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*4.8 Registration Rights Agreement, dated December 3, 1998, among TransDigm Holding Company and Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II, L.P.
*4.9 Credit Agreement, dated December 3, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers
Trust Company, as the administrative agent, and the various financial institutions parties thereto.
*4.10 First Amendment to the Credit Agreement, dated December 10, 1998, among TransDigm Inc., TransDigm Holding
Company and Bankers Trust Company, as the administrative agent, and the various financial institutions
parties thereto.
4.11 Second Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent,
and the various financial institutions parties thereto.
4.12 Third Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc. and TransDigm Holding
Company and Bankers Trust Company, as the administrative agent, and the various financial institutions
parties thereto.
*4.13 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.14 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.15 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.16 Security Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.17 Pledge Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.18 Form of Assignment of Security Interest in United States Copyrights by TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the
administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
*4.19 Form of Assignment of Security Interest in United States Trademarks and Patents by TransDigm Inc.,
TransDigm Holding Company and Marathon Power Technologies Company for the benefit of Bankers Trust
Company, as the administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
5.1 Opinion of Latham & Watkins regarding the validity of the New Notes.
*10.1 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund, LP, Odyssey Coinvestors, LLC, TD-Equity LLC, KIA IV-TD, LLC and Kelso Equity
Partners II, L.P.
*10.2 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund and certain employee stockholders of TransDigm Holding Company.
*10.3 Tax Allocation Agreement, dated December 3, 1998, between TransDigm Holding Company and TransDigm Inc.
*10.4 TransDigm Inc. Senior Executive Benefits Plan.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*10.5 Summary of Annual Incentive Compensation Plan for Key Management Employees of TransDigm Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Cash Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, less Capital Expenditures to Cash Interest
Expense.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA.
*21.1 Subsidiaries of TransDigm Holding Company.
23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
*24.1 Power of Attorney of TransDigm Holding Company, TransDigm Inc., Marathon Power Technologies, ZMP, Inc.
and Adams Rite Aerospace, Inc. (included on signature pages to this Registration Statement on Form S-4).
*25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
</TABLE>
- ------------------------
* Previously filed
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
Each of the undersigned Co-Registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the respective
Co-Registrant pursuant to the foregoing provisions described under Item 20
above, or otherwise, the respective Co-Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the respective Co-Registrant of
expenses incurred or paid by a director, officer or controlling person of such
Co-Registrant in the successful defense of any action, suit paid by a director,
officer or controlling person of such Co-Registrant in the successful defense of
any action, suit or proceeding) is asserted against such Co-Registrant by such
director, officer or controlling person in connection with the securities being
registered, such Co-Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-5
<PAGE>
Each of the undersigned Co-Registrants hereby undertakes (i) to respond to
requests for information that is incorporated by reference into this Prospectus
pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This undertaking also includes documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
Each of the undersigned Co-Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Each of the undersigned Co-Registrants hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement (notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement); and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Each of the undersigned Co-Registrants hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the application form.
Each of the undersigned Co-Registrants hereby undertakes that every
prospectus: (i) that is filed pursuant to the immediately preceding paragraph or
(ii) that purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933, as amended, and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Each of the undersigned Co-Registrants hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the exchange offer.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, each
of the Co-Registrants has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Waco, State of Texas, on April 23, 1999.
<TABLE>
<S> <C> <C>
TRANSDIGM INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
TRANSDIGM HOLDING COMPANY
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
ZMP, INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
ADAMS RITE AEROSPACE, INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
</TABLE>
II-7
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of TransDigm Inc., a Delaware corporation (the "Company"), for himself
and not for one another, does hereby constitute and appoint Peter B. Radekevich,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement with
respect to the proposed issuance, offer, exchange and delivery by the Company of
its registered 10 3/8% Senior Subordinated Notes due 2008, or any registration
statement for this offering that is to be effective upon the filing pursuant to
rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
President and Chief
* Operating Officer
- ------------------------------ (Principal Executive April 23, 1999
W. Nicholas Howley Officer) and Director
* Chief Financial Officer
- ------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
*
- ------------------------------ Director April 23, 1999
Stephen Berger
*
- ------------------------------ Director April 23, 1999
William Hopkins
*
- ------------------------------ Director April 23, 1999
Muzzafar Mirza
*
- ------------------------------ Director April 23, 1999
John W. Paxton
*
- ------------------------------ Director April 23, 1999
Thomas R. Wall, IV
</TABLE>
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
II-8
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of TransDigm Holding Company, a Delaware corporation ("Holdings"), for
himself and not for one another, does hereby constitute and appoint Peter B.
Radekevich, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement with respect to the proposed issuance, offer, exchange and delivery by
Holdings of its guarantee of TransDigm Inc.'s registered 10 3/8% Senior
Subordinated Notes due 2008, or any registration statement for this offering
that is to be effective upon the filing pursuant to rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
President and Chief
* Operating Officer
- ------------------------------ (Principal Executive April 23, 1999
W. Nicholas Howley Officer) and Director
* Chief Financial Officer
- ------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
*
- ------------------------------ Director April 23, 1999
Stephen Berger
*
- ------------------------------ Director April 23, 1999
William Hopkins
*
- ------------------------------ Director April 23, 1999
Muzzafar Mirza
*
- ------------------------------ Director April 23, 1999
John W. Paxton
*
- ------------------------------ Director April 23, 1999
Thomas R. Wall, IV
</TABLE>
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
II-9
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Marathon Power Technologies Company, a Delaware corporation
("Marathon"), for himself and not for one another, does hereby constitute and
appoint Peter Radekevich, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement with respect to the proposed issuance, offer, exchange
and delivery by Marathon of its guarantee of TransDigm Inc.'s registered 10 3/8%
Senior Subordinated Notes due 2008, or any registration statement for this
offering that is to be effective upon the filing pursuant to rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
*
- ------------------------------ President (Principal April 23, 1999
Robert S. Henderson Executive Officer)
* Chief Financial Officer
- ------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
*
- ------------------------------ Director April 23, 1999
W. Nicholas Howley
</TABLE>
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
II-10
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of ZMP, Inc., a California corporation ("ZMP"), for himself and not
for one another, does hereby constitute and appoint Peter Radekevich, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement with
respect to the proposed issuance, offer, exchange and delivery by ZMP of its
guarantee of TransDigm Inc.'s registered 10 3/8% Senior Subordinated Notes due
2008, or any registration statement for this offering that is to be effective
upon the filing pursuant to rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
/s/ DOUGLAS W. PEACOCK (Principal Executive
- ------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
/s/ W. NICHOLAS HOWLEY President (Principal
- ------------------------------ Executive Officer) and April 23, 1999
W. Nicholas Howley Director
/s/ PETER B. RADEKEVICH Chief Financial Officer
- ------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
</TABLE>
II-11
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Adams Rite Aerospace, Inc., a California corporation ("Adams Rite
Aerospace"), for himself and not for one another, does hereby constitute and
appoint Peter Radekevich, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement with respect to the proposed issuance, offer, exchange
and delivery by Adams Rite Aerospace of its guarantee of TransDigm Inc.'s
registered 10 3/8% Senior Subordinated Notes due 2008, or any registration
statement for this offering that is to be effective upon the filing pursuant to
rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
/s/ DOUGLAS W. PEACOCK (Principal Executive
- ------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
/s/ W. NICHOLAS HOWLEY President (Principal
- ------------------------------ Executive Officer) and April 23, 1999
W. Nicholas Howley Director
/s/ PETER B. RADEKEVICH Chief Financial Officer
- ------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
</TABLE>
II-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TransDigm Holding Company
We have audited the consolidated balance sheets of TransDigm Holding Company and
its subsidiaries (the "Company") as of September 30, 1998 and 1997 and the
related consolidated statements of income and retained earnings (deficit) and of
cash flows for each of the three years in the period ended September 30, 1998
and have issued our report thereon dated November 9, 1998 (December 3, 1998 as
to Note 18); such consolidated financial statements and report are included in
this Registration Statement No. 333-71397. Our audits also included the
consolidated financial statement schedule of the Company, shown on page II-12.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 9, 1998
II-13
<PAGE>
TRANSDIGM HOLDING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
--------------------------
COLUMN B ADDITIONS COLUMN D
----------- -------------------------- ------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO DEDUCTIONS -------------
- --------------------------------------------- BEGINNING COSTS AND MARATHON FROM BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACQUISITION RESERVE(1) END OF PERIOD
- --------------------------------------------- ----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts............ $ 503 $ (165) -- $ 73 $ 265
Reserve for excess and obsolete
inventory................................ 3,771 773 -- 209 4,335
Sales returns and repairs.................. 1,797 273 -- 679 1,391
Environmental.............................. 683 (158) -- 245 280
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts............ $ 403 $ 149 $ 25 $ 74 $ 503
Reserve for excess and obsolete
inventory................................ 2,299 914 785 227 3,771
Sales returns and repairs.................. 1,155 792 748 898 1,797
Environmental.............................. 15 118 550 -- 683
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts............ $ 421 $ 158 $ -- $ 176 $ 403
Reserve for excess and obsolete
inventory................................ 2,375 411 -- 487 2,299
Sales returns and repairs.................. 1,436 398 -- 679 1,155
Environmental.............................. 18 -- -- 3 15
</TABLE>
(1) For the allowance for doubtful accounts and the reserve for excess and
obsolete inventory, the amounts in this column represent charge-offs net of
recoveries. For the sales returns and repairs and environmental accrued
liabilities, the amounts primarily represent expenditures charged against
liabilities.
II-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm
Holding Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition
Corp. and TransDigm Holding Company.
2.3 Agreement and Plan of Reorganization, dated as of March 31, 1999, by and among TransDigm Inc., ARA
Acquisition Corporation, ZMP, Inc. and TCW Special Placements Fund II.
*3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company.
*3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of
TransDigm Holding Company.
*3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with
and into TransDigm Holding Company.
*3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm
Acquisition, Inc. (TransDigm Inc.).
*3.6 Certificate of Ownership and Merger, filed on September 13, 1993, merging IMO Aerospace Company with and
into TransDigm Inc.
*3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power
Technologies Company).
*3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
*3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
3.10 Amended and Restated Articles of Incorporation, filed on April 23, 1999, of ZMP, Inc.
3.11 Agreement of Merger, filed on April 23, 1999, merging ARA Acquisition Corporation with and into ZMP, Inc.
3.12 Articles of Incorporation, filed on July 30, 1986, of ARP Acquisition Corporation (Adams Rite Aerospace,
Inc.).
3.13 Certificate of Amendment, filed on September 12, 1986, of the Articles of Incorporation of ARP
Acquisition Corporation (Adams Rite Aerospace, Inc.).
3.14 Certificate of Amendment, filed on January 27, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.16 Certificate of Amendment, filed on August 11, 1997, of the Articles of Incorporation of Adams Rite Sabre
International, Inc. (Adams Rite Aerospace, Inc.).
*3.17 Bylaws of TransDigm Holding Company.
*3.18 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*3.19 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
3.20 Amended and Restated Bylaws of ZMP, Inc.
3.21 Amended and Restated Bylaws of Adams Rite Aerospace, Inc.
*4.1 Indenture, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power
Technologies Company and State Street Bank and Trust Company, as trustee, relating to $125,000,000
aggregate principal amount of 10 3/8% Senior Subordinated Notes due 2008 and the registered 10 3/8%
Senior Subordinated Notes due 2008.
4.2 Supplemental Indenture, dated April 23, 1999, among ZMP, Inc. and Adams Rite Aerospace, Inc. and State
Street Bank and Trust Company, as trustee.
*4.3 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit
4.1 hereto).
*4.4 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes")
(included in Exhibit 4.1 hereto).
*4.5 Registration Rights Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company
and Marathon Power Technologies Company and BT Alex. Brown Incorporated and Credit Suisse First Boston
Corporation.
*4.6 Indenture, dated December 3, 1998, between TransDigm Holding Company and State Street Bank and Trust
Company, as trustee, relating to $20,000,000 aggregate principal amount of 12% Pay-in-Kind Senior Notes
due 2009.
*4.7 Specimen Certificate of 12% Pay-in-Kind Senior due 2008 (included in Exhibit 4.6 hereto).
*4.8 Registration Rights Agreement, dated December 3, 1998, among TransDigm Holding Company and Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II, L.P.
*4.9 Credit Agreement, dated December 3, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers
Trust Company, as the administrative agent, and the various financial institutions parties thereto.
*4.10 First Amendment to the Credit Agreement, dated December 10, 1998, among TransDigm Inc. and TransDigm
Holding Company and Bankers Trust Company, as the administrative agent, and the various financial
institutions parties thereto.
4.11 Second Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent,
and the various financial institutions parties thereto.
4.12 Third Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc. and TransDigm Holding
Company and Bankers Trust Company, as the administrative agent, and the various financial institutions
parties thereto.
*4.13 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.14 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.15 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*4.16 Security Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.17 Pledge Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.18 Form of Assignment of Security Interest in United States Copyrights by TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the
administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
*4.19 Form of Assignment of Security Interest in United States Trademarks and Patents by TransDigm Inc.,
TransDigm Holding Company and Marathon Power Technologies Company for the benefit of Bankers Trust
Company, as the administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
5.1 Opinion of Latham & Watkins regarding the validity of the New Notes.
*10.1 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund, LP, Odyssey Coinvestors, LLC, TD-Equity LLC, KIA IV-TD, LLC and Kelso Equity
Partners II, L.P.
*10.2 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund and certain employee stockholders of TransDigm Holding Company.
*10.3 Tax Allocation Agreement, dated December 3, 1998, between TransDigm Holding Company and TransDigm Inc.
*10.4 TransDigm Inc. Senior Executive Benefits Plan.
*10.5 Summary of Annual Incentive Compensation Plan for Key Management Employees of TransDigm Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Cash Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, less Capital Expenditures to Cash Interest
Expense.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA.
*21.1 Subsidiaries of TransDigm Holding Company.
23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
*24.1 Power of Attorney of TransDigm Holding Company, TransDigm Inc., Marathon Power Technologies, ZMP, Inc.
and Adams Rite Aerospace, Inc. (included on signature pages to this Registration Statement on Form
S-4).
*25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
</TABLE>
- ------------------------
* Previously filed
<PAGE>
Exhibit 2.3
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MARCH 31, 1999
BY AND AMONG
ZMP, INC.,
TRANSDIGM INC.,
ARA ACQUISITION CORPORATION
AND
TCW SPECIAL PLACEMENTS FUND II,
AS SHAREHOLDERS' REPRESENTATIVE
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT")
dated as of March 31, 1999 is made and entered into by and among TRANSDIGM INC.
("BUYER"), ARA ACQUISITION CORPORATION, a California corporation and wholly
owned subsidiary of Buyer ("ACQUISITION"), ZMP, INC., a California corporation
(the "COMPANY"), and TCW SPECIAL PLACEMENTS FUND II, a California limited
partnership, solely in its capacity as Shareholders' Representative.
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Buyer, Acquisition, and
the Company have approved the Merger and deem it advisable and in the best
interests of their respective stockholders to consummate the Merger;
WHEREAS, the Company intends promptly to submit to its
stockholders the approval of the Merger and the approval of this Agreement;
WHEREAS, Buyer and Acquisition are unwilling to enter into
this Agreement unless concurrently herewith the TCW Entities and Collins agree
to vote their shares of ZMP Common Stock in favor of the transactions
contemplated hereby pursuant to the Voting Agreements, and such stockholders
have agreed to enter into, execute and deliver the Voting Agreements; and
WHEREAS, Buyer has been invited to perform and Buyer has
performed such due diligence and business investigations with respect to the
Company and ARA as it deemed appropriate.
NOW THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants, agreements, terms and conditions
contained herein, and in order to set forth the terms and conditions of the
acquisition, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement and the
Exhibits and the Disclosure Schedule pursuant to this Agreement, the following
definitions apply:
"ACQUISITION" has the meaning set forth in the Recitals
hereto.
"ACTION" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
1
<PAGE>
"AFFILIATE" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Section 1504(a) of the Code (or any similar group defined under a
similar provision of state, local or foreign law).
"AGREEMENT" means this Agreement and Plan of Reorganization
among Buyer, Acquisition, the Company and the Shareholders' Representative, as
amended or supplemented, together with all Exhibits and Schedules attached or
incorporated by reference.
"AGREEMENT OF MERGER" has the meaning set forth in Section
2.2.
"APPLICABLE PERCENTAGE" of a holder of ZMP Shares or options
or warrants to acquire ZMP Common Stock means the percentage derived by dividing
(a) the number of ZMP Shares that such holder owns or has an option or warrant
to acquire at the Effective Time by (b) the number of ZMP Shares.
"APPROVAL" means any approval, authorization, consent,
qualification, license, order, permit or registration, or any waiver of any of
the foregoing, required to be obtained from, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental Entity
or any other Person.
"ARA" means Adams Rite Aerospace, Inc., the wholly-owned
Subsidiary of the Company.
"BT COMMITMENT LETTER" means the letter agreement between
Bankers Trust Company and Buyer dated as of March 29, 1999 relating to the
financing of the transactions contemplated by this Agreement.
"BANK DEBT" means any outstanding indebtedness under the
Credit Agreement dated June 15, 1994 among Adams Rite Aerospace and Wells Fargo
Bank, N.A., as amended, including any accrued interest thereon.
"BASE EQUITY PRICE" has the meaning set forth in Section
2.8(a) hereof.
"BOEING CONTRACT" means a definitive written contract entered
into between ARA and Boeing in response to the proposal submitted to Boeing on
September 30, 1998 (the "Boeing Proposal") (it being understood that in no event
shall purchase orders or temporary supply arrangements be deemed to be a "Boeing
Contract").
"BUSINESS" means the business of the Company and ARA taken as
a whole, and shall be deemed to include all of the following aspects of such
business: income, operations, condition (financial or other), assets,
liabilities, results of operations and properties (including goodwill).
"BUYER" has the meaning set forth in the Recitals hereto.
2
<PAGE>
"BUYER INDEMNITEES" has the meaning set forth in Section 7.1.
"BUYER LOSSES" has the meaning set forth in Section 7.5(a).
"BUYER'S AUDITORS" means Deloitte & Touche, independent public
accountants to Buyer.
"BOEING DETERMINATION DATE" means the date set forth on
Schedule A hereto under the heading "Boeing Determination Date."
"BOEING TARGET AMOUNT" means the amount set forth on Schedule
A hereto under the heading "Boeing Target Amount."
"CLAIM" has the meaning set forth in Section 8.1.
"CLOSING" means the consummation of the transactions
contemplated by this Agreement.
"CLOSING DATE" has the meaning set forth in Section 2.7.
"CLOSING DATE STATEMENT OF NET WORKING CAPITAL" has the
meaning set forth in Section 2.10(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLINS" means Charles Collins, the President and Chief
Executive Officer of the Company.
"COLLINS NOTE AMOUNT" means the aggregate principal amount
outstanding and all unpaid interest on any Indebtedness of Mr. Collins to the
Company or ARA as of the Closing Date, including without limitation, pursuant to
two promissory notes one in the principal amount of approximately $288,000 and
one in the principal amount of approximately $214,000 that is referred to in the
Warrant Agreement.
"COLLINS OPTION" means the option of Collins to purchase
shares of ZMP Common Stock pursuant to the warrant dated as of August 3, 1998.
"COMPANY" has the meaning set forth in the Recitals hereto.
"COMPANY'S AUDITORS" means Deloitte and Touche, L.L.P.,
independent public accountants to the Company.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality
Agreement dated December 1, 1998, entered into by Buyer in connection with the
transactions contemplated hereby.
"CONTRACT" means any agreement, obligation, note, evidence of
indebtedness, letter of credit, arrangement, bond, commitment, franchise,
indemnity, indenture, instrument, lease, license or understanding, whether or
not in writing, other than purchase orders.
3
<PAGE>
"CURRENT ASSETS" has the meaning set forth in Section 2.10.
"CURRENT LIABILITIES" has the meaning set forth in Section
2.10.
"DEEMED PRE-CLOSING PERIOD" has the meaning set forth in
Section 4.8(a).
"DISCLOSURE SCHEDULE" means the Disclosure Schedule delivered
to Buyer by the Company immediately prior to the execution hereof.
"DISSENTING SHARES" has the meaning set forth in Section 2.11.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien (including environmental and tax
liens), option, pledge, mortgage, rights of others, or restriction of any kind
(whether on voting, sale, transfer, disposition or otherwise), whether imposed
by agreement, understanding, law, equity or otherwise, except for any
restrictions on transfer generally arising under any applicable federal or state
securities law.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section
3.2(q).
"EQUITY EQUIVALENTS" means "phantom stock" or other rights to
participate in the revenues, profits, assets or equity (or the value thereof) of
the Company or ARA.
"EQUITY SECURITIES" means any capital stock or other equity
interest or any securities convertible into or exchangeable for capital stock or
any other rights, warrants or options to acquire any of the foregoing
securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the related regulations and published interpretations.
"ERISA AFFILIATES" has the meaning set forth in Section
3.2(r)(iv).
"ESCROW ACCOUNT" has the meaning set forth in Section 2.8(b).
"ESCROW AGENT" means Wells Fargo Bank, N.A.
"ESCROW AGREEMENT" means that certain Escrow Agreement dated
as of the Closing Date among Shareholders' Representative, Buyer and Escrow
Agent, substantially in the form of Exhibit B hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIXED MULTIPLIER" means the amount set forth on Schedule A
hereto under the heading "Fixed Multiplier."
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time, consistently applied.
4
<PAGE>
"GLENDALE ESCROW ACCOUNT" has the meaning set forth in Section
2.8(b).
"GLENDALE FACILITY" means the property located at 540 West
Chevy Chase Drive, Glendale, California in Glendale, California.
"GOVERNMENTAL ENTITY" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"INDEBTEDNESS" means, with respect to any Person, and without
duplication, (a) all indebtedness of such Person, whether or not contingent, for
borrowed money, (b) all obligations of such Person for the deferred purchase
price of property or services, (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person, (e) all obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, (f) all obligations of such Person as lessee under leases that
have been or should be, in accordance with GAAP in a manner consistent with the
Financial Statements recorded as capital leases, (g) all obligations, contingent
or otherwise, of such Person under acceptance, letter of credit or similar
facilities, (h) all Indebtedness referred to in clauses (a) through (g) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any encumbrance on property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness and (i) all Indebtedness of others referred to in clauses
(a) through (g) above guaranteed directly or indirectly by such Person.
"INDEMNIFIABLE CLAIM" has the meaning set forth in Section
7.3(a).
"INDEMNIFIED PARTY" has the meaning set forth in Section
7.3(b).
"INDEMNIFYING PARTY" has the meaning set forth in Section
7.3(a).
"INTELLECTUAL PROPERTY" means (a) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (b) national (including
the United States) and multinational statutory invention registrations, patents,
patent registrations and patent applications (including all reissues, divisions,
continuations, continuations-in-part, extensions and reexaminations) and all
improvements to the inventions disclosed in each such registration, patent or
application, (c) trademarks, service marks, trade dress, logos, trade names and
corporate names, whether or not registered, (d) copyrights (registered or
otherwise) and registrations and applications for registration thereof, (e)
trade secrets, (f) technology (including know-how and show-how), manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data and
copyrightable works,
5
<PAGE>
(g) copies and tangible embodiments of all of the foregoing, in whatever form or
medium and (h) all rights to obtain and rights to apply for patents, and to
register trademarks and copyrights.
"INVENTORIES" means all merchandise, products, finished goods,
raw materials, work-in-progress, packaging, supplies and other personal property
related to the Business maintained, held or stored by or for the Company or ARA.
"IRS" means the Internal Revenue Service or any successor
entity.
"LAW" means any constitutional provision, statute or other
law, ordinance, rule, regulation or interpretation of any Governmental Entity
and any Order.
"LEASED REAL PROPERTY" means the real property (and all real
property upon or under any such property) leased by the Company or ARA, as
tenant, together with, to the extent leased by the Company or ARA, all buildings
and other structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of the
Company or ARA attached or appurtenant thereto, and all easements, licenses,
rights and appurtenances relating to the foregoing.
"LIABILITIES" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable.
"LICENSED INTELLECTUAL PROPERTY" means all Intellectual
Property licensed or sublicensed to the Company or ARA from a third party.
"LOSS" means any cost, damage, disbursement, expense,
liability or loss including interest, penalties, legal fees and expenses.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means a
material adverse change in, or effect on the Business, other than the effects of
changes that are generally applicable to the industries in which the Company or
ARA operate or the United States economy generally.
"MATERIAL CONTRACT" has the meaning set forth in Section
3.2(f).
"MERGER" has the meaning set forth in Section 2.1.
"MERGER CONSIDERATION" has the meaning set forth in Section
2.8(b).
"NET WORKING CAPITAL" means Current Assets less Current
Liabilities.
"NET TAX BENEFIT" has the meaning set forth in Section 7.10.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"OWNED INTELLECTUAL PROPERTY" means all Intellectual Property
owned by the Company or ARA.
6
<PAGE>
"PERMIT" means any license, permit, franchise, certificate of
authority, approved, authorization or order, or any waiver of the foregoing,
required to be issued by any Governmental Entity.
"PERMITTED ENCUMBRANCES" means such of the following as to
which no enforcement, collection, or foreclosure proceeding shall have been
commenced (i) Encumbrances for Taxes not yet due and payable, (ii) Encumbrances
for common carriers, materialmens' and similar statutory Encumbrances that are
not overdue for a period of 60 days or more and (iii) Encumbrances not securing
Indebtedness which do not materially interfere with the conduct of the Business
or detract from the value or use of the property.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PRE-CLOSING PERIOD" has the meaning set forth in Section
3.2(h).
"PROPOSED BOEING REVENUE" shall mean the aggregate dollar
amount of deemed Boeing Contract revenue determined by multiplying, for each
part set forth on Schedule A hereto, the volume set forth on Schedule A hereto
next to such part by the price for such part set forth in the Boeing Contract as
executed and delivered by the parties thereto and summing the results of all
such multiplications for all such parts (it being understood that to the extent
a part is excluded from the Boeing Contract revenue contemplated for such part
shall be deemed to be zero). To the extent that the Boeing Contract provides
that the price of a part increases or decreases over the term of the Boeing
Contract, the price for purposes of determining the Proposed Boeing Revenue
shall be the average price to be paid to Boeing during the term of the Boeing
Contract.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.8.
"RECEIVABLES" means any and all accounts receivable, notes and
other amounts receivable by the Company or ARA from third parties, including,
without limitation, customers, arising from the conduct of the Business or
otherwise before the Closing Date, whether or not in the ordinary course.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER INDEMNITEES" has the meaning set forth in Section 7.2.
"SELLER LOSSES" has the meaning set forth in Section 7.6(a).
"SELLING SHAREHOLDERS" means, collectively, each of the
holders of ZMP Shares.
"SHAREHOLDERS' REPRESENTATIVE" has the meaning set forth in
Section 9.19.
"STRADDLE PERIOD" has the meaning set forth in Section 4.8(a).
"STRADDLE PERIOD STATEMENT" has the meaning set forth in
Section 4.8(a).
7
<PAGE>
"STRADDLE PERIOD LIABILITY" has the meaning set forth in
Section 4.8(a).
"SUBSIDIARY" means with respect to any Person (a) any
corporation of which at least a majority in interest of the outstanding voting
stock (having by the terms thereof voting power under ordinary circumstances to
elect a majority of the directors of such corporation, irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time, directly or indirectly, owned or controlled by such Person, by
one or more Subsidiaries of such Person, or by such Person and one or more of
its Subsidiaries, or (b) any non-corporate entity in which such Person, one or
more Subsidiaries of such Person, or such Person and one or more of its
Subsidiaries, directly or indirectly, at the date of determination thereof, has
at least majority ownership interest.
"SUCCESS BONUSES" means the success bonuses payable to Charles
A. Collins, Brett M. Clark, Kenneth A. Hair, Jonas T. Williams, James R. Gross,
Roger W. Snyder and James C. Stirone upon consummation of the Merger pursuant to
the Success Bonus Agreements dated as of June 1998 between ARA and each of such
persons. The aggregate amount due at Closing with respect to the Success Bonuses
is $259,939.25.
"SURVIVAL PERIOD" has the meaning set forth in Section 7.4(a).
"SURVIVING CORPORATION" has the meaning set forth in Section
2.1.
"TARGET NET WORKING CAPITAL" means $11,106,000.
"TAX" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal property, transfer,
gross receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
Governmental Entity, any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof, and any Loss in connection with the
determination, settlement or litigation of any Tax liability.
"TAX CONTROVERSY" has the meaning set forth in Section 4.9(a).
"TAX LOSSES" has the meaning set forth in Section 7.1.
"TAX RETURN" means a report, return or other information
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes the Company or any of its Subsidiaries.
"TCW ENTITIES" means TCW Special Placements Fund II, a
California limited partnership, and TCW Capital, acting solely in its capacity
as investment manager pursuant to an Investment Management Agreement dated as of
June 30, 1987.
"TCW NOTES" means the notes by the Company in favor of the TCW
Entities.
"TERMINATION DATE" has the meaning set forth in Section
6.1(c).
8
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"TRANSACTION DOCUMENTS" means this Agreement, the Voting
Agreements, the Escrow Agreement and any other agreements, certificates or other
documents related thereto.
"VOTING AGREEMENTS" means the Voting Agreements dated as of
the date hereof between (a) Buyer and the TCW Entities, substantially in the
form of Exhibit C hereto and (b) Buyer and Collins, substantially in the form of
Exhibit D hereto.
"ZMP COMMON STOCK" means the Common Stock of the Company, par
value $0.001 per share.
"ZMP SHARES" means (a) all shares of ZMP Common Stock issued
and outstanding (other than (i) any such shares owned by the Company, Buyer, or
Acquisition or any wholly owned subsidiary of any of them and (ii) any
Dissenting Shares) and (b) all shares of ZMP Common Stock issuable upon exercise
of any outstanding options or warrants.
ARTICLE II
MERGER; CLOSING
Section 2.1 THE MERGER. Subject to the terms and conditions
set forth herein, Acquisition will merge with and into the Company (the
"Merger"). The Company will be the surviving corporation of the Merger (the
"Surviving Corporation") and the separate corporate existence of Acquisition
shall cease. The Company's Articles of Incorporation as in effect immediately
prior to the Merger shall be amended and restated in their entirety in the form
attached to the Agreement of Merger and, as so amended, shall constitute the
Articles of Incorporation of the Surviving Corporation. The By-laws of
Acquisition in effect immediately prior to the Merger shall be the By-laws of
the Surviving Corporation. The officers of Acquisition as of the Closing Date
shall be the initial officers of the Surviving Corporation. The directors of
Acquisition as of the Closing Date shall be the initial directors of the
Surviving Corporation.
Section 2.2 EFFECTIVE TIME. The Merger will become effective
at the time (the "Effective Time") the Agreement of Merger substantially in the
form set forth as Exhibit A hereto (the "Agreement of Merger") is filed with the
appropriate government officials in accordance with the California Corporations
Code and any other applicable Law. Buyer, Acquisition and the Company shall
execute and deliver the Agreement of Merger prior to the Closing Date.
Section 2.3 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth herein, in the Agreement of Merger and in the California
Corporations Code. As of the Effective Time, the Company shall be a wholly-owned
Subsidiary of Buyer.
Section 2.4 CONVERSION OF THE STOCK INTO CASH. At the
Effective Time, (a) each ZMP Share shall be converted into the right to receive
a portion of the Merger Consideration determined as set forth in Section 2.8
hereof, subject to the adjustments set forth on Section 2.10 hereof, and (b)
each share of common stock of Acquisition issued and outstanding immediately
before the Effective Time shall remain issued, outstanding and unchanged as
validly issued, fully paid and non-assessable shares of common stock of the
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Surviving Corporation of the Merger; provided, however, that the Merger
Consideration, including any subsequent payments under Section 2.10 hereof and
any distributions from the Escrow Account, will be payable only to the holders
of ZMP Shares immediately prior to the Effective Time, such that the owners of
shares of Acquisition common stock who become owners of the Company common stock
as a result of the Merger are not entitled to take part in any distributions of
Merger Consideration. After the Effective Time and until surrendered for
payment, each Company stock certificate outstanding and each warrant and/or
option certificate immediately prior to the Effective Time (other than any such
certificate representing Dissenting Shares) will represent only the right to
receive the Merger Consideration. The Collins Option shall be cancelled as of
the Effective Time and represent only the right to receive the Merger
Consideration.
Section 2.5 STOCK HELD BY THE COMPANY. Notwithstanding any
other provision of this Agreement, any shares of ZMP Common Stock held by the
Company, by Acquisition or by Buyer, or by the wholly-owned Subsidiaries of any
of them, will be canceled at the Effective Time.
Section 2.6 CLOSING. The Closing of the transaction provided
for in this Agreement shall be held in the offices of Latham & Watkins, 885
Third Avenue, New York, NY (unless the parties hereto otherwise agree in
writing), on the Closing Date.
Section 2.7 CLOSING DATE. The "Closing Date" shall be the
later of April 23, 1999 and the third business day of the satisfaction or waiver
of all the conditions to Closing set forth in Article V or as otherwise agreed
to among the parties; provided, however, the Closing Date shall not be later
than the Termination Date. The Agreement of Merger shall be filed with the
appropriate officials on the Closing Date.
Section 2.8 PAYMENT OF CONSIDERATION. Subject to the terms and
conditions of this Agreement, the aggregate consideration payable by Buyer and
Acquisition for the Company shall be $41,000,000 plus (i) the aggregate exercise
prices payable under any options or warrants outstanding at the Effective Time
to purchase shares of ZMP Common Stock and (ii) an amount equal to the Collins
Note Amount (the "Purchase Price"). The Purchase Price shall be paid or applied
at the Closing and thereafter as hereafter provided in this Section 2.8 and in
Sections 2.10, 2.11, 2.12 and 8.3 hereof.
(a) At the closing, the Purchase Price shall first be paid or
applied as follows: (i) Buyer shall cause the Surviving Corporation to pay to
the holders of the TCW Notes in immediately available funds the outstanding
amount of such TCW Notes (including accrued interest and any prepayment
penalties and other amounts due thereon) as of the Closing Date, and Buyer shall
be liable for such payment if not made (it being understood that immediately
prior to the Closing the Company will utilize its available cash to pay down the
TCW Notes); (ii) Buyer shall cause the Surviving Corporation to pay to the
holders of the Bank Debt in immediately available funds the outstanding amount
of such Bank Debt (including accrued interest and any prepayment penalties and
other amounts due thereon) as of the Closing Date, and Buyer shall be liable for
such payment if not made; (iii) Buyer shall pay to or as directed by the
Shareholders' Representative in immediately available funds amounts sufficient
to cover all of the expenses, as of the Closing Date and reasonably estimated to
be incurred thereafter, of any
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of the Company, ARA, the Selling Shareholders and the Shareholders'
Representative incident to the negotiation, preparation and performance of this
Agreement and the other Transactions Documents and the transactions contemplated
hereby or thereby and the process pursuant to which the Company and ARA were
sold and any proposed disposition or sale contemplated to a third party or
otherwise of all or any portion of the business of the Company or ARA, including
the fees, expenses and disbursements of the investment bankers, accountants and
counsel; and (iv) Buyer shall cause the Surviving Corporation to pay in
immediately available funds the Success Bonuses to each of the persons and in
the amounts as directed by Shareholders' Representative, and Buyer shall be
liable for such payment if not made (it being understood and agreed that any
additional amounts that may be payable with respect to the Success Bonuses shall
be paid in accordance with Section 8.3(f)). The amount of the Purchase Price
remaining after the payments described in clauses (i) through (iv) above is
hereinafter referred to as the "Base Equity Price".
(b) The Base Equity Price shall be paid or applied as follows:
(i) Buyer shall cause the Surviving Corporation to retain (for ultimate payment
to the holders of Dissenting Shares if and to the extent required to be so paid)
an amount equal to the Base Equity Price multiplied by a fraction, the numerator
of which is the number of Dissenting Shares, and the denominator of which is the
number of ZMP Shares plus the number of Dissenting Shares (the "Dissenting
Shares Amount"); (ii) Buyer shall deliver to the Escrow Agent (I) an amount
equal to the sum of (x) $3,000,000 and (y) if, and only if, there are any
Dissenting Shares, an additional $200,000 for deposit in one escrow account (the
"Escrow Account") and (II) an amount equal to the sum of $750,000 for deposit in
a separate escrow account (the "Glendale Escrow Account"); and (iii) Buyer shall
cause the Surviving Corporation to pay to each holder of ZMP Shares or options
or warrants to acquire ZMP Shares an amount equal to such holder's Applicable
Percentage of the Base Equity Price remaining after the retention and payment
described in clauses (i) and (ii) above. There shall be deducted from any
payment due to a holder under clause (iii) above (x) any exercise price payable
by such holder under such option or warrant to acquire ZMP Shares and (y) any
amount owed by such holder to ZMP or ARA, including, in the case of Collins, the
Collins Note Amount. As used herein, "Merger Consideration" means the aggregate
amount per ZMP Share payable in the Merger, including any amounts payable to the
holders of ZMP Shares pursuant to this Section 2.8 and Sections 2.10, 2.11, 2.12
and 8.3 hereof.
Notwithstanding anything to the contrary set forth herein, the
amount of Merger Consideration to be received by the holders of ZMP Shares upon
surrender of their share certificates, letter of transmittal and other required
documentation shall be reduced by the amount, if any, the Company is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law; provided that if any
amounts are so deducted and withheld as Taxes, such amounts shall be treated as
having been paid to the holder of such ZMP Shares.
Section 2.9 PERFORMANCE AT THE CLOSING.
(a) DELIVERIES BY ACQUISITION. At the Closing, and subject to
Section 2.9(b) below, Buyer, Acquisition and the Surviving Corporation will make
the payments contemplated by Section 2.8.
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(b) SURRENDER OF CERTIFICATES REQUIRED FOR PAYMENT. Any
payment described herein to any Selling Shareholder is conditional upon the
surrender to Buyer by such Selling Shareholder of its stock certificates and any
documentation evidencing any option to acquire ZMP Shares and a letter of
transmittal substantially in the form attached hereto as Exhibit E. Buyer agrees
to make payment immediately upon such surrender (i) by check delivered to each
Selling Shareholder to its most recent registered address on the Company's stock
records, or, if a Selling Shareholder provides Buyer with an alternate address
to which payment should be delivered, to such alternate address or (ii) if a
Selling Shareholder provides Buyer with wire instructions for delivery of such
payment, in immediately available funds to the bank and account therein
identified.
No interest shall be paid or accrued on any amount payable
upon the surrender of ZMP Shares. If payment is to be made to a Person other
than the Person in whose name a share certificate surrendered is registered, it
shall be a condition of payment that the share certificate so surrendered shall
be properly endorsed (signature guaranteed) or otherwise in proper form for
transfer and that the Person requesting such payment shall pay all transfer and
other taxes required by reason of the payment to a Person other than the
registered holder of the share certificate, or establish to the satisfaction of
Buyer that such tax has been paid or is not applicable, or provide assurance
reasonably satisfactory to Buyer that any such tax will be paid by such Person.
(c) DELIVERIES BY SHAREHOLDERS' REPRESENTATIVE. Shareholders'
Representative shall, to the extent it has access thereto and to the information
required thereunder, provide any forms or certificates required by any state or
local taxing authorities to relieve Buyer of any obligation to withhold any
portion of the Merger Consideration.
Section 2.10 POST-CLOSING PURCHASE PRICE ADJUSTMENT.
Following the Closing, the Merger Consideration shall be
adjusted as provided herein to reflect changes in Net Working Capital as
determined based on the Closing Date Statement of Net Working Capital compared
to the Target Net Working Capital.
(a) Within 60 days following Closing, Buyer and the Surviving
Corporation shall cause to be prepared and delivered to the Shareholders'
Representative a statement of the current assets (the "Current Assets") and the
current liabilities (the "Current Liabilities") of the Company and ARA as of the
close of business on the Friday immediately preceding the Closing (the "Closing
Date Statement of Net Working Capital") along with supporting materials and
calculations and a calculation of the amount, if any, due to the Selling
Shareholders or Buyer as a result of the adjustments set forth in this Section
2.10. The Current Assets and Current Liabilities set forth on the Closing Date
Statement of Net Working Capital shall be determined in accordance with GAAP
applied in the manner, and according to the principles, applied in the
preparation of the Audited Financial Statements as of and for the period ended
June 26, 1998; provided, however, that in determining Current Assets and Current
Liabilities, the exclusions and adjustments described on Schedule 2.10 shall be
given effect. Upon the request of Shareholders' Representative, Buyer and the
Company shall take such steps as may be reasonably necessary to permit a
representative of the Shareholders' Representative to observe all procedures
undertaken in the preparation of the Closing Date Statement of Net Working
Capital and to provide the
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Shareholders' Representative access at all reasonable times to the personnel,
properties, books and records of the Company and ARA for the purpose of
reviewing and ascertaining the accuracy of the Closing Date Statement of Net
Working Capital.
(b) Within 30 days after receipt of the Closing Date Statement
of Net Working Capital, the Shareholders' Representative shall, in a written
notice to Buyer, either accept the Closing Date Statement of Net Working Capital
or describe in reasonable detail, in writing, any proposed adjustments and the
reasons therefor. No such written notice shall be delivered to Buyer if the net
proposed adjustments in the aggregate amount to an increase in Net Working
Capital of less than $25,000. If the Buyer has not received such notice of
proposed adjustments within such 30 day period, the Shareholders' Representative
will be deemed irrevocably to have accepted the Closing Date Statement of Net
Working Capital. In the event that Shareholders' Representative and Buyer are
not able to agree on the Net Working Capital within 30 days from and after the
receipt by Buyer of any adjustments proposed by the Shareholders'
Representative, such dispute shall be submitted to Arthur Andersen LLP for
computation or verification in accordance with the provisions of this Agreement.
Such firm shall determine as promptly as practicable, but in any event within 30
days of the date on which such dispute is referred to such firm, whether the
Closing Date Statement of Net Working Capital was prepared in accordance with
the standards set forth in this Agreement on the basis solely of the written
submissions of the parties, and whether and to what extent (if any) Net Working
Capital as shown thereon requires adjustment. The results of such accounting
firm's report shall be binding, conclusive and non-appealable upon Shareholders'
Representative, the Selling Shareholders and Buyer, and such accounting firm's
fees and expenses shall be borne equally by Buyer, on one hand, and the Selling
Shareholders (through a reduction in any amount owed to them under this Section
2.10 or, if no such amount is owed to them, through a payment out of the Escrow
Account) on the other. Buyer and the Shareholders' Representative will jointly
instruct the Escrow Agent, in writing, to make any such payment.
(c) Upon acceptance of the Closing Date Statement of Net
Working Capital by Buyer or the resolution of any disputes, (i) if Net Working
Capital on the Closing Date as so determined is greater than the Target Net
Working Capital by more than $25,000, the Merger Consideration shall be
increased by such amount and Buyer shall promptly, but no later than 5 days
after final determination, pay or cause the Surviving Corporation to pay to each
Selling Shareholder such Selling Shareholder's Applicable Percentage of the
amount of such excess, together with interest thereon from the Closing Date to
the date of payment thereof as determined below, and (ii) if Net Working Capital
on the Closing Date as so determined is less than the Target Net Working Capital
by more than $25,000, the Shareholders' Representative and the Buyer shall
promptly, but no later than 5 days after such final determination, instruct the
Escrow Agent in writing to pay to Buyer from the Escrow Account the amount of
such difference, together with interest thereon from the Closing Date to the
date of payment thereof as determined below.
(d) For the purposes of this Section 2.10, interest will be
payable at the applicable federal rate (as defined in Section 1274 of the Code),
or, if that rate is no longer established or published, a comparable interest
rate. For purposes of this Section 2.10, interest shall be calculated based on a
365 day year and the actual number of days elapsed.
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Section 2.11 DISSENTING SHARES. Notwithstanding anything in
this Agreement to the contrary, shares of ZMP Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by a
stockholder who has the right (to the extent such right is available by law) to
demand and receive payment of the fair value of such holder's stock pursuant to
California law shall not be converted into the right to receive the Merger
Consideration (unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost such right under California law, as the
case may be) (such shares, the "Dissenting Shares"), but the holder thereof
shall only be entitled to such rights as are granted by California law. If such
holder shall have so failed to perfect or shall have effectively withdrawn or
lost such right, such holder's shares of ZMP Common Stock shall thereupon no
longer be Dissenting Shares, but shall be deemed to have been converted at the
Effective Time into the right to receive the Merger Consideration (without any
interest thereon), and the Merger Consideration payable in respect thereof and
in respect of all other ZMP Shares shall be adjusted to yield the results that
would have obtained if such shares had been treated as ZMP Shares rather than
Dissenting Shares at the Closing. If the holder of any shares of ZMP Common
Stock shall become entitled to receive payment for such shares pursuant to
Section 1300 of the California Corporations Code ("Section 1300 Payment") then
such payment shall be made by the Surviving Corporation with no cost or other
liability to any of the Selling Shareholders or the Shareholders'
Representative, except as provided or referred to in the next sentence. Pursuant
to Section 7.1(4), the Buyer Indemnitees shall be indemnified against all Losses
incurred by them (including Section 1300 Payments and payments required
hereunder out of the Dissenting Share Amount) in connection with or as a result
of the existence of Dissenting Shares at the Closing if and to the extent that
such Losses or payments exceeds the Dissenting Share Amount.
Section 2.12 SPECIAL PURCHASE PRICE ADJUSTMENT
Following the Closing, the Merger Consideration shall be adjusted as follows:
(a)(i) If a Boeing Contract is executed and delivered by
Boeing and ARA on or prior to the Boeing Determination Date, within 10 business
days of such execution and delivery Buyer shall cause to be prepared and
delivered to the Shareholders' Representative (x) a statement, along with a copy
of a Boeing Contract, and if requested by Shareholders' Representative, and
calculations, setting forth the amount due to the Buyer, if any, as a result of
the calculations set forth in Section 2.12(a)(iii) or (y) a statement that no
amount is due to Buyer as a result of the calculations set forth in Section
2.12(a)(iii).
(ii) Within 10 business days after receipt of a statement
delivered pursuant to Section 2.12(a)(i)(x), the Shareholders' Representative
shall, in a written notice to the Buyer, either accept such statement or
describe in reasonable detail any proposed adjustments and the reasons therefor.
If Buyer has not received such notice of proposed adjustments within such 10
business day period, the Shareholders' Representative will be deemed to
irrevocably to have accepted such statement. In the event that the Shareholders'
Representative and the Buyer are not able to agree on such statement within 10
business days of receipt by Buyer of any adjustments proposed by Shareholders'
Representative, such dispute shall be submitted to Arthur Andersen LLP for
computation or verification in accordance with this Agreement.
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(iii) Upon acceptance by the Shareholders' Representative of
the statement delivered pursuant to Section 2.12(a)(i)(x) or the resolution of
any disputes, if the Proposed Boeing Revenue is less than the Boeing Target
Amount, the Merger Consideration will be decreased by an amount equal to the
product of (x) the Boeing Target Amount minus the Proposed Boeing Revenue and
(y) the Fixed Multiplier. If the Merger Consideration is so decreased, the
Shareholders' Representative and the Buyer shall promptly, but in no event later
than five days after such final determination, instruct the Escrow Agent in
writing to pay Buyer from the Escrow Account the amount of such decrease.
(b) If no Boeing Contract has been executed and delivered by
Boeing and ARA on or prior to the Boeing Determination Date, the Buyer shall
cause to be prepared and delivered to Shareholders' Representative a statement
pursuant to Section 2.12(a)(i)(x) setting forth the amount due to the Buyer as a
result of the calculations set forth in Section 2.12(a)(iii) assuming for
purposes of such calculation that Proposed Boeing Revenue equals zero.
(c) Notwithstanding anything to the contrary herein, the
parties hereto agree that any amounts payable to the Buyer under or pursuant to
this Section 2.12 will be paid solely out of the Escrow Account, in accordance
with this Agreement, and none of the Selling Shareholders will have any
obligation to make (or otherwise with respect to) any such payments other than
from the Escrow Account. Buyer acknowledges that the payments contemplated
hereunder may exceed the amount on deposit in the Escrow Account and that such
payments may exhaust the Escrow Account and that Buyer shall not be entitled to
payment from any other source, including the Glendale Escrow Account.
(d) Notwithstanding anything to the contrary herein, if a part
or parts set forth on Schedule A is not set forth in the Boeing Contract as
executed and delivered by the parties and, in the Shareholders' Representative's
reasonable and good faith judgement, such part or parts may be contained in a
subsequent Boeing Contract to be executed and delivered prior to the Boeing
Determination Date the Boeing Target Amount shall be recomputed for purposes of
the calculation set forth in Section 2.12(iii) to exclude such part or parts. If
a subsequent Boeing Contract containing the part or parts so excluded is
executed and delivered prior to the Boeing Determination Date, a separate
calculation shall be made pursuant to Section 2.12(iii) with respect to such
part or parts, utilizing a target amount based solely on such part or parts. If
such subsequent Boeing Contract containing the part or parts so excluded is not
executed and delivered prior to the Boeing Determination Date, a separate
calculation shall be made pursuant to Section 2.12(b) with respect to such part
or parts, utilizing a target amount based solely on such part or parts.
(e) Buyer, the Company and ARA agree to use their commercially
reasonable efforts to execute and deliver the Boeing Contract and to negotiate
its terms and conditions in good faith. Notwithstanding the foregoing sentence
or anything to the contrary herein, Buyer, the Company and ARA shall be under no
obligation to execute or deliver a Boeing Contract or any other contract with
Boeing that is not on substantially the terms and conditions set forth in the
Boeing Proposal.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS AND WARRANTIES BY BUYER AND
ACQUISITION. As of the date hereof and as of the Closing Date (except to the
extent any of the following speaks as of a specific date, such as the date
hereof), Buyer and Acquisition each represents and warrants to, and agrees with,
the Company for the benefit of the Selling Shareholders as follows:
(a) ORGANIZATION AND RELATED MATTERS. Each of Buyer and
Acquisition (i) is a corporation duly organized, validly existing and in good
standing under the respective Laws of the jurisdiction of its incorporation or
organization and (ii) has all necessary corporate power and authority to own its
properties and assets and to carry on its businesses as now conducted except
where the failure to be so organized or validly existing, to be in good
standing, or to have such power and authority does not constitute a material
adverse effect on the ability of either Buyer or Acquisition to consummate the
transactions contemplated by this Agreement.
(b) CAPITAL STOCK. All of the outstanding shares of capital
stock of each of Buyer and Acquisition will, at the Closing Date, be duly
authorized, validly issued, fully paid and non-assessable, and owned free and
clear of any Encumbrances, other than Permitted Encumbrances.
(c) AUTHORIZATION. Each of Buyer and Acquisition has the
necessary corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents and to consummate the transactions
contemplated by this Agreement and the other Transaction Documents. The
execution, delivery and performance of this Agreement and the other Transaction
Documents by each of Buyer and Acquisition has been duly and validly authorized
by the respective Boards of Directors of Buyer and of Acquisition and by all
other necessary corporate action on the part of Buyer and Acquisition. Each of
the Agreement and the Voting Agreement constitutes (and the Escrow Agreement
will, at Closing, constitute) the legally valid and binding obligation of each
of Buyer and Acquisition, enforceable against each of Buyer and Acquisition in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar Laws and
equitable principles relating to or limiting creditors' rights generally.
(d) NO CONFLICTS. Except as set forth on Section 3.1D of the
Disclosure Schedule, the execution, delivery and performance by each of Buyer
and Acquisition of this Agreement and the other Transaction Documents and the
transactions contemplated thereby will not (i) violate or conflict with the
provisions of, or constitute a breach or default whether upon lapse of time
and/or the occurrence of any act or event or otherwise under (A) the charter
documents or bylaws of either Buyer or Acquisition, (B) any Law to which either
Buyer or Acquisition is subject, or (C) any Contract to which either Buyer or
Acquisition is a party or (ii) require any consent, waiver, authorization or
approval of, or the making of any filing with or giving of notice to, any Person
or Governmental Entity (other than as required under the Hart-Scott-Rodino Act).
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(e) LEGAL PROCEEDINGS. There is no Action pending,
contemplated or threatened against either Buyer or Acquisition or any of their
respective properties or assets (real, personal or mixed, tangible or
intangible) which individually, or when aggregated with one or more other
Actions, has or might reasonably be expected to have a material adverse effect
on the ability of either Buyer or Acquisition to perform this Agreement or any
other aspect of the transactions contemplated by this Agreement.
(f) INVESTMENT REPRESENTATION. Each of Buyer and Acquisition
is aware that the shares of ZMP Common Stock are not registered under the
Securities Act. Each of Buyer and Acquisition possesses such knowledge and
experience in financial and business matters that each is capable of evaluating
the merits and risks of its investments hereunder. Buyer is acquiring the shares
of ZMP Common Stock for its own account, for investment purposes only and not
with a view to the distribution thereof. Buyer agrees that the ZMP Common Stock
will not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the Securities Act, except
pursuant to a valid exemption from registration under the Securities Act. Buyer
is an "accredited investor" as defined in Regulation D promulgated under the
Securities Act.
(g) INVESTIGATION. Each of Buyer and Acquisition has conducted
its own independent review and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, software, technology
and prospects of the Company and ARA and each of Buyer and Acquisition
acknowledges that it has been provided access to the personnel, properties,
premises and records of the Company and ARA for such purpose.
(h) NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of Buyer in connection with the negotiation, execution or performance of
this Agreement or the transactions contemplated by this Agreement, is or will be
entitled to any broker's or finder's or similar fee or other commission as a
result of this Agreement or such transactions.
Section 3.2 REPRESENTATIONS AND WARRANTIES BY THE COMPANY. As
of the date hereof and as of the Closing Date (except to the extent any of the
following speaks as of a specific date, such as the date hereof), the Company
represents and warrants to, and agrees with, Buyer and Acquisition as follows:
(a) ORGANIZATION AND RELATED MATTERS. Each of the Company and
ARA (i) is a corporation duly organized, validly existing and in good standing
under the respective Laws of the jurisdiction of its incorporation or
organization, (ii) has all necessary corporate power and authority to own,
operate or lease the properties and assets now owned, operated or leased by it
and to carry on its respective business as now conducted and (iii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in all jurisdictions in which the character or the location of the assets owned,
operated or leased by any of them or the nature of the business conducted by any
of them requires licensing or qualification, except in the cases of clauses (ii)
and (iii) where the failure to have such power and authority or to be so
qualified or licensed does not constitute a Material Adverse Effect. All
jurisdictions referred to in clause (iii) above are set forth in Section 3.2A of
the Disclosure Schedule. All corporate actions taken by the Company and ARA have
been duly authorized, and the Company and ARA have not taken any action that
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in any respect conflicts with, constitutes a default under or results in a
violation of any provision of its Certificate of Incorporation or By-Laws. The
Board of Directors of the Company, at a meeting duly called and held, has (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together are fair to and in the best interest of the
holders of ZMP Common Stock and (ii) resolved to recommend that the holders of
ZMP Common Stock approve this Agreement and the transactions contemplated
herein, including the Merger.
(b) STOCK. The Company owns, directly or indirectly, all of
the outstanding capital stock of ARA free and clear of all Encumbrances. The
authorized capital stock of the Company consists of 108,695 shares of common
stock, $.001 par value, of which 105,435 shares are issued and outstanding and
3,260 shares are reserved for issuance upon exercise of a warrant, as set forth
in Section 3.2B of the Disclosure Schedule. Except as set forth on Section 3.2B
of the Disclosure Schedule, there are no outstanding contracts, options,
warrants, convertible securities or other rights to subscribe for or purchase,
or Contracts or other obligations to issue or grant any rights to acquire, any
Equity Securities or Equity Equivalents of the Company or ARA, or to restructure
or recapitalize the Company or ARA. There are no outstanding Contracts of the
Company or ARA to repurchase, redeem or otherwise acquire any Equity Securities
of any of such Persons or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any other Person. All
Equity Securities of the Company and ARA are duly authorized, validly issued and
outstanding and are fully paid and nonassessable. There are no preemptive rights
in respect of any Equity Securities of the Company or ARA. Any Equity Securities
of the Company and ARA which were issued and reacquired by any of such Persons
were so reacquired (and, if reissued, so reissued) in compliance with all
applicable Laws, and the Company and ARA have no outstanding obligation or
liability with respect thereto. Other than the Company's ownership of ARA and as
set forth on Section 3.2B of the Disclosure Statement, there are no other
corporations, partnerships, joint ventures, associations or other entities in
which the Company or ARA owns, of record or beneficially, any Equity Securities
or other interest or any right (contingent or otherwise) to acquire the same.
Neither the Company nor ARA is a member of (nor is any part of the business
conducted through) any partnership, nor is the Company or ARA a participant in
any joint venture or similar arrangement. The minute books of the Company and
ARA contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders and Boards of Directors of the Company and
ARA. Complete and accurate copies of all such minute books and of the stock
register of the Company and ARA have been provided by the Company to the Buyer.
Section 3.2B of the Disclosure Schedule sets forth the total amount of
Indebtedness and the total amount of cash on hand of the Company and ARA on a
consolidated basis, in each case as of the date hereof. Section 3.2B of the
Disclosure Schedule also sets forth all of the stockholders of the Company, the
number of shares of ZMP Common Stock owned by each, and all amounts owed to the
Company or ARA by any holders of ZMP Common Stock.
(c) FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(i) The Company has delivered to Buyer (i) audited
consolidated balance sheets for the Company and ARA at the end of each fiscal
year ending in June 1996, 1997 and 1998 and the related statements of
operations, cash flow and changes in stockholders' equity for the periods then
ended (collectively, the "Audited Financial Statements") and (ii)
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copies of the unaudited consolidated balance sheet (the "Interim Balance Sheet")
for the Company and ARA at February 20, 1999 and the related statement of
operations, cash flow and changes in stockholders' equity for the period then
ended (collectively with the Interim Balance Sheet, the "Unaudited Financial
Statement" and, together with the Audited Financial Statements, the "Financial
Statements"). The Audited Financial Statements have been examined by the
Company's Auditors, whose reports thereon are included with such financial
statements. The Audited Financial Statements have been prepared in conformity
with GAAP, except for changes, if any, required by GAAP and disclosed therein,
consistently applied throughout the periods covered thereby. Each statement of
operations, cash flow and changes in stockholders' equity in the Audited
Financial Statements (i) was prepared in accordance with the books of account
and other financial records of the Company and ARA and (ii) presents fairly the
results of operations, cash flow and changes in stockholders' equity of the
Company and ARA for the periods covered, and each balance sheet (i) was prepared
in accordance with the books of account and other financial records of the
Company and ARA and (ii) presents fairly the financial condition of the Company
and ARA as of its respective date. Such Audited Financial Statements reflect all
adjustments necessary for a fair presentation. At the date of the most recent
such balance sheet, neither the Company nor ARA had any Liabilities (actual,
contingent or accrued) that, in accordance with GAAP, should have been shown or
reflected therein but were not.
(ii) The Unaudited Financial Statements have been prepared
in conformity with GAAP as used in preparing the Audited Financial Statements,
provided that such Unaudited Financial Statements do not include footnotes, and
(i) were prepared in accordance with the books of account and other financial
records of the Company and ARA and (ii) present fairly the consolidated
financial position of the Company and ARA as of such date and the consolidated
results of operations, cash flow and changes in stockholders' equity of the
Company and ARA for such period. At February 20, 1999, neither the Company nor
ARA had any Liabilities (actual, contingent or accrued) that, in accordance with
GAAP as used in preparing the Audited Financial Statements, should have been
shown or reflected in such Unaudited Financial Statements but were not except as
otherwise described in Section 2.8(a)(iii). Accruals for expenses relating to
the transactions contemplated by this Agreement and the other Transaction
Documents and for the Success Bonuses reflected on the Interim Balance sheet
were $194,000 and $380,000, respectively.
(iii) Since June 26, 1998 neither the Company nor ARA has
incurred any Liabilities (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected or reserved against in a balance sheet of
the Company and ARA prepared in accordance with GAAP as used in preparing the
Audited Financial Statements, except Liabilities that are reflected or disclosed
in the financial statements referred to in this Section 3.2(c) or were incurred
after February 20, 1999 in the ordinary course of business, consistent with past
practice. Neither the Company nor ARA has any Liabilities (whether accrued,
absolute, contingent or otherwise) that do not relate primarily to the ownership
of its assets, the conduct of its Business or its existence as a corporation.
Other than the TCW Notes or as set forth on Section 3.2B of the Disclosure
Schedule, neither the Company nor ARA has any Liability to any Shareholder of
the Company.
The books of account and other financial records of the
Company and ARA: (i) reflect all items of income and expense and all assets and
Liabilities required to be reflected
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therein in accordance with GAAP and (ii) are in all material respects complete
and correct, and do not contain or reflect any material inaccuracies or
discrepancies. Since June 26, 1998, the Company and ARA have maintained systems
of internal accounting controls sufficient to provide reasonable assurance that
material transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability.
Except to the extent, if any, reserved for on the Unaudited
Financial Statements, all Receivables reflected therein arose from the sale of
Inventory or services to Persons not affiliated with ARA or the Company and in
the ordinary course of the Business consistent with past practice other than (i)
notes payable from Collins in the aggregate amount of approximately $512,000 and
(ii) a note payable from a former employee in the approximate amount of $16,000
and except as reserved against on the Unaudited Financial Statements, constitute
or will constitute, as the case may be, only valid and, to the best knowledge of
the Company and ARA, undisputed claims of the Company or ARA and, to the best
knowledge of the Company and ARA, are not subject to valid claims of set off or
other defenses or counterclaims other than normal cash discounts accrued in the
ordinary course of the Business consistent with past practice.
Subject to amounts reserved therefor on the Unaudited
Financial Statements, the values at which all Inventories are carried therein
reflect the historical inventory valuation policy of the Company and ARA of
stating such Inventories at the lower of cost (determined on the first in, first
out method) or market value. Except as set forth in Section 3.2C of the
Disclosure Schedule, the Company or ARA, as the case may be, has good and
marketable title to the Inventories free and clear of all Encumbrances other
than Permitted Encumbrances. The Inventories do not consist of any items held on
consignment. Except as set forth on Section 3.2C of the Disclosure Schedule,
neither the Company nor ARA is under any obligation or liability with respect to
accepting returns of items of Inventory or merchandise in the possession of
their customers.
Except as reserved against on the Unaudited Financial
Statements, the Inventories do not consist of, in any material amount, items
that are obsolete, damaged or slowmoving. The Inventories are in good and
merchantable condition, are suitable and usable for the purposes for which they
are intended and are in a condition such that they can be sold in the ordinary
course of the Business consistent with past practice.
(d) CONDUCT IN THE ORDINARY COURSE; ABSENCE OF CERTAIN
CHANGES, EVENTS AND CONDITIONS. Since June 26, 1998, except as disclosed in
Section 3.2D of the Disclosure Schedule, (i) the Business of the Company and ARA
has been conducted only in the ordinary course and consistent with past practice
and (ii) there has not been, occurred or arisen (and, to the Company's
knowledge, there is no threatened change in or event affecting the Company or
ARA that, taking into account the likelihood of its occurring, would reasonably
be characterized as) any change in or event affecting the Company or ARA that
has had or would reasonably be expected to have had a Material Adverse Effect.
As amplification and not limitation of the foregoing, except as disclosed in
Section 3.2D of the Disclosure Schedule, since June 26, 1998 neither the Company
nor ARA has:
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(i) permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Company or ARA to be subjected
to any Encumbrance, other than Permitted Encumbrances;
(ii) except in the ordinary course of the Business consistent
with past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any monetary Liability in
excess of $50,000;
(iii) made any loan (other than loans to employees in the
ordinary course of business) to, guaranteed any Indebtedness of, or
incurred any Indebtedness on behalf of, any Person other than the
Company or ARA;
(iv) failed to pay any creditor any material amount owed to
such creditor substantially when due, except for amounts being
contested in good faith by the Company or ARA;
(v) directly or indirectly redeemed, purchased or otherwise
acquired or retired, or split, combined or reclassified or otherwise
adjusted any of the capital stock of the Company or ARA;
(vi) merged with, entered into a consolidation with or
acquired an interest of 5% or more in any Person or acquired a
substantial portion of the assets or business of any Person or any
division or line of business thereof, or otherwise acquired any
material assets (other than assets acquired in the ordinary course of
the Business consistent with past practice) and other than acquisitions
of assets relating to the recent relocation of ARA's facilities;
(vii) sold, assigned, transferred, leased, subleased, licensed
or otherwise disposed of any material properties or assets, real,
personal or mixed (including, without limitation, leasehold interests
and intangible assets), other than the sale of Inventories in the
ordinary course of the Business consistent with past practice and other
than dispositions of assets relating to the recent relocation of ARA's
facilities;
(viii) issued or sold or entered into any agreement obligating
it to issue or sell any capital stock, notes, bonds or other Equity
Securities or Equity Equivalents in the Company or ARA;
(ix) except as required by Law or involving ordinary increases
consistent with the past practices of the Company or ARA, granted or
announced any material increase in the wages, salaries, commissions,
compensation, bonuses, incentives, pension or other benefits payable by
the Company or ARA to its employees, including, without limitation, any
increase or change pursuant to or under any Employee Plan;
(x) made any change in any method of accounting or accounting
practice, principle or policy used by the Company or ARA;
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(xi) incurred any Indebtedness, other than trade payables
incurred in the ordinary course of the Business consistent with past
practice and other than any increase in the Indebtedness described in
Section 2.8(a)(i) and (ii);
(xii) amended, canceled, waived or modified in any material
respect, or consented to the early termination of any Material Contract
or the Company's or ARA's rights thereunder;
(xiii) amended or restated the Articles of Incorporation or
the Bylaws (or other organizational documents) of the Company or ARA;
(xiv) disclosed any material confidential Intellectual
Property (except by way of application for or issuance of a patent) or
permitted to lapse prematurely or go abandoned any material
Intellectual Property in any jurisdiction (or any registration or grant
thereof or any material application relating thereto) to which, or
under which, the Company or ARA has any right, title, interest or
license;
(xv) made any material election or settled or compromised any
material Liability, with respect to Taxes (other than income, sales or
use Taxes) of the Company or ARA;
(xvi) suffered any casualty loss (whether or not covered by
insurance) affecting its business or any of the assets of the Company
or ARA that exceeded $50,000 in any one instance; or
(xvii) made any election or settled or compromised any
liability with respect to income, sales or use Taxes.
(e) BUSINESS OF THE COMPANY; PROPERTY OWNED BY THE COMPANY.
The sole and exclusive business activity in which the Company is engaged is the
ownership, directly or indirectly, of all of the outstanding capital stock
issued by ARA. Additionally, except as set forth on Section 3.2E of the
Disclosure Schedule, the only property, assets and rights (whether tangible or
intangible) owned by the Company is all of the outstanding capital stock issued
by ARA.
(f) MATERIAL CONTRACTS. Section 3.2F of the Disclosure
Schedule lists each contract to which the Company or ARA is a party or to which
the Company, ARA or any of their respective properties is subject or by which
any thereof is bound that is deemed a Material Contract (as defined below).
"Material Contracts" means each Contract that either (i) after June 26, 1998,
obligates or may reasonably be anticipated to obligate the Company or ARA to pay
or entitles the Company or ARA to receive an amount in excess of $50,000, (ii)
represents a contract upon which the Business is substantially dependent or
which is otherwise material to the Business, (iii) limits or purports to limit
or restricts the ability of the Company or ARA to compete or otherwise to
conduct the Business in any manner or place during any period of time, (iv)
provides for a guaranty or indemnity by the Company or ARA, (v) all Contracts
relating to Indebtedness of the Company or ARA, (vi) all Contracts with any
Governmental Entity to which the Company or ARA is a party, (vii) all Contracts
between or among the Company or ARA and any Affiliate, (viii) all other
Contracts, whether or not made in the ordinary course of business, which the
Company or ARA would be required to disclose in a registration statement on form
S-
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1 under the Securities Act of 1933, as amended (and the rules and regulations
promulgated thereunder), or if the Company or ARA filed reports with the
Securities and Exchange Commission under the Securities and Exchange Act of
1934, as amended (and the rules and regulations promulgated thereunder) or (ix)
all broker, distributor, dealer, manufacturer's representative, franchise,
agency, sales promotion and advertising Contracts to which the Company or ARA is
a party which are not cancelable without penalty or further payment and without
more than 90 days' notice, or (x) all employment and management contracts and
Contracts with independent or consultants (or similar arrangements) to which the
Company or ARA is a party and which are not cancelable without penalty or
further payment and without more than 90 days' notice. Section 3.2F of the
Disclosure Schedule sets forth any Contract currently under negotiation which,
upon the execution thereof, would be a Material Contract (including, without
limitation, any contracts with Boeing). There are no loss contracts which are
required to be and are not so reflected on the Unaudited Financial Statements.
True copies of the agreements appearing in Section 3.2F of the Disclosure
Schedule, including all amendments and supplements, have been made available to
Buyer. (1) Each Material Contract is valid and subsisting and binding and
enforceable on the Company or ARA, and to the knowledge of the Company, the
other parties thereto; (2) the Company or ARA has materially performed all its
obligations thereunder to the extent that such obligations to perform have
accrued; and (3) no material breach or default, alleged material breach or
default, or event which would (with the passage of time, notice or both)
constitute a material breach or default thereunder by the Company or ARA or, to
the knowledge of the Company and ARA, any other party or obligor with respect
thereto, has occurred. Consummation of the transactions contemplated by this
Agreement and the Escrow Agreement will not (and will not give any Person a
right to) terminate or modify any rights of, or accelerate or augment any
obligation of the Company or ARA under any Material Contract. With respect to
all Contracts (including, without limitation, a subcontract) with the United
States, state or local government or any agency or department thereof
("Government Contracts"), there are no pending, and to the knowledge of the
Company or ARA, there are no threatened (A) civil fraud or criminal
investigations by any government investigative agency, (B) suspension or
debarment proceedings (or equivalent proceedings) against the Company or ARA,
(C) requests by the government for a contract price adjustment based on a claim
disallowance by the Defense Contract Audit Agency or similar agency, or claim of
defective pricing in excess of $50,000 individually or $100,000 in the
aggregate, (D) disputes between the Company or ARA and the government which have
resulted in a government constructing officer's final decision where the amount
in controversy exceeds or would reasonably be expected to exceed $50,000
individually or $100,000 in the aggregate, or (E) claims or equitable
adjustments by the Company or ARA against the government or any third party in
excess of $50,000 individually or $100,000 in the aggregate. With respect to any
Government Contract which expired, or was terminated, or for which final payment
was made within three years prior to the date hereof, and except as set forth on
Section 3.2F of the Disclosure Schedule hereof, to the knowledge of the Company
or ARA, there are no requests by the U.S. Government for a contract price
adjustment based upon a claim of defective pricing in excess of $50,000.
(g) AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement and the Escrow Agreement and the transactions
contemplated hereby and thereby has been duly and validly authorized by the
Company's Board of Directors and by all other necessary corporate action on the
part of the Company. This Agreement has been duly executed
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and delivered by the Company and constitutes the legally valid and binding
obligation of the Company, enforceable against the Company in accordance with
their terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar Laws and equitable
principles relating to or limiting creditors rights generally. The execution,
delivery and performance of this Agreement and the Escrow Agreement by the
Company and the execution, delivery and performance of any related agreements or
contemplated transactions by the Company will not (i) violate, or constitute a
breach or default (whether upon lapse of time, giving of notice or both) under,
the charter documents or by-laws of any of such entities, (ii) violate, or
constitute a breach or default (whether upon lapse of time, giving of notice or
both) under any Contract to which the Company or ARA is a party, including
without limitation any Material Contract, (iii) result in the imposition of any
Encumbrance against any asset or properties of the Company or ARA, (iv) require
any consent, waiver, authorization or approval of, or the making of any filing
with or giving of notice to, any Person or Governmental Entity (other than the
filing of the Agreement of Merger with the appropriate authorities in the State
of California and as required under the Hart-Scott-Rodino Act) or (v) violate
any Law or Order except with respect to clause (ii), (iii) or (iv) of this
Section 3.2(g), for any such matters that would not reasonably be expected,
singly or in the aggregate, to have a Material Adverse Effect.
(h) TAX AND OTHER RETURNS AND REPORTS. Each of the Company and
ARA has timely filed or will file (or, where permitted or required, its
respective direct or indirect parents have timely filed or will file) all
material Tax Returns required to be filed and have paid (or will pay) all Taxes
shown thereon as owing for all taxable periods ending on or before the Closing
Date (a "Pre-Closing Period"). As of the Closing Date, each of the Company and
ARA shall have made payments of estimated taxes as required by Law (taking into
account the tax effects of the transactions contemplated hereby) for (i) the
pre-closing portion of the Straddle Period (as defined in and determined under
Section 4.8(a)), and (ii) taxable periods ending on or prior to the Closing Date
but for which a Tax Return is not yet due. Adequate accruals and reserves have
been provided in the books and records of the Company and ARA, and, to the
extent required by GAAP in the Audited Financial Statements referred to in
Section 3.2(c) above or delivered or to be delivered to Buyer, for all Taxes
whether or not due and payable and whether or not disputed. Neither the Company
nor ARA has elected to be treated as a consenting corporation under Section
341(f) of the Code. Section 3.2G of the Disclosure Schedule lists the date or
dates through which the IRS and any other Governmental Entity have examined the
United States federal income Tax Returns and any other Tax Returns of the
Company and ARA. All required Tax Returns, including amendments to date, have
been prepared in good faith and are complete and accurate in all material
respects. Except as set forth on Section 3.2H of the Disclosure Schedule, there
are no deficiencies for Taxes claimed or proposed by any Governmental Entities
that have not yet been fully paid or settled. Except as set forth on Section
3.2H of the Disclosure Schedule, there are no pending audits relating to Taxes
of the Company or ARA or, to the best of the Company's knowledge, threatened
material audits or investigations relating to Taxes of the Company or ARA.
Neither the Company nor ARA has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency. Neither the Company nor ARA is a party to any Tax allocation or
sharing agreement. Neither the Company nor ARA has been a member of an
Affiliated Group filing a consolidated federal or a combined or unitary State or
Local Tax Return (other than a group the common parent of which was the Company
or Certified Holding Corporation, a Delaware
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corporation). There are no liens for Taxes (other than for current Taxes not yet
due and payable) on the assets of the Company or ARA. None of the assets of the
Company or ARA (i) directly or indirectly secures any debt the interest on which
is tax exempt, (ii) is property that is required to be treated as being owned by
any other person under the applicable tax law, or (iii) is "tax-exempt use
property" for federal income tax purposes. Neither the Company nor ARA has
agreed to make or is required to make any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise. Neither the
Company nor ARA is obligated to make, as a result of an event connected with the
transaction contemplated by this Agreement, any "excess parachute payment" as
defined in Section 280G of the Code.
(i) REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES.
Neither the Company nor ARA owns any real property. The Company and ARA have
title to or other right to use, free of Encumbrances, all items of real
property, including fees, leaseholds, easements and all other interests in real
property, and such other assets and properties that are material to the
Business, except for Permitted Encumbrances. All material tangible assets and
properties of the Company and ARA that are used in or intended to be used in the
Business or otherwise used by the Company or ARA or reflected on the Financial
Statements (other than Inventory sold or otherwise disposed of in the ordinary
course of business) are in a good state of maintenance and repair (except for
ordinary wear and tear) and are adequate for the Business. Section 3.2I of the
Disclosure Schedule sets forth each parcel of Leased Real Property. The Company
has made available to the Buyer true and complete copies of each lease for each
parcel of Leased Real Property (the "Leases") and, to the extent in the
possession of the Company or ARA, all the title insurance policies, title
reports, surveys, mortgages, easements, certificates of occupancy, environmental
reports and audits, appraisals, Permits, other title documents relating to the
Leased Real Property. Either the Company or ARA, as the case may be, is in
peaceful and undisturbed possession of all space that it is currently entitled
to possess under such Lease and no rights adverse to the rights of the Company
or ARA, to the knowledge of ARA or the Company, have been asserted by any Person
and there are no contractual or legal restrictions that preclude or materially
restrict the ability to use the premises for the purposes for which they are
currently being used. Neither the Company nor ARA has leased or subleased any
parcel or any portion of any parcel of Leased Real Property to any other Person.
Neither the Company nor ARA holds any option, right of first refusal or similar
right to purchase any additional parcel or real property or any portion thereof
or interest therein. All material Leased Real Property held by the Company or
ARA as lessee are held under valid, binding and enforceable leases, and neither
ARA nor the Company has received any written notice of any default under any
such Lease. To the knowledge of the Company and ARA, there are no condemnation
proceedings or eminent domain proceedings of any kind pending or threatened
against the Leased Real Property. To the knowledge of the Company and ARA, there
are no material latent defects or material adverse physical conditions affecting
the Leased Real Property or any of the facilities, buildings, structures,
erections, improvements, fixtures, fixed assets and personalty of a permanent
nature annexed, affixed or attached to, located on or forming part of the Leased
Real Property.
(j) INTELLECTUAL PROPERTY. The Company and ARA have rights to
and ownership of all Intellectual Property required for use in connection with
the Business. The Company and ARA have in all material respects performed all
obligations required to be performed by them, and they are not in default in any
material respect under any Contract relating to any Owned Intellectual Property
or Licensed Intellectual Property. Neither the
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Company nor ARA has received any notice to the effect (and is not otherwise
aware) that the Owned Intellectual Property or the Licensed Intellectual
Property or any use by the Company and ARA of any such property conflicts with
or allegedly conflicts with or infringes the rights of any Person. Section 3.2J
of the Disclosure Schedule sets forth a true and complete list and a brief
description, including a complete identification of each patent and patent
application and each registration or application for registration thereof, of
all Owned Intellectual Property and Section 3.2J of the Disclosure Schedule sets
forth a true and complete list and a brief description, including a description
of any license or sublicense thereof, of all Licensed Intellectual Property.
Except as disclosed on Section 3.2J of the Disclosure Schedule, the rights of
the Company or ARA, as the case may be, in or to Owned Intellectual Property do
not conflict with or infringe in any material respect on the rights of any other
Person. Except as disclosed in Section 3.2J of the Disclosure Schedule: (i) all
the Owned Intellectual Property is owned by either the Company or ARA, as the
case may be, free and clear of any Encumbrance and (ii) no Actions have been
made or asserted or are pending (nor, to the best knowledge of the Company, has
any such Action been threatened) against the Company or ARA either (A) based
upon or challenging or seeking to deny or restrict in any material way the use
by the Company or ARA of any of the Owned Intellectual Property or (B) alleging
that any services provided, or products manufactured or sold by the Company or
ARA are being provided, manufactured or sold in violation of any patents or
trademarks, or any other rights of any Person. To the knowledge of the Company,
no Person is using any patents, copyrights, trademarks, service marks, trade
names, trade secrets or similar property that are confusingly similar to the
Owned Intellectual Property or that infringe upon the Owned Intellectual
Property or upon the rights of the Company or ARA therein. Except as disclosed
on Section 3.2J of the Disclosure Schedule, neither of the Company nor ARA has
granted any license or other right to any other Person with respect to the Owned
Intellectual Property.
The Company has, or has caused to be, delivered to the Buyer
correct and complete copies of all the licenses and sublicenses for Licensed
Intellectual Property listed in Section 3.2J of the Disclosure Schedule and any
and all ancillary documents pertaining thereto (including, but not limited to,
all amendments, consents and evidence of commencement dates and expiration
dates). With respect to the Licensed Intellectual Property and each of such
licenses and sublicenses:
(i) such license or sublicense, together with all
ancillary documents delivered pursuant to the first
sentence of this Section 3.2J, is valid and binding
and in full force and effect and represents the
entire agreement between the respective licensor and
licensee with respect to the subject matter of such
license or sublicense;
(ii) except as otherwise disclosed on Section 3.2J of the
Disclosure Schedule, neither the Company nor ARA has
granted to any other Person any rights, adverse or
otherwise, under such license or sublicense;
(iii) no Actions have been made or asserted or are pending
(nor, to the knowledge of the Company, has any such
Action been threatened) against the Company or ARA
either (A) based upon or challenging or seeking to
deny or restrict the use by the Company or ARA of any
of the Licensed
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Intellectual Property or (B) alleging that any
Licensed Intellectual Property is being licensed,
sublicensed or used in violation of any patents or
trademarks, or any other rights of any Person; and
(iv) to the knowledge of the Company no Person is using
any patents, copyrights, trademarks, service marks,
trade names, trade secrets or similar property that
are confusingly similar to the Licensed Intellectual
Property or that infringe upon the Licensed
Intellectual Property or upon the rights of the
Company or ARA therein.
(k) LEGAL PROCEEDINGS AND CERTAIN LABOR MATTERS. Except as set
forth on Section 3.2K of the Disclosure Schedule, there is no Order or Action
pending or, to the knowledge of the Company, threatened against or affecting the
Company, ARA or any of their properties or assets. None of the matters described
in Section 3.2K of the Disclosure Schedule has or reasonably could be expected
to have individually or in the aggregate, a Material Adverse Effect or a
material adverse effect on the Company's ability to perform this Agreement, or
on the transactions contemplated by this Agreement. Except as set forth on
Section 3.2K of the Disclosure Schedule, there are not presently pending or, to
the knowledge of the Company, threatened any civil, criminal or administrative
actions, suits, demands, claims, hearings, notices of violation, investigations,
proceedings or demand letters relating to any alleged hazard or alleged defect
in design, manufacture, materials or workmanship including, without limitation,
any failure to warn or alleged breach of express or implied warranty or
representation, relating to any product manufactured, distributed or sold by or
on behalf of the Company or ARA that would individually or in the aggregate
reasonably be expected to have a Material Adverse Effect. Section 3.2K of the
Disclosure Schedule sets forth a true and complete list of (i) all matters
referred to in the preceding sentence and (ii) all material product recalls or
material written post-sales warnings ("Recalls") and all investigations,
considerations or decisions made by the Company or, to the knowledge the
Company, by any other Person, concerning a Recall relating to any product
manufactured, distributed or sold by or on behalf of the Company or ARA. Except
as set forth on Section 3.2K of the Disclosure Schedule, (a) neither the Company
nor ARA is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company or ARA and currently
there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Company or ARA and (b) there are no strikes, slowdowns or work
stoppages pending or, to the knowledge of the Company, threatened between the
Company or ARA and any of their respective employees, and neither the Company
nor ARA has experienced any such strike, slowdown or work stoppage within the
past three years.
(l) PERMITS. Except as disclosed on Section 3.2L of the
Disclosure Schedule, the Company and ARA hold all material Permits that are
required by any Governmental Entity to permit each of them to conduct its
respective businesses as now conducted, including, without limitation, all
authorizations required by the FAA and CAA, and all such Permits are valid and
in full force and effect and will remain so upon consummation of the
transactions contemplated by this Agreement. To the knowledge of the Company, no
suspension, cancellation or termination of any of such Permits is threatened or
imminent. The Company and ARA have not violated any such Permit in any material
respect and each is in compliance with such Permits in all material respects.
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(m) COMPLIANCE WITH LAW. The businesses of the Company and ARA
are being conducted in compliance with applicable Laws and Orders issued by any
Governmental Entities, except to the extent that any such noncompliance is
reasonably likely to result in losses, liabilities, obligations, damages, costs
or expenses (including, without limitation, fines and penalties) of less than
$37,500 singly or $225,000 in the aggregate. Neither the Company nor ARA has
received any written notice to the effect that any currently existing
circumstances are likely to result in a failure of the Company or ARA to comply
with, or a violation by the Company of, any Laws, in either case which such
failure to comply or violation would be reasonably likely to result in losses,
liabilities, obligations, damages, costs or expenses (including, without
limitation, fines and penalties) in excess of $37,500 singly or $225,000 in the
aggregate. Section 3.2M of the Disclosure Schedule sets forth a brief
description of each Order to which the Company or ARA is a party applicable to
the Company or ARA or any of the assets of the Business.
All products sold by the Company or ARA pursuant to
qualification requirements established by the Company's or ARA's customers are
and have been produced in a manner consistent in all material respects with such
requirements. The Company and ARA hold and have held all necessary
qualifications for its products from its customers pursuant to which sales were
made to such customers. Except as set forth on Section 3.2M of the Disclosure
Schedule, neither the Company nor ARA has received notification that any
qualifications for the Company's or ARA's products as established by the
Company's or ARA's customers have been revoked or terminated as a result of the
failure of products manufactured by the Company or ARA to meet the
specifications required by such qualifications, and to the knowledge of the
Company, no such revocation or termination is threatened.
(n) DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth on
Section 3.2N of the Disclosure Schedule, there has been no dividend or other
distribution of assets or securities, or any declaration regarding the foregoing
whether consisting of money, property or any other thing of value, declared,
issued or paid to or for the benefit of any of Selling Shareholders by the
Company or ARA with respect to the shares of ZMP Common Stock subsequent to the
date of the most recent audited financial statements described in Section
3.2(c).
(o) CERTAIN INTERESTS. Except as set forth on Section 3.2O of
the Disclosure Schedule, (i) to the knowledge of the Company no Affiliate of the
Company or ARA, nor any officer, director or employee thereof has any material
interest in any property used in or pertaining to the Business; (ii) no such
Person is indebted or otherwise obligated to the Company or ARA; and (iii) the
Company and ARA are not indebted or otherwise obligated to any such Person,
except for amounts due under normal arrangements applicable to all employees
generally as to salary or reimbursement of ordinary business expenses not
unusual in amount or significance or under Arrangements or Plans disclosed on
Section 3.2R of the Disclosure Schedule. The consummation of the transactions
contemplated by this Agreement will not result in any material benefit or
payment (severance or other) arising or becoming due from the Company or ARA or
the successor or assign of any thereof to any Person.
(p) INTERCOMPANY TRANSACTIONS. Except to the extent stated in
or disclosed pursuant to Sections 3.2(b) or 3.2(o), the Company and ARA have not
engaged in any transaction with any of the stockholders of the Company or any
other Affiliate of any of the
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Company or ARA. Neither the Company nor ARA has any liabilities or obligations
to any of the stockholders of the Company or any other Affiliate of any of the
stockholders of the Company and none of the stockholders of the Company or such
Affiliates has any obligations to the Company or ARA. The consummation of the
transactions contemplated by this Agreement will not result in any payment
arising or becoming due from the Company or ARA or the successor or assign of
any thereof to any of the Selling Shareholders or any Affiliate of any of the
Selling Shareholders.
(q) ENVIRONMENTAL COMPLIANCE. Except as set forth in Section
3.2Q of the Disclosure Schedule, since June 14, 1988, and, to the knowledge of
the Company, prior to June 14, 1988, (i) each of the Company and ARA has been in
material compliance with all applicable federal, state, foreign and local laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or sub-surface strata (collectively, "Environmental Laws");
(ii) neither the Company nor ARA has received written notice or is the subject
of any actions, causes of actions, claims, investigations, demand, information
requests or notices by any person or entity alleging liability or potential
liability pursuant to or non-compliance with any Environmental Law; (iii) there
are no conditions existing which would reasonably be expected to form the basis
of a claim against the Company or ARA pursuant to or for the violation or
non-compliance with any Environmental Law; and (iv) there are no circumstances
which would reasonably be expected to prevent or interfere in the future with
the Company's and ARA's material compliance with all Environmental Laws. The
Company and ARA hold all material Permits relating to environmental matters that
are required by any Governmental Entity to permit each of them to conduct their
respective businesses as now conducted, and all such Permits are valid and in
full force and effect and will remain so upon consummation of the transactions
contemplated by this Agreement. To the knowledge of the Company, no suspension,
cancellation or termination of any of such Permits is threatened or imminent.
All past proceedings and investigations and non-compliance with Law or Permits
relating to environmental matters have been resolved without any pending,
on-going or future cost or liability, except as set forth in Section 3.2Q of the
Disclosure Schedule. Notwithstanding the generality of any other representations
and warranties in this Agreement, this Section 3.2(q) shall be deemed to contain
the only representations and warranties in this Agreement with respect to
matters relating to Environmental Laws.
(r) EMPLOYEE BENEFITS.
(i) Employee Benefit Plans, Collective Bargaining and
Employee Agreements, and Similar Arrangements.
(A) Section 3.2R of the Disclosure Schedule lists all material
employee benefit plans and all material collective bargaining,
employment or severance agreements or other similar arrangements to
which either the Company or ARA is a party or by which any of them is
bound including (a) any material profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting,
retirement, severance, welfare or incentive plan, agreement or
arrangement, (b) any material plan, agreement or arrangement providing
for "fringe benefits" or perquisites to employees, officers, directors
or agents, including but not limited to benefits relating to Company
automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave,
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medical, dental, hospitalization, life insurance and other types of
insurance, (c) any material employment agreement or (d) any other
material "employee benefit plan" (within the meaning of Section 3(3) of
ERISA). Each plan or arrangement described in this subsection (A) shall
be referred to herein as an "Employee Plan" and such plans and
arrangements shall be referred to herein collectively as the "Employee
Plans."
(B) To the extent existing, the Company and ARA have made
available to Buyer true and complete copies of each of the following
documents: (a) all documents embodying or governing the Employee Plans,
and any funding medium for the Employee Plans (including, without
limitation, trust agreements) as they may have been amended or modified
(including a written description of any announced plan or legally
binding commitment to amend or modify any such documents); (b) the most
recent IRS determination, opinion or approval letter with respect to
each applicable Employee Plan under Code Sections 401 and 501(a), and
any applications for determination or approval subsequently filed with
the IRS; (c) the three most recently filed IRS Forms 5500, with all
applicable schedules and accountants' opinions attached thereto, for
each applicable Employee Plan; (d) the summary plan description for
each Employee Plan (or other descriptions of such Employee Plan
provided to employees) and all modifications thereto; (e) any insurance
policy (including any fiduciary liability insurance policy) related to
the Employee Plans; and (f) all other materials reasonably necessary
for Buyer to perform any of its responsibilities with respect to any
Employee Plan subsequent to the Closing (including, without limitation,
health care continuation requirements).
(C) The Company, all Employee Plans, and ARA are in compliance
in all material respects with the applicable provisions of ERISA and
all other Laws applicable with respect to all such Employee Plans. The
Company and ARA have performed in all material respects all of their
obligations under all such plans, agreements and arrangements. There
are no Actions (other than routine claims for benefits) pending or, to
the knowledge of the Company, threatened against such Employee Plans or
their assets, or arising out of such Employee Plans, and all such
Employee Plans have been operated in compliance in all material
respects with their terms.
(D) All obligations of the Company and ARA under each such
material Employee Plan (a) that are due prior to the Closing Date have
been paid or will be paid prior to that date, and (b) that have accrued
prior to the Closing Date have been or will be paid or properly accrued
on the Closing Date Balance Sheet (including any amounts earned by any
employee of the Company or ARA but deferred pursuant to any
non-qualified deferred compensation plan or arrangement).
(ii) Qualified Plans.
(A) Section 3.2R of the Disclosure Schedule lists all
"employee pension benefit plans" (within the meaning of Section 3(2) of
ERISA) which are also stock bonus, pension or profit-sharing plans
within the meaning of Section 401(a) of the Code.
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(B) Each such plan is qualified in form and operation
under Section 401(a) of the Code and each trust under each such plan
is exempt from tax under Section 501(a) of the Code. No event has
occurred that will or, to the knowledge of the Company, could give
rise to disqualification or loss of tax-exempt status of any such
plan or trust under such sections. No event has occurred that will
or, to the knowledge of the Company, could subject any such plans to
tax under Section 511 of the Code. To the knowledge of the Company,
no non-exempt prohibited transaction (within the meaning of Section
4975 of the Code) or non-exempt party-in-interest transaction
(within the meaning of Section 406 of ERISA) has occurred with
respect to any such plan and none of the Company, ARA or any
Employee Plan fiduciary has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA.
(iii) Title IV Plan. No Employee Plan listed in Section
3.2R of the Disclosure Schedule is a plan subject to Title IV of ERISA. None of
the Company, ARA or any ERISA Affiliate has, within the last six years, (A)
maintained any employee benefit plan which has been subject to Title IV of
ERISA; or (B) maintained, administered or contributed to any multiemployer plan
as defined in Section 4001(a)(3) of ERISA. Neither the Company nor ARA has any
liability with respect to any employee benefit plan sponsored by any current or
former ERISA Affiliate (other than the Company or ARA).
(iv) Health Plans. All group health plans of the Company
and ARA and any trade or business (whether or not incorporated) that is a member
of a group of which Company is a member and which is under common control within
the meaning of Section 414(b), (c), (m) and (o) of the Code ("ERISA Affiliates")
have been operated in material compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code to the extent
such requirements are applicable. Neither Company nor ARA provides health care
or any other non-pension benefits to any employees after their employment is
terminated, other than as required by part 6 of subtitle B of Title I of ERISA
or Section 4980B of the Code or benefits that continue for a brief period of
time after termination of employment (for example, for the balance of the month
in which an employee terminates), or has ever promised to provide any such
post-termination welfare benefits.
(v) Fines and Penalties. There has been no act or omission
by the Company or ARA that has given rise to or, to the knowledge of the
Company, may give rise to fines, penalties, taxes, or related charges under
Section 502(c) or (k) or Section 4071 of ERISA or Chapter 43 of the Code.
(vi) Deductibility of Payments; No Acceleration or
Creation of Rights. There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company or ARA that,
individually or collectively, provides for the payments by the Company or ARA of
any amount (A) that is not deductible under Section 162(a)(1) or 404 of the Code
or (B) that is an "excess parachute payment" pursuant to Section 280G of the
Code. Except for the Success Bonuses and as otherwise set forth on Section 3.2R
of the Disclosure Schedule, neither the execution and delivery of this Agreement
by the Company and ARA nor the consummation of the transactions contemplated
hereby will result in the acceleration or creation of any rights of any person
to benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options or warrants,
the
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acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any pension plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement).
(vii) The current value of assets held in the trust
maintained in connection with that certain Deferred Compensation Plan and Trust
Agreement dated as of March 2, 1992 by and among ZMP, Inc., Gene Schiappa (as
trustee) and Charles A. Collins, as amended from time to time (the "Deferred
Compensation Plan"), is not less than the amount of liabilities accumulated
under the Deferred Compensation Plan.
(s) INSURANCE. Section 3.2S of the Disclosure Schedule lists
all insurance policies and bonds that are maintained by the Business. All such
policies and bonds that are material to the Business are in full force and
effect and protect the Company and ARA against such losses and risks as is
consistent with industry practice. Neither the Company nor ARA has received any
notice of any material increase in premiums with respect to, or cancellations or
non-renewal of, any of such policies. Neither the Company nor ARA is in default
in any material respect under any such policy or bond.
(t) NO BROKERS OR FINDERS. Other than fees to be paid to
Bowles Hollowell Conner & Co. (which fees are to be paid from the Purchase
Price), no agent, broker, finder, or investment or commercial banker, or other
Person or firm engaged by or acting on behalf of the Company or ARA in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fee or other commission as a result of this
Agreement or such transactions.
(u) ABSENCE OF CERTAIN ARRANGEMENTS. Neither the Company nor
ARA, and to the Company's or ARA's knowledge no director, officer, agent, or
employee of the Company or ARA or any other Person on behalf of the Company or
ARA, has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, or (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the Company or ARA,
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company of ARA.
(v) CUSTOMERS AND SUPPLIERS. Section 3.2V of the Disclosure
Schedule sets forth a true and correct list of (a) the names and addresses of
the 15 largest customers of ARA in terms of sales during each of the two fiscal
years ended June 26, 1998 and 1997 and the seven months ended January 22, 1999,
setting forth the total sales to each such customer during such period and (b)
the names and addresses of the 10 largest suppliers of ARA in terms of purchases
during each of the fiscal years ended June 26, 1998 and 1997 and the seven
months ended January 22, 1999, setting forth for each such supplier the total
purchases from each such supplier during such period. Except as set forth on
Section 3.2V of the Disclosure Schedule, neither the Company nor ARA has
received notice from any such customers or suppliers to the effect that there
will be any price increases in ARA's inputs or price decreases in ARA's outputs.
There has
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not been any material adverse change in the business relationship of the Company
with any customer or supplier named on Section 3.2V of the Disclosure Schedule
since June 26, 1998.
(w) YEAR 2000 ISSUES. The Company and its Subsidiaries have
developed a plan which, if successfully implemented, will to their knowledge
enable all of their computer systems to process and provide accurate results
using data having date ranges spanning the twentieth and twenty-first centuries.
Without limiting the foregoing, if successfully implemented such plan will to
the knowledge of the Company and its Subsidiaries, cause such computer systems
to (i) manage and manipulate data abnormalities related to such dates; (ii)
manage and manipulate data involving all dates from such centuries without
inaccurate results related to such dates; and (iii) have user interfaces and
data fields formatted to distinguish between dates from the twentieth and
twenty-first centuries. The Company and its Subsidiaries are in the process of
implementing such plan and believe that it can be fully implemented by December
31, 1999 at costs no greater than the costs and reserves relating to "year 2000
issues" shown in the Financial Statements. In addition, the Company and its
Subsidiaries have inquired of all of their material software and hardware
systems vendors and suppliers as to whether such vendors' and suppliers' have
the systems and software necessary to address and accommodate "year 2000
issues", and as to whether such vendors and suppliers computer systems have been
tested and are fully capable of providing accurate results using data having
date ranges spanning the twentieth and twenty-first centuries and, except as set
forth on Section 3.2W of the Disclosure Schedule, each such vendor and supplier
has confirmed the foregoing.
(x) REORGANIZATIONS. All reorganizations, restructurings,
mergers, liquidations and dissolutions involving or relating to the Company, ARA
or any former parent corporation of the Company or ARA, (including, without
limitation, Certified Holding Corporation) (collectively, the "FORMER ENTITIES")
complied with all applicable Laws and the organizational documents of such
entities. There are no Liabilities of Certified Holding Corporation that are not
related to the business or properties of the Company or ARA which could
reasonably be expected to be asserted against the Company or ARA. There are no
continuing obligations or liabilities to the Company or ARA in connection with
the Asset Acquisition dated as of July 31, 1986 among ZMP Acquisition
Corporation, Adams Rite Products, Inc., Sabre Industries Inc., MZZM Inc. and
certain other parties named therein.
THE REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT ARE THE ONLY
REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY. THERE ARE NO IMPLIED
REPRESENTATIONS OR WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE IV
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 4.1 OPERATION OF THE BUSINESS. Except as otherwise
contemplated by this Agreement or as disclosed in Section 4.1 of the Disclosure
Schedule, the Company covenants that until the Closing it will, and will cause
ARA in respect of the Business to, use its reasonable best efforts to continue,
in a manner consistent with past practices of the Company, to
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keep available the services of their employees, to maintain and preserve intact
the Business in all material respects and to maintain in all material respects
the ordinary and customary relationships of the Business with their suppliers,
customers and others having business relationships with them with a view toward
preserving for Buyer to and after the Closing Date the Business. Until the
Closing, the Company shall, and shall cause ARA in respect of the Business to,
continue to operate and conduct the Business in the ordinary course consistent
with past practices of the Company, and the Company shall cause ARA in respect
of the Business not to, without the prior written approval of Buyer (which
approval shall not be unreasonably withheld) or as otherwise contemplated by
this Agreement and the Disclosure Schedule hereto, take any of the actions or
enter into any transaction of the sort described in Section 3.2(d) hereof (for
purposes of this Section 4.1, from the date hereof until the earlier of the
Closing Date and April 23, 1999 all actions listed in Section 3.2(d) shall be
deemed to have been made without any qualification to materiality or any dollar
threshold and all references in Section 3.2(d) to "material", "Material Adverse
Effect", dollar thresholds and similar terms and phrases shall be deleted
therefrom). In addition, the Company shall not, and shall cause ARA not to:
(i) make any capital expenditure or commitment to make any
capital expenditure except in accordance with the Company's capital
expenditure plan for fiscal year 1999, a true, correct and complete
copy of which has been delivered to Buyer, and from the date hereof
until the Closing Date, make or commit to make any capital
expenditures except for those capital expenditures listed on Section
4.1 of the Disclosure Schedule;
(ii) enter into any new employment or consulting agreement or
cause or suffer any written or oral termination, cancellation or
amendment thereof (except with respect to any employee at will
without a written agreement);
(iii) enter into any collective bargaining agreement or cause
or suffer any termination or amendment thereof,
(iv) with respect to any shareholder, any other Affiliate or
any Affiliate of any shareholder, grant, make or accrue any payment
or distribution or other like benefit, contingently or otherwise, or
otherwise transfer assets of the Company or ARA, including, but not
limited to, any payment of principal of or interest on any debt owed
to any such shareholder or Affiliate;
(v) execute any lease for real property or any lease for
personalty including payments in excess of $25,000 or incur any
liability therefor;
(vi) declare, set aside for payment or pay dividends or
distributions in respect of any Equity Securities or Equity
Equivalents in the Company or ARA;
(vii) revalue any of the assets of the Company or ARA,
including, without limitation, any writeoff of notes or accounts
receivable or any increase in any reserve;
(viii) cancel, waive or release any right or claim (or series
of related rights or claims);
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(ix) make any payments or give any other consideration to
customers or suppliers, other than payments under, and in accordance
with the terms of, Contracts in effect on the date hereof; and
(x) fail to manage or cause to be managed the collection and
payment of the Receivables and accounts payable of each of the
Company and ARA and otherwise maintain and manage in the ordinary
course the Business consistent with past practice in a commercially
reasonable manner.
SECTION 4.2 REGULATORY CONSENTS, AUTHORIZATIONS, ETC.
(a) The Company and Buyer each agree to cooperate and use
commercially reasonable efforts to obtain all (and will immediately prepare all
registrations, filings and applications, requests and notices preliminary to
all) Approvals and Permits that may be necessary or which may be reasonably
requested by Buyer to consummate the transactions contemplated by this
Agreement; provided that nothing contained herein shall require either Buyer or
the Company or any of their Affiliates to sell, transfer, divest or otherwise
dispose of any of its respective business, assets or properties in connection
with this Agreement or any other transactions contemplated hereby. Buyer shall
pay all fees required in connection with any filing required under the
Hart-Scott-Rodino Act.
(b) To the extent that Buyer determines in its reasonable
discretion the Approval of a third party with respect to any Material Contract
is required or desirable in connection with the transactions contemplated by
this Agreement, the Company shall use commercially reasonable efforts to obtain
such Approval prior to the Closing Date and in the event that any such Approval
is not obtained, the Company shall reasonably cooperate with Buyer in an effort
to obtain for Buyer the benefits of each such Material Contract. The parties
hereto agree not to take any unreasonable action that will have the effect of
delaying, impairing or impeding the receipt of any Approval or Permit.
SECTION 4.3 INVESTIGATION BY BUYER. Subject to applicable
Laws, the Company shall cause ARA to authorize and permit Buyer and its
representatives (which term shall be deemed to include its independent
accountants and counsel and representatives of prospective financing
institutions of Buyer) to have reasonable access during normal business hours,
at the expense of Buyer, under the supervision of the Company or ARA, upon
reasonable notice and in such manner as will not unreasonably interfere with the
conduct of their respective businesses and as will maintain the confidentiality
of this Agreement and the transactions contemplated hereby, to all of the
Company's and ARA's properties, books, records, operating instructions and
procedures, Tax Returns and all other information with respect to the Business
as Buyer may from time to time reasonably request, and to make copies of such
books, records and other documents and to discuss its business with such other
Persons, including its directors, officers, employees, accountants, counsel,
suppliers, customers, and creditors, as are necessary or appropriate for the
purposes of familiarizing itself with the Business, obtaining any necessary
Approvals of or Permits for the transactions contemplated by this Agreement and
conducting an evaluation of the organization and Business of the Company.
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SECTION 4.4 PUBLICITY. Until the Closing Date, all parties
hereto shall coordinate all publicity relating to the transactions contemplated
by this Agreement and no party shall issue any press release, publicity
statement or other public notice relating to this Agreement, or the transactions
contemplated by this Agreement, without obtaining the prior consent of all
parties hereto, except to the extent required by applicable Law.
SECTION 4.5 SHAREHOLDERS' CONSENT. The Board of Directors of
the Company shall, in accordance with applicable Law, either (i) duly call, give
notice of, convene and hold a special meeting of the shareholders of the Company
or (ii) circulate a written consent of shareholders (in form and substance
satisfactory to Buyer and which complies with all applicable Laws and the
Company's Articles and Incorporation and Bylaws) in lieu of a meeting as soon as
practicable for the purpose of considering and taking action upon this
Agreement. The Company shall take all appropriate action in accordance with all
applicable Laws and the Company's Article of Incorporation and Bylaws (a) to
obtain consent of all its stockholders with respect to the Merger and this
Agreement and (b) to assure the sale of its stockholders' shares of ZMP Common
Stock according to the Voting Agreements.
SECTION 4.6 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Buyer, and Buyer shall give prompt notice to the Company,
of (i) the occurrence, or failure to occur, of any event or fact that would be
likely to cause any representation or warranty made by such party contained in
this Agreement to be untrue in any material respect at any time from the date of
this Agreement to the Closing Date, (ii) any failure of Buyer, Acquisition or
the Company, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement, and (iii) any fact, condition, event or occurrence
that would be likely to prevent any condition to the obligations of the parties
set forth in Article V to be satisfied. Such notice shall provide a reasonably
detailed description of the relevant circumstances and shall include the amount
which the party providing the notice believes, based on the facts actually known
by it, would be payable by the other party pursuant to the indemnification
provides hereof. No such notification shall affect the representations or
warranties of the parties or the conditions to their respective obligations
hereunder.
SECTION 4.7 PREPARATION OF TAX RETURNS FOR PRE-CLOSING
PERIODS. The Shareholders' Representative shall prepare and timely file, or
cause to be prepared and timely filed, all Tax Returns required to be filed by
the Company and ARA for any Pre-Closing Period. In the case of any Tax Return of
the Company or ARA for any Pre-Closing Period, Buyer shall (i) cause an officer
of the Company or ARA, as the case may be, to sign such Tax Return, or (ii) duly
and lawfully appoint a Person designated by the Shareholders' Representative as
an officer of the Company or ARA, as the case may be, for purposes of signing
such Tax Return. Shareholders' Representative shall provide to Buyer a copy of
any Tax Return for a Pre-Closing Period no later than 30 days before the due
date (including extensions) for filing such Tax Return for Buyer's review and
consent, which consent shall not unreasonably be withheld (provided, however,
that any position consistent with past practice shall be reasonable for these
purposes).
SECTION 4.8 PREPARATION OF TAX RETURNS FOR STRADDLE PERIODS.
(a) Buyer shall prepare and timely file, or cause to be
prepared and timely filed, all Tax Returns required to be filed by the Company
and ARA for any Straddle Period.
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With respect to each Tax Return filed with respect to a Straddle Period, Buyer
will provide the Shareholders' Representative with a statement (each, a
"Straddle Period Statement") setting forth (i) Buyer's calculation of the Tax
liability of the Company and ARA allocable to the Deemed Pre-Closing Period (the
"Straddle Period Liability"), and (ii) a copy of the Tax Return to be filed with
respect to such Straddle Period. Buyer shall deliver such Straddle Period
Statement to the Shareholders' Representative no later than 30 days before the
due date (including extensions) for filing such Tax Return. The term "Straddle
Period" means any taxable period of the Company or ARA that begins before the
Closing Date and ends after the Closing Date. Items of income, gain, loss,
deduction, and credit for any Straddle Period attributable to the period of time
on or before the Closing Date shall be allocated to a deemed Pre-Closing Period
that ends on the Closing Date (the "Deemed Pre-Closing Period") using an interim
closing-of-the-books method, assuming that the Deemed Pre-Closing Period ended
as of the close of business on the Closing Date. In the case of any Taxes that
are imposed on a periodic basis (other than Taxes based upon or related to
income or receipts), and are payable for a Straddle Period, the portion of such
Tax which relates to the Deemed Pre-Closing period shall be deemed to be the
amount of such Tax for the entire taxable period multiplied by a fraction the
numerator of which is the number of days in the Deemed Pre-Closing Period and
the denominator of which is the number of days in the entire taxable period.
(b) Within 20 days of receipt of such Straddle Period
Statement, the Shareholders' Representative shall, in a written notice to the
Buyer, either accept the Straddle Period Statement or describe in reasonable
detail any proposed adjustment to any item of income, gain, loss, deduction, or
credit on the Straddle Period Statement. Buyer and the Shareholders'
Representative shall negotiate in good faith to resolve any disputes over any
proposed adjustments to the Straddle Period Statement, provided that if any such
dispute is not resolved within 10 days after the Buyer's receipt of the proposed
adjustments, Buyer and the Shareholders' Representative shall jointly engage
Arthur Andersen LLP or such other mutually acceptable national independent
public accounting firm ("Tax Arbitrator") to resolve such dispute, which
resolution shall be final and binding upon the parties, and not subject to
review or challenge of any kind. The amount of the Straddle Period Liability
shall be determined based on (i) the Straddle Period Statement prepared by the
Buyer, if the Shareholders' Representative proposes no adjustment or proposes an
adjustment but no resolution of the issue is reached between the Shareholders'
Representative and the Buyer before the due date (including extensions) for
filing the relevant Tax Return, or (ii) the Straddle Period Statement as finally
resolved between Shareholders' Representative and the Buyer, if the
Shareholders' Representative proposes an adjustment and the Shareholders'
Representative and the Buyer reach a resolution, or the Tax Arbitrator reaches a
resolution, of the proposed adjustment before the due date (including
extensions) for filing such relevant Tax Return. If any final resolution of the
proposed adjustment reached after the filing of the relevant Tax Return differs
from the Straddle Period Statement filed, then Buyer shall file an amended Tax
Return for such Straddle Period in accordance with the determination of the Tax
Arbitrator. Any fees and expenses related to the engagement of the Tax
Arbitrator shall be borne equally by Buyer, on one hand, and the Selling
Shareholders through a payment out of the Escrow Account on the other. Buyer and
the Shareholders' Representative will jointly instruct the Escrow Agent, in
writing, to make any such payment.
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SECTION 4.9 TAX CONTROVERSIES.
(a) The Shareholders' Representative shall have the right, at
the expense of the Selling Shareholders, to control, manage, and be responsible
for any audit, contest, claim, proceeding or inquiry with respect to Taxes, or
items of income, gain, loss, deduction, and credit of, the Company or ARA (a
"Tax Controversy") for any Pre-Closing Period or Straddle Period, and shall have
the right to settle or contest in their discretion any such Tax Controversy;
provided, however, that if the Tax Controversy reasonably could be expected to
affect the Company's or ARA's liability for Tax in any taxable period ending
after the Closing Date (i) Buyer shall have the right to attend and participate
in, at its own expense, any such Tax Controversy controlled by the Shareholders'
Representative, including the right to review in advance and comment upon all
submissions made in the course of such Tax Controversy, and to be present at all
conferences, meetings or proceedings with any taxing authority, and all
appearances before any court, and (ii) no settlement or any disposition of any
such Tax Controversy shall be made without Buyer's prior written consent, which
shall not be unreasonably withheld.
(b) Buyer shall have the right, at its own expense, to
control, manage, and be responsible for any Tax Controversy for any taxable
period ending after the Closing Date (other than Straddle Periods), and shall
have the right settle or contest in their discretion any Tax Controversy;
provided, however, that if the Tax Controversy reasonably could be expected to
affect the Company's or ARA's liability for Tax in any Pre-Closing Period (i)
the Shareholders' Representative shall have the right to attend and participate
in, at the expense of the Selling Shareholders, any such Tax Controversy
controlled by the Buyer, including the right to review in advance and comment
upon all submissions made in the course of such Tax Controversy, and to be
present at all conferences, meetings or proceedings with any taxing authority,
and all appearances before any court, and (ii) no settlement or any disposition
of any such Tax Controversy shall be made without the Shareholders'
Representative's prior written consent, which shall not be unreasonably
withheld.
(c) Neither the Escrow Account nor any party hereto shall be
liable for any Tax indemnification if the party to be indemnified did not comply
with the procedures of this Agreement relating to Taxes, but only to the extent
the indemnifying party has been prejudiced by such non-compliance.
SECTION 4.10 COOPERATION. After the Closing Date, the
Shareholders' Representative and Buyer will cooperate fully, and will cause
their respective Affiliates to cooperate fully, and will provide assistance as
may reasonably be requested, and cause their respective Affiliates to provide
assistance as may reasonably be requested, in connection with the preparation of
any Tax Return, the conduct of any audit or the defense of any litigation or
other proceeding with respect to any Tax liability of the Company or ARA for any
taxable period and shall retain, or shall cause to be retained, until the
expiration of all applicable statutes of limitation, any records or information
that may be relevant to any such Tax Return or audit.
SECTION 4.11 ACCESS TO RECORDS AND INFORMATION. Buyer shall
provide the Shareholders' Representative, and the Shareholders' Representative
shall provide Buyer, with the right, at reasonable times and upon reasonable
notice, to have access to, and to copy and use,
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any records or information which are reasonably expected to be relevant for the
taxable period for which Buyer or the Shareholders' Representative, as the case
may be, is charged with filing responsibility for Tax Returns under this
Agreement or otherwise in connection with the preparation of any Tax Returns,
the conduct of any audits, the defense of any litigation with respect to any Tax
liability, the filing of any claim for a refund of Tax or allowance of any Tax
credit or any judicial or administrative proceedings relating to liability for
Taxes.
SECTION 4.12 TAX POSITIONS. Buyer shall not, and shall not
permit the Company or ARA to, unless required by Law (i) make or change any Tax
election, or amend any Tax Return or take any Tax position on any Tax Return, or
(ii) take any action or omit to take any action that in any such case results in
any increased Tax liability of the Company or ARA with respect to any
Pre-Closing Period or any increased Straddle Period Liability.
SECTION 4.13 INCOME TAX LIABILITY AND REFUNDS. Any amount of
income Taxes shown as due on any Tax Return for any Pre-Closing Period shall be
timely paid out of the Escrow Account and is hereinafter referred to as a
"Declared Pre-Closing Income Tax Liability." Any income Tax refund due in
respect of any Pre-Closing Periods or Deemed Pre-Closing Periods shall be paid
to the Shareholders' Representative for distribution to the Selling Shareholders
in proportion to their Applicable Percentages. Buyer shall, or shall cause the
Company to, file an amended return or claim for any such refund as requested by
the Shareholders' Representative.
SECTION 4.14 NO SOLICITATION OR NEGOTIATION. Between the date
of this Agreement and the earlier of (x) the Closing and (y) the termination of
this Agreement, none of the Company or ARA or any of their respective
Affiliates, officers, directors, representatives or agents will (a) solicit,
initiate, consider, encourage or accept any other proposals or offers from any
Person (i) relating to any acquisition or purchase of all or any portion of the
capital stock of the Company or ARA or assets of the Company or ARA (other than
Inventory to be sold in the ordinary course of business), (ii) to enter into any
business combination with the Company or ARA or (iii) to enter into any other
extraordinary business transaction involving or otherwise relating to the
Company or ARA, or (b) participate in any discussions, conversations,
negotiations and other communications regarding, or furnish to any Person any
information with respect to, or otherwise cooperate in any way, assist or
participate in, facilitate or encourage any effort or attempt by any other
Person to seek to do any of the foregoing. The Company immediately shall cease
and cause to be terminated all existing discussions, conversations, negotiations
and other communications with any Persons conducted heretofore with respect to
any of the foregoing. The Company shall notify the Buyer promptly if any such
proposal or offer, or any inquiry or other contact with any Person with respect
thereto, is made or shall have been received after the date hereof, and shall,
in any such notice to the Buyer, indicate in reasonable detail the identity of
the Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or other contact. The Company agrees
not to, and to cause the Company and ARA not to, without the prior written
consent of the Buyer, release any Person from, or waive any provision of, any
confidentiality or standstill agreement to which the Company or ARA is a party.
SECTION 4.15 NOVATION AGREEMENTS. The Company shall use its
commercially reasonable efforts to satisfy all conditions to obtaining novation
agreements with
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respect to Government Contracts and pass to Buyer any security clearances
relating to such Contracts.
SECTION 4.16 FURTHER ACTION. Subject to the terms and
conditions herein provided, each of the parties hereto covenants and agrees to
use commercially reasonable efforts to deliver or cause to be delivered such
documents and other papers and to take or cause to be taken such further actions
as may be necessary, proper and advisable under applicable Laws to consummate
and make effective the transactions contemplated hereby.
ARTICLE V
CONDITIONS TO THE CLOSING
SECTION 5.1 GENERAL CONDITIONS. The obligations of the parties
to effect the Closing shall be subject to the following conditions:
(a) NO ORDERS; LEGAL PROCEEDINGS. No Law or Order shall have
been enacted, entered, issued, promulgated or enforced by any Governmental
Entity, at what would otherwise be the Closing Date, which prohibits or
restricts or would prohibit or restrict the transactions contemplated by this
Agreement or which would reasonably be expected to have a Material Adverse
Effect.
(b) HSR ACT. Any waiting period (and any extension thereof)
under the Hart-Scott-Rodino Act applicable to the Merger shall have expired or
shall have been terminated.
(c) SHAREHOLDERS' MEETING. A special meeting of the
shareholders of the Company or written consent in lieu thereof shall have
approved the adoption of this Agreement and the consummation of the transactions
contemplated hereby.
SECTION 5.2 CONDITIONS TO OBLIGATIONS OF BUYER. The
obligations of Buyer and Acquisition to effect the Closing shall be subject to
the following conditions, except to the extent waived in writing by Buyer:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
representations and warranties of the Company herein contained shall be true at
and as of the Closing Date with the same effect as though made at and as of such
time (except for representations and warranties which speak as of a different
date, which shall be true in all material respects as of such date), except
where the failure to be so true and correct would not have a Material Adverse
Effect. For purposes of this Section 5.2 the representations and warranties of
the Company contained in this Agreement shall be deemed to have been made
without any qualification as to knowledge or materiality and, accordingly, all
references in such representations and warranties to "material," "Material
Adverse Effect," "in all material respects," "Material Adverse Change,
"knowledge," "best knowledge" and similar terms and phrases (including, without
limitation, references to dollar thresholds therein) shall be deemed to be
deleted therefrom; provided that the foregoing parenthetical relating to dollar
thresholds shall not apply solely for the purpose of determining the truth and
correctness of the lists set forth in certain informational representations and
warranties that require disclosure of lists of items of a material nature or
above a specific
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threshold. The Company shall have in all material respects performed all
obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) FINANCING. The Buyer shall have received the proceeds of
financing contemplated by the BT Commitment Letter. Unavailability of such funds
for any reason other than a failure of the condition set forth in clause (iv) of
the Section entitled "Summary of Certain of the Terms and Conditions of the
Additional Senior Bank Financing - Conditions Precedents" of the BT Commitment
Letter shall be deemed, solely for the purpose of this Section 5.2(b), to
satisfy the condition contained in the first sentence of this Section 5.2(b).
(c) DISSENTING SHARES. Not more than 1,086.95 of the shares of
ZMP Common Stock shall be Dissenting Shares, and there shall not be more than 2
holders of Dissenting Shares.
(d) CERTIFICATE. The Company shall have delivered to Buyer a
certificate to the effect that the conditions of Section 5.2(a) have been
satisfied, dated as of the Closing Date and signed by a senior officer to such
effect.
(e) OPINION OF COUNSEL. Buyer shall receive at the Closing
from counsel to the Company, a legal opinion dated as of the Closing Date, in
form and substance as set forth in Exhibit E-1.
(f) RESIGNATIONS. All directors of the Company and ARA
specified in writing by the Buyer within two business days prior to the Closing
Date shall have resigned such directorships.
(g) ESCROW AGREEMENT. The Shareholders' Representative and
Escrow Agent shall have entered into the Escrow Agreement.
(h) REPAYMENT OF INDEBTEDNESS TO THIRD PARTIES. The TCW
Entities and Wells Fargo Bank N.A. shall have terminated and released all
security interests, liens, mortgages, claims or other encumbrances of any kind
on the assets of the Company securing such indebtedness. Buyer shall have
received copies of such payoff letters and other evidences of termination and
release as are reasonably satisfactory to Buyer.
(i) ACCOUNTANTS' OPINIONS AND CONSENTS. The Company's Auditors
shall have delivered a written undertaking to provide to Buyer, at the Company's
Auditors normal client rates with respect to such matters, all opinions and
consents (including reports) with respect to the financial statements of the
Company and ARA, if any, as are necessary for the completion of Buyer's filings
with the Securities and Exchange Commission under the Securities Act and the
Exchange Act until such time as such financial statements, opinions and consents
are no longer required to be included in such filings by the Securities Act, the
Exchange Act or the rules and regulations promulgated thereunder.
(j) CONSENTS. The Company shall have obtained and provided to
Buyer all Approvals, Permits, consents and waivers (i) set forth on Section 5.2J
of the Disclosure Schedule and (ii) the absences of which would reasonably be
expected to have a Material Adverse Effect.
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(k) FIRTPA. The Company shall have provided to Buyer a
statement, issued pursuant to Treasury Regulations section 1.897-2(h),
certifying that ZMP Common Stock is not a real property interest.
(l) NO ACTIONS. No Actions by any governmental authority or
other person shall have been instituted or threatened for the purpose of
enjoining or preventing, or which question the validity or legality of, the
transactions contemplated by the Transaction Documents and which would
reasonably be expected to have a Material Adverse Effect on Buyer if the
transactions contemplated by the Transaction Documents are consummated.
(m) SECRETARY'S CERTIFICATE. The Company shall have delivered
to Buyer a certificate executed by the Secretary of the Company, dated as of the
Closing Date, certifying and attaching copies of the following documents:
(i)Articles of Incorporation of the Company, (ii) Bylaws of the Company and
(iii) resolutions of its Board of Directors authorizing and approving the
Transaction Documents and the transactions contemplated thereby.
(n) TERMINATION OF CERTAIN ARRANGEMENTS. Any voting trusts,
stockholders agreements, proxies or other similar agreements listed on Section
3.2B of the Disclosure Schedule (including, without limitation, the Voting
Agreements) shall have been terminated, in each case, to the reasonable
satisfaction of Buyer; provided, however, that this condition shall be satisfied
even if up to two holders of Dissenting Shares fail to agree to a termination of
the Stockholder Agreement.
(o) Approvals. All payments to be made to employees or former
employees pursuant to the Success Bonuses shall have been approved in accordance
with Code Section 280G(a)(5)(b) so as to be excluded from the definition of
"parachute payment" under Code Section 280G.
SECTION 5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Closing shall be subject to the
following conditions, except to the extent waived in writing by the Company:
(a) REPRESENTATIONS AND WARRANTIES AND COVENANTS. The
representations and warranties of Buyer and Acquisition herein contained shall
be true in all material respects at and as of the Closing Date with the same
effect as though made at and as of such time (except for representations and
warranties which speak as of a different date, which shall be true in all
material respects as of such date). Buyer and Acquisition shall have in all
material respects performed all obligations and complied with all covenants and
conditions required by this Agreement to be performed or complied with by them
at or prior to the Closing Date.
(b) CERTIFICATE. Buyer and Acquisition shall have delivered to
the Company a certificate of Buyer and Acquisition to the effect that the
conditions in Section 5.3(a) have been satisfied, dated as of the Closing Date
and signed by a senior officer to such effect.
(c) OPINION OF COUNSEL. The Company shall receive at the
Closing from counsel to Buyer and Acquisition, a legal opinion dated as of the
Closing Date, in form and substance as set forth in Exhibit E-2.
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(d) ESCROW AGREEMENT. The Buyer and the Escrow Agent shall
have entered into the Escrow Agreement.
(e) SECRETARY'S CERTIFICATE. Buyer shall have delivered to the
Company a certificate executed by the Secretary of Buyer, dated as of the
Closing Date, certifying and attaching copies of the following documents: (i)
Articles of Incorporation of Buyer, (ii) Bylaws of Buyer and (iii) resolutions
of its Board of Directors authorizing and approving the Transaction Documents
and the transactions contemplated thereby.
ARTICLE VI
TERMINATION
SECTION 6.1 TERMINATION. This Agreement may be terminated by:
(a) Buyer (who shall pay to the Company $250,000 upon exercise
of the right to terminate contained in this Section 6.1(a)) at the time the
Closing would otherwise have occurred if (i) all of the conditions set forth in
Section 5.1 and Section 5.2 shall have been satisfied other than those
conditions that are contemplated to be satisfied at the Closing and (ii) the
funds committed in the BT Commitment Letter are unavailable.
(b) Mutual consent in writing of the Company, Buyer and
Acquisition;
(c) The Company or Buyer at any time after May 15, 1999 (the
"Termination Date") if the Closing shall not have occurred by such date;
provided, that the right to terminate this Agreement under this Section 6.1(c)
shall not be available to any party whose breach of any representation or
warranty or failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur by such date.
(d) Buyer by written notice to the Company if any event occurs
or condition exists (and cannot be cured on or prior to the Termination Date by
the parties' reasonable best efforts) which would render impossible the
satisfaction of one or more conditions to the obligations of Buyer to consummate
the transactions contemplated by this Agreement as set forth in Section 5.1 or
5.2.
(e) The Company by written notice to Buyer if any event occurs
or condition exists (and cannot be cured on or prior to the Termination Date by
the parties' reasonable best efforts) which would render impossible the
satisfaction of one or more conditions to the obligation of the Company to
consummate the transactions contemplated by this Agreement as set forth in
Section 5.1 or 5.3.
SECTION 6.2 EFFECTS OF TERMINATION. In the event of the
termination of this Agreement pursuant to Section 6.1, this Agreement shall
thereafter become void and have no future effect, and no party hereto shall have
any liability to the other parties hereto or their respective stockholders or
directors or officers in respect thereof; provided that the obligations of the
parties contained in Sections 9.8 and 9.12 shall survive any such termination;
and provided further that notwithstanding anything to the contrary contained
herein, a termination under Section 6.1 shall not relieve any party of any
liability for a willful breach of or for any willful
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misrepresentation under this Agreement or be deemed to constitute a waiver of
any available remedy (including specific performance if available) for any such
breach or misrepresentation.
ARTICLE VII
INDEMNITY
SECTION 7.1 INDEMNIFICATION OF BUYER. From and after the
Closing, Buyer, Surviving Corporation and their respective directors, officers,
employees, Affiliates, agents, advisors, representatives and assigns ("Buyer
Indemnitees") shall be indemnified and held harmless by the holders of ZMP
Common Stock on the date hereof out of funds in the Escrow Account and/or the
Glendale Escrow Account, as the case may be, available therefor, from and
against any and all Losses of any such Person, directly or indirectly, as a
result of, or based upon or arising from (1) any untruth or inaccuracy of any of
the representations or warranties (except to the extent related to Taxes) made
by the Company in Section 3.2 of this Agreement or any of the agreements or
covenants (except to the extent related to Taxes) made by the Company in Article
IV of this Agreement, (2) without duplication, (x) any breach of the covenant to
pay any Declared Pre-Closing Income Tax Liability, (y) all Taxes of the Company
or ARA relating to Pre-Closing Periods and (z) any Straddle Period Liability
(collectively "Tax Losses"), (3) any amounts described in Sections 2.8(a)(iii)
and (iv) hereof which are not paid on the Closing Date from the Purchase Price,
(4) Section 1300 Payments and payments required under Section 2.11 in connection
with or as a result of the existence of Dissenting Shares at the Closing if and
to the extent such Losses or payments exceed the Dissenting Share Amount and (5)
any claims or allegations of third parties against any Indemnified Party of any
violation or non-compliance with or pursuant to any Environmental Law at the
Glendale Facility. Indemnification under Section 7.1(1), (2), (3) and (4) shall
be available solely from the Escrow Account as provided herein. Indemnification
under Section 7.1(5) shall be available solely from the Glendale Escrow Account
and the Escrow Account as provided herein.
SECTION 7.2 INDEMNIFICATION BY BUYER. From and after the
Closing, Buyer agrees to indemnify and hold harmless each of the Selling
Shareholders and the directors, officers, employees, Affiliates, agents,
advisors, representatives and assigns of each of the Selling Shareholders
("Seller Indemnitees") from and against any and all Losses of any of any such
Person, directly or indirectly, as a result of, or based upon or arising from
any material breach or nonperformance of any of the representations, warranties,
covenants or agreements made by Buyer or Acquisition in or pursuant to this
Agreement.
SECTION 7.3 PROCEDURE.
(a) Any party seeking indemnification with respect to any Loss
or potential Loss arising from a claim (an "Indemnifiable Claim") asserted by a
third party (including a notice of Tax audit or request to waive or extend a
statute of limitations applicable to any Tax) shall give written notice to the
party required to provide indemnity hereunder (the "Indemnifying Party").
Written notice to the Indemnifying Party of the existence of a third-party
Indemnifiable Claim shall be given by the Indemnified Party within 30 days after
its receipt of a written assertion of liability from the third party, including
in the case of tax matters, written notice of any tax audit that might result in
such a claim. The failure of any Indemnified Party to give
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timely notice hereunder shall not affect rights to indemnification hereunder,
except and only to the extent that the Indemnifying Party demonstrates actual
damage caused by such failure.
(b) If any claim, demand or liability is asserted by any third
party against any Person entitled to indemnification hereunder (the "Indemnified
Party"), the Indemnifying Party shall defend any actions or proceedings brought
against the Indemnified Party in respect of matters embraced by the indemnity.
If, after 10 business days following a written request by the Indemnified Party
to defend any action or proceeding, the Indemnifying Party neglects to defend
the Indemnified Party, the Indemnified Party may defend, compromise or settle
the claim on behalf of and for the account and risk of the Indemnifying Party,
who shall be bound by the result. In all cases, the party without the right to
control the defense of the Indemnifiable Claim may participate in the defense at
its own expense.
(c) Notwithstanding anything in this Section 7.3 to the
contrary except as set forth in Section 7.3(b), neither the Indemnifying Party
nor the Indemnified Party shall, without the written consent of the other Party,
settle or compromise any Indemnifiable Claim or permit a default or consent to
entry of any judgment unless the claimant and such party provide to such other
Party an unqualified release from all liability in respect of the Indemnifiable
Claim. Notwithstanding the foregoing, if a settlement offer solely for money
damages is made by the applicable third party claimant, and the Indemnifying
Party notifies the Indemnified Party in writing of the Indemnifying Party's
willingness to accept the settlement offer and, subject to the limitations of
Sections 7.5 and 7.6, pay the amount called for by such offer, and the
Indemnified Party declines to accept such offer, the Indemnified Party may
continue to contest such Indemnifiable Claim, free of any participation by the
Indemnifying Party, and the amount of any ultimate liability with respect to
such Indemnifiable Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (A) the amount of the settlement
offer that the Indemnified Party declined to accept plus the Losses of the
Indemnified Party relating to such Indemnifiable Claim through the date of its
rejection of the settlement offer or (B) the aggregate Losses of the Indemnified
Party with respect to such Indemnifiable Claim. If the Indemnifying Party makes
any payment on any Indemnifiable Claim, the Indemnifying Party shall be
subrogated, to the extent of such payment, to all rights and remedies of the
Indemnified Party to any insurance benefits or other claims of the Indemnified
Party with respect to such Indemnifiable Claim.
SECTION 7.4 SURVIVAL.
(a) Each of the representations, warranties, covenants and
agreements contained in or made pursuant to this Agreement or any other
Transaction Document shall expire on the first anniversary of the Closing,
except that the representations contained in Section 3.2(q) and the covenants
and agreements contained in clauses (2), (3), (4) and (5) of Section 7.1 shall
survive the Closing and shall terminate on the third anniversary of the Closing
(the period from the date hereof until the date of the termination of the
related representation, warranty, covenant or agreement is referred to herein as
the "Survival Period"). Except with respect to any matter as to which a claim
has been asserted by notice to the other party that is pending or unresolved at
the end of the pertinent Survival Period, the parties intend to shorten the
statute of limitations and agree that no claims or causes of action may be
brought against any of the Selling Shareholders, the Company, Acquisition or
Buyer based upon, directly or indirectly, any of the
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representations, warranties, covenants or agreements (including covenants and
agreements to indemnify) contained in or made pursuant to this Agreement or any
other Transaction Document after the expiration of the pertinent Survival Period
or any termination of this Agreement.
(b) The indemnifications provided for hereunder shall take
effect upon Closing and shall remain in effect during the relevant Survival
Period. Any matter as to which a claim has been asserted by notice to the other
party that is pending or unresolved at the end of the pertinent Survival Period
shall continue to be covered by this Article VII notwithstanding the expiration
of the Survival Period with respect to such claim or the expiration of any
applicable statute of limitations (which the parties hereby waive) until such
matter is finally terminated or otherwise formally resolved by the parties under
this Agreement or by a court of competent jurisdiction and any amounts payable
hereunder are finally determined and paid. Any written notice delivered by a
party with respect to a claim for indemnification shall set forth with
specificity the basis of the claim and a reasonable estimate of the amount
thereof.
SECTION 7.5 LIMITATIONS ON INDEMNIFICATION OF BUYER. In
addition to the other limitations set forth herein, including the limitations
set forth in Sections 7.1 and 7.4, Buyer's right to indemnification pursuant to
this Article VII is subject to the following limitations:
(a) No indemnification shall be made unless the aggregate
amount of Losses sustained by Buyer Indemnitees under Sections 7.1(1) and (5)
(such amount, "Buyer Losses") exceeds $250,000 and, in such event,
indemnification shall be made only to the extent Buyer Losses exceed $250,000
(it being understood that any Buyer Losses sustained prior to the expiration of
a Survival Period shall continue to be counted for purposes of this Section
7.5(a) in determining whether Buyer is entitled to indemnification). The
limitation under the first sentence of this Section 7.5(a) shall not apply to
Buyer's right to indemnification pursuant to Section 7.1(2), (3) and (4) (it
being understood that in all such cases, Buyer shall be entitled to seek
indemnity immediately) and any Losses for which the Buyer is indemnified under
such sections shall not count towards determining whether Buyer Losses exceed
$250,000.
(b) Notwithstanding anything to the contrary herein, the
parties hereto agree that any amounts payable under or pursuant to this Article
VII (other than pursuant to Section 7.1(5)) to any Buyer Indemnitee or in
respect of any Buyer Losses (including any settlement of any Indemnifiable
Claims in accordance with Section 7.3(c)) will be paid solely out of the Escrow
Account, in accordance with this Agreement and the Escrow Agreement, and none of
the Selling Shareholders will have any obligation to make (or otherwise with
respect to) any such payments other than from the Escrow Account. In addition,
notwithstanding anything to the contrary herein, the parties hereto agree that
any amounts payable or pursuant to Section 7.1(5) to any Buyer Indemnitee or in
respect of Buyer Losses (including any settlement of any Indemnifiable Claims in
accordance with Section 7.3(c)) will be solely out of the Escrow Account and the
Glendale Escrow Account in accordance with this Agreement and the Escrow
Agreement, and none of the Selling Shareholders will have any obligation to make
or otherwise with respect to any such payments other than from the Escrow
Account and the Glendale Escrow Account.
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(c) The amount of any Buyer Losses shall be reduced by any
amount received by Buyer Indemnitees with respect thereto under any insurance
coverage or for any other party alleged to be responsible therefor. Buyer
Indemnitees shall use commercially reasonable efforts to collect any amounts
available under such insurance coverage and from such other party alleged to
have responsibility. If a Buyer Indemnitee receives an amount under insurance
coverage or from such other party with respect to Buyer Losses at any time
subsequent to any indemnification pursuant to this Section 7.5, then such Buyer
Indemnitee shall promptly reimburse the Escrow Account for any payment made,
including expenses incurred, from the Escrow Account in connection with
providing such indemnification up to such amount received by the Buyer
Indemnitee.
SECTION 7.6 LIMITATIONS ON INDEMNIFICATION BY BUYER. In
addition to the other limitations set forth herein, including the limitations
set forth in Sections 7.2 and 7.4, Buyer's obligation to indemnify pursuant to
this Article VII is subject to the following limitations:
(a) No indemnification shall be made by Buyer unless the
aggregate amount of Losses claimed by Seller Indemnitees under Section 7.2 (such
amount, "Seller Losses") exceeds $250,000 and, in such event, indemnification
shall be made by the Buyer only to the extent Seller Losses exceed $250,000.
(b) The amount of any Seller Losses shall be reduced by any
amount received by Seller Indemnitees with respect thereto under any insurance
coverage or for any other party alleged to be responsible therefor. Seller
Indemnitees shall use best efforts to collect any amounts available under such
insurance coverage and from such other party alleged to have responsibility. If
a Seller Indemnitee receives an amount under insurance coverage or from such
other party with respect to Seller Losses at any time subsequent to any
indemnification provided by Buyer pursuant to this Section 7.6, then such Seller
Indemnitee shall promptly reimburse Buyer for any payment made or expense
incurred by Buyer in connection with providing such indemnification up to such
amount received by the Seller Indemnitee.
SECTION 7.7 NO SPECULATIVE DAMAGES. Notwithstanding anything
to the contrary elsewhere in this Agreement, no party (or any of its Affiliates)
shall, in any event, be liable to the other party (or any of its Affiliates) for
any speculative damages or remote consequential damages of such other party (or
any of its Affiliates), including loss of speculative future revenue or income,
or loss of business reputation or opportunity relating to the breach or alleged
breach hereof.
SECTION 7.8 EXCLUSIVE REMEDY. The remedies provided for in
this Article VII, as limited by the provisions of this Article VII, shall
constitute the sole and exclusive remedy for any post-Closing claims made for
breach of this Agreement or otherwise in connection with the transactions
contemplated hereby; provided that nothing herein shall extinguish or limit any
claim based on fraud.
SECTION 7.9 ADJUSTMENT TO MERGER CONSIDERATION. Any payment
pursuant to this Article VII shall be treated for Tax purposes as an adjustment
to the Merger Consideration.
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SECTION 7.10 TAX ADJUSTMENTS. Any amounts payable by the
Indemnifying Party to or on behalf of an Indemnified Party in respect of a Loss
shall be adjusted as follows. The Indemnified Party shall reimburse the
Indemnifying Party an amount equal to the present value amount of the net
reduction in any year in the liability for Taxes of the Indemnified Party or any
member of a consolidated or combined tax group of which the Indemnified Party
is, or was at any time, part, which reduction will be realized (either through
the reduction of a Tax liability or the increase of a Tax loss or credit) with
respect to any period after the Closing Date and which reduction would not have
been realized but for the amounts paid (or any audit adjustment or deficiency
with respect thereto, if applicable) in respect of a Loss for which the
Indemnified Party is indemnified by the Indemnifying Party pursuant to this
Agreement, or amounts paid by the Indemnified Party pursuant to this paragraph
(a "Net Tax Benefit"). The present value amount of the Net Tax Benefit shall be
determined by: (i) using a discount rate equal to the mid-term applicable
federal rate (under Section 1274(d) of the Code) in effect on the date by which
the payment subject to the Net Tax Benefit adjustment is due, (ii) discounting
back to the date by which the payment subject to the Net Tax Benefit adjustment
is due and (iii) using reasonable assumptions regarding the date (or dates) on
which such Net Tax Benefit will be realized, which assumptions must be verified
by an independent certified public accountant chosen by the Indemnifying Party
if requested by the Indemnifying Party. Each party agrees to provide the other
party or their designated representatives with assistance and such documents and
records reasonably requested by them that are relevant to their ability to
determine when a Net Tax Benefit will be realized, including but not limited to
copies of Tax Returns, estimated tax payments, schedules, and related supporting
documents. In the event the parties are unable to agree on the amount, the
parties shall engage the Tax Arbitrator to resolve the matter, whose decision
shall be final and binding upon the parties and not subject to review or
challenge of any kind.
ARTICLE VIII
ESCROW
SECTION 8.1 ASSERTION OF INDEMNIFIABLE CLAIMS. From time to
time during the pertinent Survival Period, Buyer (on its own behalf or on behalf
of the Company) or its successors or assigns may assert a claim that it or a
Buyer Indemnitee is entitled to indemnification pursuant to Section 7.1 (any
such claim for indemnification under Section 7.1(1), (2), (3) or (4), a "Claim"
and any such claim for indemnification under Section 7.1(5), a "Glendale Claim")
and demand satisfaction thereof out of the Escrow Account and/or the Glendale
Escrow Account by sending a written notice to the Shareholders' Representative.
If the Shareholders' Representative shall receive such notice from Buyer before
any termination of the pertinent Survival Period, the notice shall be deemed to
represent a pending Claim (or Claims) or Glendale Claim (or Claims), as the case
may be. Any such notice of a Claim or a Glendale Claim shall be effective only
if the Shareholders' Representative receives a certificate from an executive
officer of Buyer to the effect that the Buyer Indemnitees are entitled to
indemnification therefor pursuant to Article VII, along with a reasonable
description of the Claim or Glendale Claim, the relevant representations,
warranties, covenants or agreements for the breach of which indemnification is
being sought, the dollar amount thereof, copies of any documentation related
thereto and any other information reasonably requested by Shareholders'
Representative to support such Claim or Glendale Claim.
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SECTION 8.2 RESOLUTION OF CLAIMS; PAYMENTS. (a) Upon the final
resolution of any Claim and a final determination that any amount is owing in
respect thereof to Buyer, or, in the case of any Claim in respect of any Tax
Losses relating to any Straddle Period Liability or any payment of any Declared
Pre-Closing Income Tax Liability, immediately prior to the due date (including
extensions) for filing the relevant Tax Return, Buyer and the Shareholders'
Representative shall jointly instruct Escrow Agent, in writing, to make the
pertinent payment to Buyer or the relevant taxing authority. Upon the final
resolution of all claims relating to Dissenting Shares, Buyer and the
Shareholders' Representative shall jointly instruct the Escrow Agent, in
writing, to pay the excess of $200,000 over the amount payable to Buyer or the
Surviving Corporation in respect of such claims, if any, to the Selling
Shareholders in proportion to their respective Applicable Percentages. Upon the
final resolution of (x) between the first and the third anniversaries of the
Closing, any Claim other than a Claim relating to a purported untruth or
inaccuracy of the representation contained in Section 3.2(q) or to
indemnification under clauses (2), (3), (4) or (5) of Section 7.1 and (y)
thereafter, any claim, Buyer and the Shareholders' Representative shall jointly
instruct the Escrow Agent, in writing, to pay the excess of the amount reserved
in respect of such Claim over the amount payable to Buyer in respect thereof, if
any, to the Selling Shareholders in proportion to their respective Applicable
Percentages; provided if the aggregate amount in the Escrow Account would be
less than the sum of (1) $1,500,000 and (2) an amount by which $200,000 exceeds
any payments made (A) to Buyer Indemnitees in respect of indemnification under
clause (4) of Section 7.1 plus (B) any payments made to the Shareholders'
Representative under the second sentence of this Section 8.2 after any such
payment is proposed to be made such payment shall be reduced to the extent
necessary to avoid such result.
(b) Upon the final resolution of any Glendale Claim, Buyer and
Shareholders' Representative shall jointly instruct Escrow Agent, in writing, to
make the pertinent payment to Buyer from the Glendale Escrow Account and/or the
Escrow Account, as applicable.
SECTION 8.3 PERIODIC PAYMENTS FROM THE ESCROW ACCOUNTS.
(a) Buyer and the Shareholders' Representative shall, ten days
following the first anniversary of the Closing, jointly instruct Escrow Agent,
in writing, to pay to the Selling Shareholders in proportion to their respective
Applicable Percentages an amount, if any, equal to $1,500,000 minus the sum of
(w) the amount of all pending Claims, (x) the amount of all prior payments out
of the Escrow Account in respect of Claims other than any such pending Claims or
payments in respect of Claims relating to Dissenting Shares, (y) the amount of
all payments made to Buyer pursuant to Sections 2.10 and 2.12 and (z) to the
extent that Buyer has delivered a statement pursuant to Section 2.12 requesting
payment in accordance therewith, the amount of such payment so requested.
(b) If on or at any time after the third anniversary of the
Closing the amount on deposit in the Escrow Account exceeds the amount of all
then pending Claims, Buyer and the Shareholders' Representative shall jointly
instruct the Escrow Agent, in writing, to pay to the Selling Shareholders in
proportion to their respective Applicable Percentages, the amount of such
excess.
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(c) If on or at anytime after the date that is 18 months after
the Closing, the amount on deposit in the Glendale Escrow Account exceeds the
amount of all then pending Glendale Claims to be paid from the Glendale Escrow
Account, Buyer and Shareholders' Representative shall jointly instruct the
Escrow Agent, in writing, to pay to the Selling Shareholders in proportion to
their Applicable Percentages, the amount of such excess.
(d) No less frequently than quarterly, Buyer and the
Shareholders' Representative shall jointly instruct the Escrow Agent, in
writing, to pay to the Selling Shareholders in proportion to their respective
Applicable Percentages, 50% of the earnings on amounts on deposit in the Escrow
Account, provided that prior to any such payments all expenses due and owing to
the Escrow Agent shall be paid in full.
(e) If the Shareholders' Representative so requests, any
instruction to the Escrow Agent to pay any amount to the Selling Shareholders
may state that a portion thereof should instead be paid to the Shareholders'
Representative to defray the Shareholders' Representative's past or future
out-of-pocket expenses in carrying out its responsibilities hereunder.
(f) Whenever the Shareholders Representative and/or the
Selling Shareholders shall be entitled to receive a distribution from the Escrow
Account or the Glendale Escrow Account (other than a distribution of current
earnings) the Escrow Agent shall first pay out of such distribution the amount
of the incremental Success Bonuses due to the persons entitled to receive
Success Bonuses as a result of any such proposed distribution and no amount
shall be paid to any Selling Shareholder unless and until all such incremental
Success Bonuses are so paid.
SECTION 8.4 TERMINATION OF THE ESCROW ACCOUNT. When all
pending Claims have been finally resolved and paid as set forth in Section 8.2,
the escrow with respect to the Escrow Account shall terminate; provided,
however, that if at any time prior thereto the amount on deposit in the Escrow
Account shall equal zero, then the escrow shall terminate at such earlier time.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 AMENDMENTS; WAIVERS. This Agreement and any
schedule or exhibit attached hereto may be amended only by agreement in writing
of all parties.
SECTION 9.2 SCHEDULES; EXHIBITS; INTEGRATION.
(a) Each schedule and exhibit delivered pursuant to the terms
of this Agreement shall be in writing and shall constitute a part of this
Agreement, although schedules need not be attached to each copy of this
Agreement. This Agreement, together with such schedules and exhibits,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith.
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(b) Any fact or item which is clearly disclosed on any
schedule or exhibit delivered pursuant to this Agreement or in the financial
statements delivered pursuant to this Agreement in such a way as to make its
relevance or applicability to a representation or representations made elsewhere
in this Agreement or to the information called for by another schedule or other
schedules (or exhibit or other exhibits) to this Agreement reasonably apparent
shall be deemed to be an exception to such representation or representations or
to be disclosed on such other schedule or schedules (or exhibit or exhibits), as
the case may be, notwithstanding the omission of a reference or cross-reference
thereto.
SECTION 9.3 FURTHER ASSURANCES. The parties hereto each agree
to execute, make, acknowledge, and deliver such instruments, agreements and
other documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
SECTION 9.4 GOVERNING LAW. This Agreement, the legal relations
between the parties and any Action, whether contractual or non-contractual,
instituted by any party with respect to matters arising under or growing out of
or in connection with or in respect of this Agreement shall be governed by and
construed in accordance with the Laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines, except to the extent that certain matters are preempted by
federal law. Each party hereby irrevocably submits to and accepts for itself and
its properties, generally and unconditionally, the exclusive jurisdiction of and
service of process pursuant to the Laws of the State of California and the rules
of its courts, waives any defense of forum non conveniens and agrees to be bound
by any judgment rendered thereby arising under or out of in respect of or in
connection with this Agreement or any related document or obligation. Each party
further irrevocably designates and appoints the individual identified in or
pursuant to Section 9.11 hereof to receive notices on its behalf, as its agent
to receive on its behalf service of all process in any such Action before any
body, such service being hereby acknowledged to be effective and binding service
in every respect. A copy of any such process so served shall be mailed by
registered mail to each party at its address provided in Section 9.11; provided
that, unless otherwise provided by applicable Law, any failure to mail such copy
shall not affect the validity of the service of such process. If any agent so
appointed refuses to accept service, the designating party hereby agrees that
service of process sufficient for personal jurisdiction in any action against it
in the applicable jurisdiction may be made by registered or certified mail,
return receipt requested, to its address provided in Section 9.11. Each party
hereby acknowledges that such service shall be effective and binding in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by Law or shall limit the right of any party to bring any
action or proceeding against the other party in any other jurisdiction.
SECTION 9.5 NO ASSIGNMENT. Neither this Agreement nor any
rights or obligations under it are assignable.
SECTION 9.6 HEADINGS. The descriptive headings of the
Articles, Sections and subsections of this Agreement are for convenience only
and do not constitute a part of this Agreement.
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SECTION 9.7 COUNTERPARTS. This Agreement and any amendment
hereto or any other agreement (or document) delivered pursuant hereto may be
executed in one or more counterparts and by different parties in separate
counterparts. All of such counterparts shall constitute one and the same
agreement (or other document) and shall become effective (unless otherwise
provided therein) when one or more counterparts have been signed by each party
and delivered to the other party.
SECTION 9.8 CONFIDENTIALITY. All information disclosed by any
party (or its representatives) whether before or after the date hereof, in
connection with the transactions contemplated by, or the discussions and
negotiations preceding, this Agreement to any other party (or its
representatives) shall be kept confidential by such other party and its
representatives and shall not be used by any Persons other than as contemplated
by this Agreement, except to the extent that such information (i) was known by
the recipient when received, (ii) is or hereafter becomes lawfully obtainable
from other sources, (iii) is necessary or appropriate to disclose to a
Governmental Entity having jurisdiction over the parties, (iv) as may otherwise
be required by Law or (v) to the extent such duty as to confidentiality is
waived in writing by the other party. The obligations in this Section 9.8 shall
survive until the fifth anniversary of the date hereof. If this Agreement is
terminated, each party shall use all reasonable efforts to return upon written
request from the other party all documents (and reproductions thereof) received
by it or its representatives from such other party (and, in the case of
reproductions, all such reproductions made by the receiving party) that include
information not within the exceptions contained in the first sentence of this
Section 9.8, unless the recipients provide assurances reasonably satisfactory to
the requesting party that such documents have been destroyed.
SECTION 9.9 PARTIES IN INTEREST. This Agreement shall be
binding upon and inure to the benefit of each party, and, except as stated in
the next sentence, nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Notwithstanding anything to the contrary
herein or in any other Transaction Document, each of the Selling Shareholders
are intended to be, and are hereby expressly made, third party beneficiaries of
Articles VII and VIII and the Escrow Agreement. Nothing in this Agreement is
intended to relieve or discharge the obligation of any third person to (or to
confer any right of subrogation or action over against) any party to this
Agreement.
SECTION 9.10 PERFORMANCE BY SUBSIDIARIES. Each party agrees to
cause its Subsidiaries to comply with any obligations hereunder relating to such
Subsidiaries and to cause its Subsidiaries to take any other action which may be
necessary or reasonably requested by the other party in order to consummate the
transactions contemplated by this Agreement.
SECTION 9.11 NOTICES. Any notice or other communication
hereunder must be given in writing and (a) delivered in person, (b) transmitted
by facsimile, (c) mailed by certified or registered mail, postage prepaid,
receipt requested or (d) overnight delivery service, as follows:
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IF TO BUYER, ADDRESSED TO:
TransDigm Inc.
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Peter Radekevich
Telecopy: (216) 289-4937
WITH A COPY TO:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: Richard M. Trobman, Esq.
Telecopy: (212) 751-4864
IF TO THE COMPANY OR THE SHAREHOLDERS' REPRESENTATIVE, ADDRESSED TO SUCH
PERSON:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Telecopy: (212) 771-4024
WITH A COPY TO:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
50th Floor
New York, New York 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 9.11 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually received at such address.
SECTION 9.12 EXPENSES. Buyer will pay all of its own expenses
incident to the negotiation, preparation and performance of this Agreement and
the transactions contemplated hereby, including the fees, expenses and
disbursements of its investment bankers, accountants and counsel.
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SECTION 9.13 REMEDIES; WAIVER. Except to the extent this
Section 9.13 is inconsistent with any other provision in this Agreement
(including without limitation Section 7.8) or applicable Law, all rights and
remedies existing under this Agreement and any related agreements or documents
are cumulative to and not exclusive of, any rights or remedies otherwise
available. No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof, nor shall any
single or partial exercise preclude any further or other exercise of such or any
other right.
SECTION 9.14 ATTORNEY'S FEES. In the event of any Action by
any party arising under or out of, in connection with or in respect of, this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees,
costs and expenses incurred in such Action, unless a court determines that such
fees, costs and expenses should be allocated in a different manner.
SECTION 9.15 KNOWLEDGE CONVENTION. Whenever used in this
Agreement or in any schedule, exhibit, certificate or other documents delivered
to any party pursuant to this Agreement or any other Transaction Document, "to
the knowledge of the Company", "to the best knowledge of the Company" and words
or phrases of similar import shall mean the actual knowledge of the employees
listed on Schedule 9.15 hereto, after due inquiry, which shall be satisfied by
any such employee's consultation with senior management, and (ii) "to the
knowledge of the Buyer", "to the best knowledge of the Buyer" and words or
phrases of similar import shall mean the actual knowledge of the executive
officers of the Buyer, after due inquiry, which shall be satisfied by
consultation with senior management.
SECTION 9.16 REPRESENTATION BY COUNSEL; INTERPRETATION. The
Company, Acquisition and Buyer each acknowledge that each party to this
Agreement or any other Transaction Document has been represented by counsel in
connection with this Agreement or such other Transaction Document and the
transactions contemplated hereby or thereby. Accordingly, any rule of Law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement or such other Transaction Document against the party that drafted
it has no application and is expressly waived. The provisions of this Agreement
and the other Transaction Documents shall be interpreted in a reasonable manner
to effect the intent of the parties hereto. Whenever the words "include",
"includes" or "including" are used in this Agreement or any other Transaction
Document, they shall be deemed to be followed by the words "without limitation."
SECTION 9.17 WAIVER OF JURY TRIAL. Each party waives any right
to a trial by jury in any Action to enforce or defend any right under this
Agreement or any other related document and agrees that any Action shall be
tried before a court and not before a jury.
SECTION 9.18 SEVERABILITY. If any provision of this Agreement
is determined to be invalid, illegal or unenforceable by any Governmental
Entity, the remaining provisions of this Agreement to the extent permitted by
Law shall remain in full force and effect, unless doing so would result in an
interpretation of this Agreement which is manifestly unjust.
SECTION 9.19 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. At
the Effective Time and without any action on the part of any Person, TCW Special
Placements Fund II, a California limited partnership, will be appointed as the
representative (the "Shareholders'
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Representative") of the holders of the ZMP Shares immediately prior to the
Effective Time (and any holder of Dissenting Shares at such time which can later
be treated as ZMP shares as of such time) for the purposes of carrying out the
functions required of the Shareholders' Representative set forth in this
Agreement and the Escrow Agreement. Any action or decision taken by the
Shareholders' Representative shall be binding and conclusive on such holders of
the ZMP Shares, and may be relied upon by Buyer. By accepting the Merger
Consideration, each Selling Shareholder will agree to indemnify and hold
harmless the Shareholders' Representative for any act or failure to act of
Shareholders' Representative taken on behalf of such Person, except for the
Shareholders' Representative's gross negligence or willful misconduct. In the
event that the Shareholders' Representative becomes no longer able to carry out
its functions, a replacement Shareholders' Representative will be appointed if
prior to the Effective Time, by the Board of Directors of the Company, and, if
at or after the Effective Time, by majority vote of the Selling Shareholders
based upon the number of the ZMP Shares held immediately prior to the Effective
Time by each such Person. From time to time the Shareholders' Representative
shall be entitled to withhold from any amounts payable to the Selling
Shareholders such amounts (or estimated amounts) as it deems appropriate to
cover any expenses incurred by or on behalf of any of the Company, the Selling
Shareholders and the Shareholders' Representative related to this Agreement, the
Escrow Agreement or any other Transaction Document.
SECTION 9.20 ENTIRE AGREEMENT. This Agreement, the Voting
Agreement and the Escrow Agreement constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, which shall survive the execution and delivery of
this Agreement.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written:
TRANSDIGM INC.
By: /s/ Douglas Peacock
----------------------------------
Name: Douglas Peacock
----------------------------------
Title: Chief Executive Officer
----------------------------------
ARA ACQUISITION CORPORATION
By: /s/ Douglas Peacock
----------------------------------
Name: Douglas Peacock
----------------------------------
Title: Chief Executive Officer
----------------------------------
ZMP, INC.,
a California corporation
By: /s/ Charles A. Collins
----------------------------------
Name: Charles A. Collins
----------------------------------
Title: President
----------------------------------
S-1
<PAGE>
TCW SPECIAL PLACEMENTS FUND II,
a California limited partnership, solely in its capacity as
Shareholders' Representative
By: TCW CAPITAL
By: TCW ASSET MANAGEMENT COMPANY,
its Managing General Partner
By: /s/ Raymond F. Henze III
----------------------------------
Name: Raymond F. Henze III
----------------------------------
Title: Group Managing Director
----------------------------------
By: /s/ Bryant C. Binder
----------------------------------
Name: Bryant C. Binder
----------------------------------
Title: Vice President
----------------------------------
S-2
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EXHIBIT A
[FORM OF AGREEMENT OF MERGER]
AGREEMENT OF MERGER
AGREEMENT OF MERGER entered into on ________________, 1999, by
and among ZMP, Inc., a California corporation (the "COMPANY"), TransDigm Inc., a
Delaware corporation ("PARENT"), and ARA Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Parent ("Acquisition Subsidiary").
1. Acquisition Subsidiary, which is a corporation incorporated
under the General Corporation Law of the State of California, and
which is sometimes hereinafter referred to as the "DISAPPEARING
CORPORATION," shall be merged with and into the Company, which is a
corporation incorporated under the General Corporation Law of the
State of California, and which is sometimes hereinafter referred to
as the "SURVIVING CORPORATION."
2. The separate existence of the disappearing corporation
shall cease upon the effective date of the merger.
3. The surviving corporation shall continue its existence
pursuant to the provisions of the General Corporation Law of the State of
California.
4. Upon consummation of the merger, the Articles of
Incorporation of the surviving corporation shall be amended in their entirety to
read as set forth in Exhibit 1 attached hereto.
5. Each outstanding share of the common stock of the
disappearing corporation shall, upon the effective date of the merger, be
converted into one share of the common stock of the surviving corporation.
6. Each share of the capital stock of the Company issued and
outstanding immediately prior to the effectiveness of the merger (which consists
of 105,435 shares of common stock) shall, upon the effective date of the merger,
be converted into the right to receive $_______ in cash (the "MERGER
CONSIDERATION"). The Merger Consideration is subject to adjustment for payments
of indebtedness for borrowed money, accrued interest thereon, the amount of
success bonuses to be paid to the Company's management, certain transaction
costs and indemnification claims, and for changes in net working capital and the
failure of the Surviving Corporation to enter into a certain contractual
arrangement, as provided in or pursuant to the Agreement and Plan of
Reorganization (the "PLAN OF REORGANIZATION") dated as of [___________], 1999
among Parent, Acquisition Subsidiary, the Company and TCW Special Placements
Fund II, a California limited partnership solely in its capacity as
Shareholders' Representative, and, pursuant to the Plan of Reorganization, a
portion of the Merger Consideration will be held in escrow accounts which will
satisfy adjustments based solely on changes in net working capital, the failure
of the surviving corporation to enter into a certain contractual arrangement and
indemnification claims. A copy of the Plan of Reorganization shall be maintained
at the principal executive offices of the surviving corporation and shall be
A-1
<PAGE>
provided without charge to any shareholder of Parent, the disappearing
corporation or the surviving corporation upon written request therefor.
7. The merger shall have the effects set forth in Section 1107
of the General Corporation Law of the State of California.
8. The disappearing corporation and the surviving corporation
hereby agree that they will cause to be executed and filed and/or recorded any
document or documents prescribed by the laws of the State of California, and
that they will cause to be performed all necessary acts therein and elsewhere to
effectuate the merger.
[Remainder of page intentionally left blank]
A-2
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IN WITNESS WHEREOF, Parent, Acquisition Subsidiary and the
Company have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
"Parent"
TransDigm Inc.,
a Delaware corporation
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
"Acquisition Subsidiary"
ARA Acquisition Corporation,
a California corporation
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
A-3
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"Company"
ZMP, Inc.,
a California corporation
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
A-4
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CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
and certify that:
------------- ------------
(a) They are the President and the Secretary, respectively, of
ZMP, Inc., a corporation organized under the laws of the State of California
(the "CORPORATION").
(b) The Corporation has authorized one class of stock,
designated Common Stock.
(c) The number of outstanding shares of Common Stock of the
Corporation entitled to vote on the Record Date, ______________, 1999, for the
Special Meeting or for the written consent of the Shareholders of the
Corporation was 105,435 shares.
(d) The principal terms of the agreement relating to the
merger of ___________________, a California corporation, with and into the
Corporation (the "MERGER") in the form attached were approved by the
Corporation's Board of Directors and by the vote of a number of shares of Common
Stock which equaled or exceeded the vote required.
(e) The percentage vote required of the holders of Common
Stock entitled to vote in connection with the Merger is more than 50%.
----------------------------------
Title: President
----------------------------------
Title: Secretary
A-5
<PAGE>
declares under penalty of perjury under the laws of the State
of California that he has read the foregoing certificate and knows the contents
thereof and that the same is true of his own knowledge.
Dated: ,1999
--------------
[City], California
- --------------
Name:
--------------
declares under penalty of perjury under the laws of the State
of California that he has read the foregoing certificate and knows the contents
thereof and that the same is true of his own knowledge.
Dated: ,1999
--------------
[City], California
- --------------
Name:
--------------
A-6
<PAGE>
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
and certify that:
------------- ------------
1. They are the President and the Secretary, respectively, of
ARA Acquisition Corporation, a corporation organized under the laws of the State
of California (the "CORPORATION").
2. The Corporation has authorized one class of stock,
designated Common Stock, of which _____________ were entitled to vote.
3. The principal terms of the agreement relating to the merger
of the Corporation with and into ZMP, Inc., a California corporation, (the
"MERGER") in the form attached were approved by the Corporation's Board of
Directors and by the vote of a number of shares of each class which equaled or
exceeded the vote required.
4. The percentage vote required of the Common Stock entitled
to vote in connection with the Merger is more than 50%.
----------------------------------
Title: President
----------------------------------
Title: Secretary
A-7
<PAGE>
declares under penalty of perjury under the laws of the State
of California that he has read the foregoing certificate and knows the contents
thereof and that the same is true of his own knowledge.
Dated: ,1999
--------------
[City], California
- --------------
Name:
--------------
declares under penalty of perjury under the laws of the State
of California that he has read the foregoing certificate and knows the contents
thereof and that the same is true of his own knowledge.
Dated: ,1999
--------------
[City], California
- --------------
Name:
--------------
A-8
<PAGE>
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
ZMP, INC.
A-9
<PAGE>
EXHIBIT B
[FORM OF ESCROW AGREEMENT]
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of ____________, 1999
by and among TransDigm Inc., a Delaware corporation ("BUYER"), the Shareholders'
Representative, chosen as the representative for the Selling Shareholders in
accordance with the terms of the Plan of Reorganization (defined below), and
Wells Fargo Bank, N.A. ("ESCROW AGENT").
R E C I T A L S:
WHEREAS, the Boards of Directors of Buyer, ARA Acquisition
Corporation, a California corporation ("ACQUISITION"), and ZMP, Inc., a
California corporation (the "COMPANY"), have deemed it advisable and in the best
interests of their respective stockholders to combine the businesses of
Acquisition and Company;
WHEREAS, Buyer, Acquisition, the Company and the Shareholders'
Representative have therefore entered into that certain Agreement and Plan of
Reorganization dated March __, 1999 (the "PLAN OF REORGANIZATION"; capitalized
terms used herein without definition shall have the meanings given such terms in
the Plan of Reorganization), which provides the terms and conditions for the
combination of the businesses of Acquisition and Company; and
WHEREAS, the Plan of Reorganization provides for (i)
post-closing adjustments to the Purchase Price under certain circumstances and
(ii) Selling Shareholders to indemnify Buyer under certain circumstances; and
WHEREAS, the parties desire to arrange for such escrow and
appoint Escrow Agent as escrow agent in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the closing of the
transactions contemplated by the Plan of Reorganization and the agreements
herein the parties agree as follows:
SECTION 1. APPOINTMENT OF ESCROW AGENT. Escrow Agent is hereby
appointed to act as escrow agent in accordance with the terms hereof, and Escrow
Agent hereby accepts such appointment. Escrow Agent shall have all the rights,
powers, duties and obligations provided herein.
SECTION 2. DEPOSIT OF ESCROW ASSETS. A total of $__________ by
wire transfer in immediately available funds (the "ESCROW FUNDS") is hereby
delivered and deposited with the Escrow Agent, the receipt of which is hereby
acknowledged by the Escrow Agent. The Escrow Agent shall hold $__________ of
such funds in one account (the "Escrow Account") and
B-1
<PAGE>
$__________ of such funds in a separate account (the "Glendale Escrow Account")
in accordance with the terms of this Escrow Agreement.
SECTION 3. INVESTMENT. Unless jointly instructed otherwise in
writing by Buyer and Shareholders' Representative, Escrow Agent shall invest the
Escrow Funds subject to the following limitations:
(a) DEBT INVESTMENTS. Escrow Agent shall invest the Escrow
Funds pursuant to joint written instructions from Buyer and
the Shareholders' Representative. If no such joint instruction
is received, Escrow Agent shall invest the Escrow Funds in
debt instruments having maturities of not more than 180 days
and that satisfy one of the following requirements: (i)
certificates of deposit of banks, savings and loan
associations or trust companies (including the Escrow Agent)
organized under the laws of the United States of America, or
any state thereof, which have capital and surplus of at least
$250,000,000, (ii) direct obligations of the United States of
America or its agencies or instrumentalities as to which
principal and interest constitute full faith and credit
obligations of the United States of America, (iii) commercial
paper or other debt instruments rated not less than prime 1 or
A-1 or their equivalent by Moody's Investor's Service or
Standard & Poor's Ratings Services or their successors, (iv)
"money market" mutual funds (including mutual funds to which
Escrow Agent or its Affiliates provide investment advisory,
custodial, shareholder or other services) required by their
most recent prospectus to invest at least 80% of their assets
in the foregoing, or (v) pooled or commingled investment
vehicles administered by a bank meeting the foregoing size
requirement that is limited to investments as described above.
(b) INCOME. All income on the Escrow Account and the Glendale
Escrow Account actually earned and not distributed pursuant to
Section 7 hereof shall be reported as income of the Selling
Shareholders for tax purposes, and distributed to Selling
Shareholders as directed by the Shareholders' Representative
and Buyer from time to time and, in any case, within 5 days of
the end of such calendar quarter.
(c) OTHER PROVISIONS. Escrow Agent may sell or present for
redemption any obligations so purchased whenever it shall be
necessary in order to provide money to meet payments
hereunder, and shall not be liable or responsible for any loss
resulting from any investment. Escrow Agent may act as
principal or agent in the making in disposing of any
investment.
SECTION 4. ESCROW AGENT'S RESPONSIBILITIES. Escrow Agent shall
distribute money out of the Escrow Account and the Glendale Escrow Account only
upon its receipt of any of the following:
(1) Written instructions from each of the Shareholders'
Representative and Buyer; or
(2) A certified order or ruling from a court ordering or
instructing it to do so.
B-2
<PAGE>
Distributions shall be made as promptly as practicable and in
any event within 5 days after receipt of any such instruction, order or ruling
even if Escrow Agent has been advised that an appeal or other relief is being
sought, so long as it has not received actual service of a stay of such order or
ruling pending appeal.
SECTION 5. NO TRANSFER OF INTEREST IN ESCROW ACCOUNTS. The
Selling Shareholders may assign or transfer, such Person's interest in the
Escrow Account and the Glendale Escrow Account in whole or in part. Except as
set forth in the immediately preceding sentence, no party hereto may transfer or
assign any of its interest herein of obligations hereunder. The Escrow Account
and the Glendale Escrow Account shall remain subject to this Escrow Agreement
and no assignment or transfer by Selling Shareholders shall in any way affect
any rights Buyer may have in the Escrow Account or the Glendale Escrow Account.
SECTION 6. METHOD OF PAYMENT. Any payments to be made
hereunder shall be made immediately by wire transfer in immediately available
funds to the account of such party designated in the written instructions
referred to in Section 4.
SECTION 7. EXPENSES. Escrow Agent shall be compensated for
services hereunder from the income on the Escrow Funds in accordance with a fee
letter heretofore delivered to Buyer and Selling Shareholders and shall be
reimbursed for its ordinary out-of-pocket expenses including, but not by way of
limitation, the fees and costs of attorneys or agents that it may find necessary
to engage in performance of its duties hereunder and costs arising from the
defense of any suits in which Escrow Agent is named as a defendant in its
capacity as Escrow Agent. If it shall become necessary that Escrow Agent shall
perform extraordinary services, it shall be entitled to reasonable extra
compensation therefor and to reimbursement for reasonable and necessary
extraordinary out-of-pocket expenses unless such extraordinary service or
expense is occasioned by the neglect or breach of this Escrow Agreement by
Escrow Agent.
SECTION 8. NOTICES. Any notice or other communication related
hereto must be given in writing and (a) delivered in person, (b) transmitted by
facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt
requested or (d) overnight delivery service, given to the party at its address
stated on the signature pages of this Agreement or at any other address as the
party may specify for this purpose by notice to the other party. Each such
notice or other communication shall be effective (i) if given by
telecommunication, when transmitted to the applicable number and an appropriate
answerback is received, (ii) if given by mail, three days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when actually
received at such address.
SECTION 9. LIABILITY OF ESCROW AGENT.
(a) Escrow Agent's sole liability hereunder shall be to hold
and invest the Escrow Funds and any moneys or other properties received with
respect thereto, to make payments and distributions therefrom in accordance with
the terms of this Escrow Agreement, to distribute information as provided in
Section 4 hereof and otherwise to discharge its obligations hereunder. Escrow
Agent shall not be liable for any act performed in good faith or in reliance on
any document instrument or statement believed by it to be genuine. Escrow Agent
may act upon
B-3
<PAGE>
any notice, certificate, instrument, request, paper or other document believed
by it to be genuine or to have been made, sent, signed, prescribed or presented
by the proper person or persons. It shall be under no obligation to institute or
defend any action, suit or legal proceeding in connection herewith, or to take
any other action likely to involve it in expense unless first indemnified to its
satisfaction by the party or parties who desire that it undertake such action.
(b) If any dispute should arise with respect to the payment or
ownership or right of possession of the Escrow Account, or any part thereof, at
any time, that cannot be settled under other provisions hereof, Escrow Agent is
authorized to retain in its possession, without liability to anyone, all or any
part of the Escrow Account or the Glendale Escrow Account or the proceeds from
any sale thereof until such dispute shall have been settled either by mutual
agreement between the parties concerned or until otherwise ordered by a court
having jurisdiction over it. In either case Escrow Agent will not release any
assets in the Escrow Account or the Glendale Escrow Account until Buyer has
exhausted its remedies and has no further right of appeal in the courts;
provided, however, if after the expiration of the Escrow Period, Selling
Shareholders have received a certified order or ruling from a court ordering or
instructing Escrow Agent to distribute all or any portion of the Escrow Funds to
Selling Shareholders, and such order or ruling has not been stayed within 30
days of such order or ruling, pending appeal, Escrow Agent may distribute the
amounts so ordered.
(c) Buyer and Selling Shareholders jointly and severally agree
to indemnify and hold harmless Escrow Agent from all losses, costs and expenses
that may be incurred as a result of its involvement in any litigation arising
from the performance of its duties hereunder, provided that such losses costs
and expenses shall not have resulted from any action taken or omitted by Escrow
Agent and for which it shall have been adjudged negligent or engaged in
misconduct or have acted in bad faith or willful disregard of its duties. Escrow
Agent may rely upon any instruction by the Shareholders' Representative as to
the interests of Selling Shareholders. Until it receives written notice of any
change, Escrow Agent shall be entitled to rely on the oral instructions of the
Shareholders' Representative. The Shareholders' Representative shall confirm
such instructions in writing as soon as practicable.
SECTION 10. RESIGNATION OR REMOVAL OF ESCROW AGENT.
(a) Escrow Agent may resign as such following the giving of
thirty days' prior written notice to the other parties hereto. Similarly, Escrow
Agent may be removed and replaced following the giving of thirty days' prior
written notice to Escrow Agent by all of the other parties hereto. In either
event, the duties of Escrow Agent shall terminate thirty days after the date of
such notice (or as of such earlier date as may be mutually agreeable); and
Escrow Agent shall then deliver the balance of the Escrow Account then in its
possession to a successor Escrow Agent as shall be appointed by the other
parties hereto as evidenced by a written notice filed with Escrow Agent.
(b) If the other parties hereto are unable to agree upon a
successor or shall have failed to appoint a successor prior to the expiration of
thirty days following the date of notice of resignation or removal, the
then-acting Escrow Agent may petition any court of competent jurisdiction for
the appointment of a successor Escrow Agent or otherwise appropriate relief, and
any such resulting appointment shall be binding upon all of the parties hereto.
B-4
<PAGE>
(c) Upon acknowledgement by any successor Escrow Agent of the
receipt of the then remaining balance of Escrow Account, the then-acting Escrow
Agent shall be fully released and relieved of all duties, responsibilities, and
obligations under this Escrow Agreement.
SECTION 11. CONTINUANCE OF ESCROW AGREEMENT. This Escrow
Agreement shall be binding upon the parties hereto and their respective
permitted transferees, successors, assigns, legal representatives, heirs and
legatees.
SECTION 12. GOVERNING LAW. This Escrow Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California.
SECTION 13. INTERPRETATION AND DEFINITIONS. This Escrow
Agreement is being executed and delivered pursuant to and is subject to the Plan
of Reorganization and is the escrow agreement referred to therein. The
provisions of this Escrow Agreement shall not in any event be construed so as to
enlarge or diminish the rights of any parties under the Plan of Reorganization.
[Remainder of page intentionally left blank]
B-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date and year first above written.
ESCROW AGENT WELLS FARGO BANK, N.A.
By:
-----------------------------
NOTICE ADDRESS:
-----------------------------
-----------------------------
-----------------------------
Fax:
-------------------------
BUYER
---------------------------
By:
-----------------------------
NOTICE ADDRESS:
-----------------------------
-----------------------------
-----------------------------
Fax:
-------------------------
B-6
<PAGE>
SHAREHOLDERS' REPRESENTATIVE
TCW SPECIAL PLACEMENTS FUND II,
a California limited partnership
By: TCW Capital
Its: General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By:
--------------------------
Name:
------------------------
Title:
-----------------------
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NOTICE ADDRESS:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Fax: (212) 771-4024
with a copy to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
50th Floor
New York, New York 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Fax: (212) 326-2061
B-7
<PAGE>
EXHIBIT C
[FORM OF VOTING AGREEMENT]
VOTING AGREEMENT
VOTING AGREEMENT dated as of ___________, 1999 (this
"AGREEMENT"), among TCW SPECIAL PLACEMENTS FUND II, a California limited
partnership ("TCW FUND II"), TCW CAPITAL, acting solely in its capacity as
investment manager pursuant to an Investment Management Agreement dated as of
June 30, 1987 ("TCW CAPITAL" and, together with TCW Fund II, "SHAREHOLDERS"),
ARA Acquisition Corporation, a California corporation ("ACQUISITION"), and
TransDigm Inc., a Delaware corporation ("BUYER").
R E C I T A L S:
WHEREAS, Shareholders beneficially own not less than 96,650
shares of Common Stock, par value $.001 per share, of ZMP, Inc., a California
corporation ("ZMP" and the "ZMP COMMON STOCK"). All such shares, together with
all other shares of capital stock of ZMP with respect to which Shareholders have
beneficial ownership as of the date of this Agreement, are referred to as the
"SUBJECT SHARES"; PROVIDED that any such share shall cease to be a "Subject
Share" from and after the time that suc share is transferred pursuant to Section
2 and ceases to be subject to the Voting Documents (as defined below) in
accordance with the terms of Section 2.
WHEREAS, ZMP, Buyer, Acquisition and the Shareholders'
Representative are, simultaneously with the execution hereof, entering into an
Agreement and Plan of Reorganization dated as the date hereof (the "PLAN OF
REORGANIZATION") providing for the merger of Acquisition with and into ZMP (the
"MERGER"). Terms not otherwise defined in this Agreement have the meanings set
forth in the Plan of Reorganization.
WHEREAS, The Board of Directors of ZMP has unanimously
approved the Plan of Reorganization and the Merger.
WHEREAS, Shareholders and Buyer desire to enter into this
Agreement to provide for, among other things, (1) the obligation of Shareholders
to vote the Subject Shares to approve the Plan of Reorganization and (2) certain
restrictions on (A) the sale or other transfer of the record ownership or the
beneficial ownership, or both, of the Subject Shares by Shareholders and (B) the
acquisition by Shareholders of beneficial ownership of additional shares of
capital stock of ZMP from any person other than ZMP, in each case until the
consummation of the Merger or the termination of the Plan of Reorganization.
WHEREAS, Shareholders acknowledge that Buyer and Acquisition
are entering into the Plan of Reorganization in reliance on the representations,
warranties, covenants and other agreements of Shareholders set forth in this
Agreement and would not enter into the Plan of Reorganization if Shareholders
did not enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
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<PAGE>
SECTION 1. COVENANTS OF SHAREHOLDERS.
(a) VOTING. Until the day following the termination of this
Agreement, subject to the receipt of proper notice and the absence of a
preliminary or permanent injunction or other final order by any United States
federal court or state court barring such action, Shareholders shall do the
following:
(1) be present, in person or represented by proxy, at each
meeting (whether annual or special, and whether or not an adjourned or
postponed meeting) of the stockholders of ZMP, however called, or in
connection with any written consent of the stockholders of ZMP, so that
all Subject Shares then entitled to vote may be counted for the
purposes of determining the presence of a quorum at such meetings; and
(2) at each such meeting held before the Effective Time and
with respect to each such written consent, vote (or cause to be voted),
or deliver a written consent (or cause a consent to be delivered)
covering, all the Subject Shares to (A) approve the Plan of
Reorganization and the Merger and any action contemplated thereby or in
furtherance thereof, (B) disapprove any action or agreement that would
(or would be reasonably likely to) result in a breach of any covenant,
representation or warranty or any other obligation or agreement of ZMP
under the Plan of Reorganization or this Agreement, (C) approve the
termination of the Shareholders Agreement of ZMP, dated as of January
27, 1997, among ZMP and certain parties named therein, and (D) except
as specifically requested in writing by Buyer in advance, disapprove
the following actions (other than the Merger and the transactions
contemplated by the Plan of Reorganization): (1) any extraordinary
corporate transaction, such as a merger, consolidation or other
business combination involving ZMP or any of its subsidiaries; (2) a
sale, lease or transfer (whether by merger, consolidation, operation of
law or otherwise) of a material amount of assets of ZMP or any of its
subsidiaries or a reorganization, recapitalization, dissolution or
liquidation of ZMP or any of its subsidiaries; (3)(a) any change in the
majority of the board of directors of ZMP; (b) any change in the
present capitalization of ZMP or any amendment of ZM s certificate of
incorporation or by-laws; (c) any other material change in ZMP's
corporate structure or business; or (d) any other action which is
intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, discourage or materially adversely affect the Merger
or the transactions contemplated by the Plan of Reorganization or this
Agreement or the contemplated economic benefits of any of the
foregoing.
(b) STOCK ACQUISITIONS. Until the termination of this
Agreement, Shareholders shall not acquire beneficial or record ownership of any
Equity Securities of ZMP whether acquired of record or beneficially by such
Shareholder in any capacity, whether upon exercise of options, conversion of
convertible securities, purchase, exchange or otherwise, unless such shares are
expressly included within the meaning of "Subject Shares.".
(c) NO INCONSISTENT AGREEMENTS. Until the day following the
termination of this Agreement, Shareholders shall not enter into any voting
agreement or grant a proxy or power of attorney with respect to the Subject
Shares which is inconsistent with this Agreement.
C-2
<PAGE>
(d) REVIEW OF PLAN OF REORGANIZATION. Shareholders acknowledge
receipt and review of a copy of the Plan of Reorganization.
(e) NO ENCUMBRANCES. At all times during the term hereof, the
Subject Shares will be held by such Shareholder free and clear of all
Encumbrances whatsoever, except for any such Encumbrances arising hereunder.
(f) WAIVER OF APPRAISAL RIGHTS. Each Shareholder hereby waives
any rights of appraisal from the Merger that such Shareholder may have.
(g) NO SOLICITATION. Prior to the Termination Date, no
Shareholder shall, in its capacity as such, directly or indirectly (including
through advisors, agents or other intermediaries), solicit (including by way of
furnishing information) or respond to any inquiries or the making of any
proposal by any person or entity (other than Buyer or any Affiliate thereof)
with respect to ZMP that constitutes or could reasonably be expected to lead to
the acquisition of all or any portion of th capital stock of ZMP or ARA or
assets of ZMP or ARA (other than Inventory in the ordinary course of Business)
any business combination with ZMP or ARA or any other extraordinary transaction
involving or otherwise relating to ZMP or ARA. If any Shareholder, in its
capacity as such, receives any such inquiry or proposal, then such Shareholder
shall promptly inform Buyer of the terms and conditions, if any, of such inquiry
or proposal and the identity of the person making it. Each Shareholder, in its
capacity as such, will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(h) Each Shareholder agrees to exercise its "drag along"
rights under the Shareholders Agreement of ZMP dated as of January 27, 1997,
among ZMP and certain parties named therein as Acquisition may reasonably
request.
SECTION 2 . TRANSFER OF SUBJECT SHARES. During the term of
this Agreement, Shareholders agree not to (i) offer for sale, sell, transfer
(whether by merger, consolidation, operation of law or otherwise), tender,
pledge, encumber, assign or otherwise dispose of, enforce or permit the
execution of the provisions of any redemption agreement with ZMP or enter into
any contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer (whether by merger, consolidation,
operation of law or otherwise), tender, pledge, encumbrance, assignment or other
disposition of, or exercise any discretionary powers to distribute, any Subject
Shares or any interest therein without the prior written consent of Buyer, (ii)
except as contemplated by this Agreement, grant any proxies or powers of
attorney with respect to any Subject Shares, deposit any Subject Shares into a
voting trust or enter into a voting agreement with respect to any Subject
Shares; or (iii) take any action that would make any representation or warranty
of such Shareholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Shareholder from performing such Shareholder's
obligations under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
Each Shareholder, jointly and severally, represents and warrants to Buyer,
subject to the terms, conditions and limitations set forth in the Plan of
Reorganization, as follows:
C-3
<PAGE>
(a) EXISTENCE AND POWER. Such Shareholder (1) is a partnership
duly formed, validly existing and in good standing under the laws of the State
of California and (2) has all requisite partnership power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
(b) AUTHORIZATION; CONTRAVENTION. The execution and delivery
by each Shareholder of this Agreement and the performance by it of its
obligations hereunder have, (1) been duly authorized by all necessary action
under such Shareholders organizational documents and (2) do not and will not
conflict with or result in a violation (with or without notice or lapse of time
or both) or give rise to any third party right of termination, cancellation,
material modification or acceleration pursuant to, (A) any provision of its
organizational documents or (B) any loan or credit agreement, note, mortgage,
bond, indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, injunction, rule or regulation applicable to such Shareholder, the
Subject Shares or any of such Shareholder's other properties or assets.
(c) BINDING EFFECT. This Agreement constitutes, or when
executed and delivered by Shareholders will constitute, a valid and binding
obligation of Shareholders, respectively, enforceable against Shareholders in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors' generally, by general equity principles, (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
(d) OWNERSHIP. Shareholders are the only beneficial or record
owners of the Subject Shares, free and clear of all Encumbrances other than
those arising hereunder or set forth on Schedule I hereto. The Shareholders do
not have record or beneficial ownership of any ZMP Common Stock other than as
set forth on Schedule 3.2B to the Plan of Reorganization. Shareholders have sole
power of disposition with respect to all of the Subject Shares and sole voting
power with respect to the matters set forth in Section 1 hereof and sole power
to demand appraisal rights, in each case with respect to all of the Subject
Shares with no restrictions on such rights, subject to applicable federal
securities laws and the terms of this Agreement.
(e) LITIGATION. There is no action, suit, investigation,
complaint or other proceeding pending against Shareholders, or, to the knowledge
of Shareholders, threatened against Shareholders or any other Person that
restricts in any material respect or prohibits (or, if successful, would
restrict or prohibit) the exercise by any party or beneficiary of its rights
hereunder or the performance by any party of its obligations hereunder.
SECTION 4. PROXY.
Each Shareholder hereby grants to, and appoints, Buyer and
Douglas Peacock, Chief Executive Officer of Buyer, and Nick Howley, President of
Buyer, in their respective capacities as officers of Buyer, and any individual
who shall hereafter succeed to any such office of Buyer, each of them
individually, such Shareholder's irrevocable (until the Termination Date) proxy
and attorney-in-fact (with full power of substitution) to vote the Subject
Shares as indicated in Section 1 above. Each Shareholder intends this proxy to
be irrevocable (until the
C-4
<PAGE>
Termination Date) and coupled with an interest and will take such further action
and execute such other instruments as may be necessary to effectuate the intent
of this proxy and hereby revokes any proxy previously granted by such
Shareholder with respect to such Shareholder's Subject Shares.
SECTION 5. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Any notice or other communication related hereto
must be given in writing and (a) delivered in person, (b) transmitted by
facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt
requested or (d) overnight delivery service, given to the party at its address
stated on the signature pages of this Agreement or at any other address as the
party may specify for this purpose by notice to the other party. Each such
notice or other communication shall be effective (i) if given by
telecommunication, when transmitted to the applicable number and an appropriate
answerback is received, (ii) if given by mail, three days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when actually
received at such address.
(b) NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE.
(1) No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver of thereof,
nor shall any single or partial exercise of any right preclude any
further or other exercise of such or any other right.
(2) In view of the uniqueness of the agreements contained
herein and the transactions contemplated hereby and thereby and the
fact that Buyer would not have an adequate remedy at law for money
damages in the event that any obligation hereunder is not performed in
accordance with its terms, each party to this Agreement therefore
acknowledges that Buyer shall be entitled to specific enforcement of
the terms hereof in addition to any other remedy to which Buyer may be
entitled, at law or in equity.
(c) AMENDMENTS, ETC. This Agreement may not be amended, unless
said amendment shall be (1) in writing and (2) signed and delivered by
all parties hereto.
(d) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(1) Neither this Agreement nor any rights or obligations
hereunder are assignable.
(2) The provisions of this Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective permitted
heirs, executors, legal representatives, successors and assigns, and no other
person.
(e) GOVERNING LAW. This Agreement and all rights, remedies,
liabilities, powers and duties of the parties hereto shall be governed in
accordance with the laws of the State of California without regard to principles
of conflicts of laws. Each party hereby irrevocably submits to and accepts for
itself and its properties, generally and unconditionally, the exclusive
C-5
<PAGE>
jurisdiction of and service of process pursuant to the Laws of the State of
California and the rules of its courts, waives any defense of forum non
conveniens and agrees to be bound by any judgment rendered thereby arising under
or out of in respect of or in connection with this Agreement.
(f) SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is determined to be invalid, illegal or unenforceable by any
Governmental Entity, the remaining provisions hereof to the extent permitted by
Law shall nevertheless remain in full force and effect, unless doing so would
result in an interpretation of this Agreement which is manifestly unjust.
(g) HEADINGS AND REFERENCES. The descriptive headings of the
Article and Section headings herein are included for convenience only and do not
constitute a part of this Agreement for any other purpose. References to
parties, express beneficiaries, articles and sections herein are references to
parties to or the express beneficiaries and sections of this Agreement, as the
case may be, unless the context shall require otherwise. Any of the terms
defined in this Agreement may, unless the context otherwise requires, be used in
the singular or the plural, depending on the reference. The use in this
Agreement of the word "include" or "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific items or matters set forth immediately following such
word or to similar items or matters, whether or not nonlimiting language (such
as "without limitation" or "but not limited to" or words of similar import) is
used with reference thereto, but rather shall be deemed to refer to all other
items or matters that fall within the broadest possible scope of such general
statement, term or matter.
(h) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of Shareholders and Buyer, and supersedes all prior
agreements and understandings, both written and oral, with respect to the
subject matter hereof.
(i) SURVIVAL. Except as otherwise specifically provided
herein, each representation, warranty or covenant of a party contained herein
shall remain in full force and effect until the expiration of the pertinent
Survival Period.
(j) FURTHER ASSURANCES. The parties hereto each agree to
execute, make, acknowledge, and deliver such instruments, agreements and other
documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated thereby.
(k) WAIVER OF JURY TRIAL. Each party waives any right to a
trial by jury in any Action to enforce or defend any right hereunder and agrees
that any Action shall be tried before a court and not before a jury.
(l) TERMINATION. Buyer may terminate this Agreement at any
time upon written notice to Shareholders. Unless terminated earlier by Buyer or
by mutual agreement of the parties, this Agreement shall terminate upon the
first to occur of (i) consummation of the Merger and (ii) the termination of
Plan of Reorganization pursuant to Section 6.1 thereof.
C-6
<PAGE>
(m) COUNTERPARTS. This Agreement and any amendment hereto may
be executed in one or more counterparts and by different parties in separate
counterparts, each of which shall be an original, with the same effect as if all
signatures were on the same instrument. All of such counterparts shall
constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been executed by each party and delivered to the other party.
[Remainder of page intentionally left blank]
C-7
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
TRANSDIGM INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
ARA ACQUISITION CORPORATION
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NOTICE ADDRESS:
Transdigm Inc. or ARA Acquisition Corporation
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Peter Radekevich
Telecopy: (216) 289-4937
[Signatures continued on next page]
C-8
<PAGE>
TCW SPECIAL PLACEMENTS FUND II,
a California limited partnership
By: TCW Capital
Its: General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By:
--------------------------
Name:
------------------------
Title:
-----------------------
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NOTICE ADDRESS:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Fax: (212) 771-4024
with a copy to:
O'Melveny & Myers LLP
Citicorp Center 153 East 53rd
Street 50th Floor New York,
NY 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
[Signatures continued on next page]
C-9
<PAGE>
TCW CAPITAL, ACTING SOLELY IN ITS CAPACITY AS INVESTMENT
MANAGER PURSUANT TO AN INVESTMENT MANAGEMENT AGREEMENT DATED AS OF JUNE 30, 1987
By: TCW Asset Management Company
Its: Managing General Partner
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NOTICE ADDRESS:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Fax: (212) 771-4024
with a copy to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
50th Floor
New York, NY 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
C-10
<PAGE>
EXHIBIT D
[FORM OF VOTING AGREEMENT]
VOTING AGREEMENT
VOTING AGREEMENT dated as of ___________, 1999 (this
"AGREEMENT"), among Charles A. Collins ("SHAREHOLDER"), ARA ACQUISITION
CORPORATION, a California corporation ("ACQUISITION"), and TRANSDIGM INC., a
Delaware corporation ("BUYER").
R E C I T A L S:
WHEREAS, Shareholder beneficially owns 5,435 shares of Common
Stock, par value $.001 per share, of ZMP, Inc., a California corporation ("ZMP"
and the "ZMP COMMON STOCK"). All such shares, together with options to purchase
3,260 Shares of Common Stock with respect to which Shareholder has beneficial
ownership as of the date of this Agreement, are referred to as the "SUBJECT
SHARES"; PROVIDED that any such share shall cease to be a "Subject Share" from
and after the time that such share i transferred pursuant to Section 2 and
ceases to be subject to the Voting Documents (as defined below) in accordance
with the terms of Section 2.
WHEREAS, ZMP, Buyer, Acquisition and the Shareholders'
Representative are, simultaneously with the execution hereof, entering into an
Agreement and Plan of Reorganization dated as the date hereof (the "PLAN OF
REORGANIZATION") providing for the merger of Acquisition with and into ZMP (the
"MERGER"). Terms not otherwise defined in this Agreement have the meanings set
forth in the Plan of Reorganization.
WHEREAS, The Board of Directors of ZMP has unanimously
approved the Plan of Reorganization and the Merger.
WHEREAS, Shareholder and Buyer desire to enter into this
Agreement to provide for, among other things, (1) the obligation of Shareholder
to vote the Subject Shares to approve the Plan of Reorganization and (2) certain
restrictions on (A) the sale or other transfer of the record ownership or the
beneficial ownership, or both, of the Subject Shares by Shareholder and (B) the
acquisition by Shareholder of beneficial ownership of additional shares of
capital stock of ZMP from any person othe than ZMP, in each case until the
consummation of the Merger or the termination of the Plan of Reorganization.
WHEREAS, Shareholder acknowledges that Buyer and Acquisition
are entering into the Plan of Reorganization in reliance on the representations,
warranties, covenants and other agreements of Shareholder set forth in this
Agreement and would not enter into the Plan of Reorganization if Shareholder did
not enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
D-1
<PAGE>
SECTION 1. COVENANTS OF SHAREHOLDER.
(a) VOTING. Until the day following the termination of this
Agreement, subject to the receipt of proper notice and the absence of a
preliminary or permanent injunction or other final order by any United States
federal court or state court barring such action, Shareholder shall do the
following:
(1) be present, in person or represented by proxy, at each
meeting (whether annual or special, and whether or not an adjourned or postponed
meeting) of the stockholders of ZMP, however called, or in connection with any
written consent of the stockholders of ZMP, so that all Subject Shares then
entitled to vote may be counted for the purposes of determining the presence of
a quorum at such meetings; and
(2) at each such meeting held before the Effective Time and
with respect to each such written consent, vote (or cause to be
voted), or deliver a written consent (or cause a consent to be
delivered) covering, all the Subject Shares to (A) approve the Plan
of Reorganization and the Merger and any action contemplated thereby
or in furtherance thereof, (B) disapprove any action or agreement
that would (or would be reasonably likely to) result in a breach of
any covenant, representation or warranty or any other obligation or
agreement of ZMP under the Plan of Reorganization or this Agreement,
(C) approve the termination of the Shareholders Agreement of ZMP,
dated as of January 27, 1997, among ZMP and certain parties named
therein, and (D) except as specifically requested in writing by
Buyer in advance, disapprove the following actions (other than the
Merger and the transactions contemplated by the Plan of
Reorganization): (1) any extraordinary corporate transaction, such
as a merger, consolidation or other business combination involving
ZMP or any of its subsidiaries; (2) a sale, lease or transfer
(whether by merger, consolidation, operation of law or otherwise) of
a material amount of assets of ZMP or any of its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of ZMP
or any of its subsidiaries; (3)(a) any change in the majority of the
board of directors of ZMP; (b) any change in the present
capitalization of ZMP or any amendment of ZM s certificate of
incorporation or by-laws; (c) any other material change in ZMP's
corporate structure or business; or (d) any other action which is
intended, or could reasonably be expected, to impede, interfere
with, delay, postpone, discourage or materially adversely affect the
Merger or the transactions contemplated by the Plan of
Reorganization or this Agreement or the contemplated economic
benefits of any of the foregoing.
(b) STOCK ACQUISITIONS. Until the termination of this
Agreement, Shareholder shall not acquire beneficial or record ownership of any
Equity Securities of ZMP whether acquired of record or beneficially by
Shareholder in any capacity, whether upon exercise of options, conversion of
convertible securities, purchase, exchange or otherwise, unless such shares are
expressly included within the meaning of "Subject Shares.".
(c) NO INCONSISTENT AGREEMENTS. Until the day following the
termination of this Agreement, Shareholder shall not enter into any voting
agreement or grant a proxy or power of attorney with respect to the Subject
Shares which is inconsistent with this Agreement.
D-2
<PAGE>
(d) REVIEW OF PLAN OF REORGANIZATION. Shareholder acknowledge
receipt and review of a copy of the Plan of Reorganization.
(e) NO ENCUMBRANCES. At all times during the term hereof, the
Subject Shares will be held by Shareholder free and clear of all Encumbrances
whatsoever, except for any such Encumbrances arising hereunder.
(f) WAIVER OF APPRAISAL RIGHTS. Shareholder hereby waives any
rights of appraisal from the Merger that Shareholder may have.
(g) NO SOLICITATION. Prior to the Termination Date,
Shareholder shall not, in its capacity as such, directly or indirectly
(including through advisors, agents or other intermediaries), solicit (including
by way of furnishing information) or respond to any inquiries or the making of
any proposal by any person or entity (other than Buyer or any Affiliate thereof)
with respect to ZMP that constitutes or could reasonably be expected to lead to
the acquisition of all or any portion of the capital stock of ZMP or ARA or
assets of ZMP or ARA (other than Inventory in the ordinary course of Business)
any business combination with ZMP or ARA or any other extraordinary transaction
involving or otherwise relating to ZMP or ARA. If Shareholder, in its capacity
as such, receives any such inquiry or proposal, then Shareholder shall promptly
inform Buyer of the terms and conditions, if any, of such inquiry or proposal
and the identity of the person making it. Shareholder, in its capacity as such,
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
SECTION 2 . TRANSFER OF SUBJECT SHARES. During the term of
this Agreement, Shareholder agrees not to (i) offer for sale, sell, transfer
(whether by merger, consolidation, operation of law or otherwise), tender,
pledge, encumber, assign or otherwise dispose of, enforce or permit the
execution of the provisions of any redemption agreement with ZMP or enter into
any contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer (whether by merger, consolidation,
operation of law or otherwise), tender, pledge, encumbrance, assignment or other
disposition of, or exercise any discretionary powers to distribute, any Subject
Shares or any interest therein without the prior written consent of Buyer, (ii)
except as contemplated by this Agreement, grant any proxies or powers of
attorney with respect to any Subject Shares, deposit any Subject Shares into a
voting trust or enter into a voting agreement with respect to any Subject
Shares; or (iii) take any action that would make any representation or warranty
of such Shareholder contained herein untrue or incorrect or have the effect of
preventing or disabling Shareholder from performing Shareholder's obligations
under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER.
Shareholder represents and warrants to Buyer, subject to the terms, conditions
and limitations set forth in the Plan of Reorganization, as follows:
(a) CONTRAVENTION. The execution and delivery by Shareholder
of this Agreement and the performance by it of its obligations hereunder do not
and will not conflict with or result in a violation (with or without notice or
lapse of time or both) or give rise to any third party right of termination,
cancellation, material modification or acceleration pursuant to
D-3
<PAGE>
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other material agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
injunction, rule or regulation applicable to Shareholder, the Subject Shares or
any of Shareholder's other properties or assets.
(b) BINDING EFFECT. This Agreement constitutes, or when
executed and delivered by Shareholder will constitute, a valid and binding
obligation of Shareholder enforceable against Shareholder in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors'
generally, by general equity principles, (regardless of whether such
enforceability is considered in a proceeding i equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) OWNERSHIP. Shareholder is the only beneficial or record
owner of the Subject Shares, free and clear of all Encumbrances other than those
arising hereunder or set forth on Schedule I hereto. Shareholder does not have
record or beneficial ownership of any ZMP Common Stock other than as set forth
on Schedule 3.2B to the Plan of Reorganization. Shareholder has sole power of
disposition with respect to all of the Subject Shares and sole voting power with
respect to the matters set forth in Section 1 hereof and sole power to demand
appraisal rights, in each case with respect to all of the Subject Shares with no
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement.
(d) LITIGATION. There is no action, suit, investigation,
complaint or other proceeding pending against Shareholder, or, to the knowledge
of Shareholders, threatened against Shareholder or any other Person that
restricts in any material respect or prohibits (or, if successful, would
restrict or prohibit) the exercise by any party or beneficiary of its rights
hereunder or the performance by any party of its obligations hereunder.
(e) INDEBTEDNESS. Shareholder acknowledges he owes to the
Company the Collins Note Amount (as defined in the Plan of Reorganization) which
will be repaid in full or canceled as of the Effective Time. In addition,
Shareholder acknowledges that the exercise price of the Collins Option is $39.41
per share.
SECTION 4. PROXY.
Shareholder hereby grants to, and appoints, Buyer and Douglas
Peacock, Chief Executive Officer of Buyer, and Nick Howley, President of Buyer,
in their respective capacities as officers of Buyer, and any individual who
shall hereafter succeed to any such office of Buyer, each of them individually,
Shareholder's irrevocable (until the Termination Date) proxy and
attorney-in-fact (with full power of substitution) to vote the Subject Shares as
indicated in Section 1 above. Shareholder intends this proxy to be irrevocable
(until the Termination Date) and coupled with an interest and will take such
further action and execute such other instruments as may be necessary to
effectuate the intent of this proxy and hereby revokes any proxy previously
granted by Shareholder with respect to Shareholder's Subject Shares.
SECTION 5. WARRANT CANCELLATION.
D-4
<PAGE>
Shareholder agrees that, in consideration of the payment to
him of the Merger Consideration with respect to the warrants ("Warrants") owned
by him to purchase 3,260 shares of common stock of ZMP, Inc., upon payment of
the Merger Consideration, all Warrants will be canceled and none of Buyer,
Acquisition, Surviving Corporation nor ZMP will have any further liability or
obligation to the undersigned with respect to the Warrants or any agreement,
understanding or commitment related thereto. Shareholder further agrees that he
will not exercise his Warrants for so long as this Agreement is in effect.
SECTION 6. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Any notice or other communication related hereto
must be given in writing and (a) delivered in person, (b) transmitted by
facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt
requested or (d) overnight delivery service, given to the party at its address
stated on the signature pages of this Agreement or at any other address as the
party may specify for this purpose by notice to the other party. Each such
notice or other communication shall be effective (i) if given by
telecommunication, when transmitted to the applicable number and an appropriate
answerback is received, (ii) if given by mail, three days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when actually
received at such address.
(b) NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE.
(1) No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver of thereof, nor shall
any single or partial exercise of any right preclude any further or other
exercise of such or any other right.
(2) In view of the uniqueness of the agreements contained
herein and the transactions contemplated hereby and thereby and the fact that
Buyer would not have an adequate remedy at law for money damages in the event
that any obligation hereunder is not performed in accordance with its terms,
each party to this Agreement therefore acknowledges that Buyer shall be entitled
to specific enforcement of the terms hereof in addition to any other remedy to
which Buyer may be entitled, at law or in equity.
(c) AMENDMENTS, ETC. This Agreement may not be amended, unless
said amendment shall be (1) in writing and (2) signed and delivered by all
parties hereto.
(d) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(1) Neither this Agreement nor any rights or obligations
hereunder are assignable.
(2) The provisions of this Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective permitted
heirs, executors, legal representatives, successors and assigns, and no other
person.
D-5
<PAGE>
(e) GOVERNING LAW. This Agreement and all rights, remedies,
liabilities, powers and duties of the parties hereto shall be governed in
accordance with the laws of the State of California without regard to principles
of conflicts of laws. Each party hereby irrevocably submits to and accepts for
itself and its properties, generally and unconditionally, the exclusive
jurisdiction of and service of process pursuant to the Laws of the State of
California and the rules of its courts, waives any defense of forum non
conveniens and agrees to be bound by any judgment rendered thereby arising under
or out of in respect of or in connection with this Agreement.
(f) SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is determined to be invalid, illegal or unenforceable by any
Governmental Entity, the remaining provisions hereof to the extent permitted by
Law shall nevertheless remain in full force and effect, unless doing so would
result in an interpretation of this Agreement which is manifestly unjust.
(g) HEADINGS AND REFERENCES. The descriptive headings of the
Article and Section headings herein are included for convenience only and do not
constitute a part of this Agreement for any other purpose. References to
parties, express beneficiaries, articles and sections herein are references to
parties to or the express beneficiaries and sections of this Agreement, as the
case may be, unless the context shall require otherwise. Any of the terms
defined in this Agreement may, unless the context otherwise requires, be used in
the singular or the plural, depending on the reference. The use in this
Agreement of the word "include" or "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific items or matters set forth immediately following such
word or to similar items or matters, whether or not nonlimiting language (such
as "without limitation" or "but not limited to" or words of similar import) is
used with reference thereto, but rather shall be deemed to refer to all other
items or matters that fall within the broadest possible scope of such general
statement, term or matter.
(h) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of Shareholder and Buyer, and supersedes all prior
agreements and understandings, both written and oral, with respect to the
subject matter hereof.
(i) SURVIVAL. Except as otherwise specifically provided
herein, each representation, warranty or covenant of a party contained herein
shall remain in full force and effect until the expiration of the pertinent
Survival Period.
(j) FURTHER ASSURANCES. The parties hereto each agree to
execute, make, acknowledge, and deliver such instruments, agreements and other
documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated thereby.
(k) WAIVER OF JURY TRIAL. Each party waives any right to a
trial by jury in any Action to enforce or defend any right hereunder and agrees
that any Action shall be tried before a court and not before a jury.
D-6
<PAGE>
(l) TERMINATION. Buyer may terminate this Agreement at any
time upon written notice to Shareholder. Unless terminated earlier by Buyer or
by mutual agreement of the parties, this Agreement shall terminate upon the
first to occur of (i) consummation of the Merger and (ii) the termination of
Plan of Reorganization pursuant to Section 6.1 thereof.
(m) COUNTERPARTS. This Agreement and any amendment hereto may
be executed in one or more counterparts and by different parties in separate
counterparts, each of which shall be an original, with the same effect as if all
signatures were on the same instrument. All of such counterparts shall
constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been executed by each party and delivered to the other party.
[Remainder of page intentionally left blank]
D-7
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
TRANSDIGM INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
ARA ACQUISITION CORPORATION
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NOTICE ADDRESS:
Transdigm Inc. or ARA Acquisition Corporation
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Peter Radekevich
Telecopy: (216) 289-4937
[Signatures continued on next page]
D-8
<PAGE>
------------------------------
Charles A. Collins
NOTICE ADDRESS:
c/o Adams Rite Aerospace, Inc.
4141 North Palm Street
Fullerton, CA 92835
Attention: Charles A. Collins
Fax:(714) 278-6510
with a copy to:
O'Melveny & Myers
LLP Citicorp
Center 153 East
53rd Street 50th
Floor New York, NY
10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
D-9
<PAGE>
EXHIBIT D-1
TEXT OF OPINION OF COUNSEL TO THE COMPANY
1. Each of ZMP, Inc. ("ZMP") and Adams Rite Aerospace, Inc. ("ARA"), is duly
incorporated, and is validly existing and in good standing under the laws of the
State of California. ZMP has the corporate power to execute and deliver each of
the Agreement and the Agreement of Merger (collectively, the "Agreements") and
to perform its obligations thereunder. Each of ZMP and ARA has corporate power
to own and lease its properties and assets.
2. The execution, delivery and performance of the Agreements have been duly
authorized by all necessary corporate action on the part of ZMP and all
necessary partnership action on the part of the Shareholders' Representative and
the Agreements to which each of them is a party have been duly executed and
delivered by ZMP and the Shareholders' Representative.
3. Each of the Agreements constitutes the legally valid and binding obligation
of ZMP, enforceable against ZMP in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally (including, without
limitation, fraudulent conveyance laws) and by general principles of equity,
including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific performance
or injunctive relief, regardless of whether considered in a proceeding in equity
or at law.
4. ZMP's execution and delivery of, and performance of its obligations under the
Agreements on or prior to the date of this opinion do not (i) violate ZMP's or
ARA's Articles of Incorporation and By-laws, (ii) violate, breach, or result in
a default under any existing obligation of or restriction on ZMP or ARA under
any other agreements identified in ZMP's Certificate, or (iii) breach or
otherwise violate any existing obligation of or restriction on ZMP or ARA under
any order, judgment or decree of any California or federal court or governmental
authority binding on ZMP or ARA identified in ZMP's Certificate.
5. The execution and delivery by ZMP and the Shareholders' Representative of,
and performance of their respective obligations under, the Agreements to which
each of them is a party do not violate any California or federal statute, rule
or regulation that we have, in the exercise of customary professional diligence,
recognized as applicable to ZMP, ARA, the Shareholders' Representative or to
transactions of the type contemplated by the Agreements.
6. No order, consent, permit or approval of any California or federal
governmental authority that we have, in the exercise of customary professional
diligence, recognized as applicable to ZMP, ARA, the Shareholders'
Representative or to transactions of the type contemplated by the Agreements is
required on the part of ZMP or the Shareholders' Representative for the
execution and delivery of, and performance of its obligations on or prior to the
date of this opinion under, the Agreements to which each of them is a party,
except for such as have been obtained.
7. Assuming due authorization of the Merger by all necessary corporate action on
the part of Buyer and Acquisition and that Buyer and Acquisition have taken all
action they are required to take, upon the filing of the Articles of Merger by
the Secretary of State of the State of California,
D-1-1
<PAGE>
the Merger will be validly consummated in accordance with the Agreement, the
Agreement of Merger and the General Corporation Law of the State of California.
8. The authorized capital stock of ZMP is as set forth in Section 3.2B of the
Disclosure Schedule. The authorized capital stock of ARA consists of
_____________ shares of common stock. Based solely upon a review of records
certified to us as the stock record books of ZMP and ARA, and without
independent investigation, (i) the number of outstanding shares of ZMP's capital
stock is as set forth in Section 3.2B of the Disclosure Schedule and (ii) there
are 50,000 outstanding shares of ARA common stock, all of which are owned of
record by ZMP. Based solely upon (x) a review of such stock record books of ZMP
and ARA, (y) records certified to us as the minute books of ZMP and ARA and (z)
matters set forth in the ZMP Certificate, and without independent investigation,
the outstanding shares of capital stock of each of ZMP and ARA have been duly
authorized by all necessary corporate action on the part of each of ZMP and ARA,
respectively, and are validly issued, fully paid and nonassessable. Holders of
the capital stock of ZMP and of ARA are not entitled to any preemptive right to
subscribe to any additional shares of their respective capital stock under their
respective Articles of Incorporation or Bylaws.
D-1-2
<PAGE>
EXHIBIT D-2
TEXT OF OPINION OF COUNSEL TO BUYER AND ACQUISITION
1. TransDigm, Inc. ("BUYER") has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware, with corporate
power to enter into the Agreement and the Agreement of Merger (collectively, the
"AGREEMENTS"), and to perform its obligations thereunder.
2. The execution, delivery and performance of the Agreements have been duly
authorized by all necessary corporate action on the part of Buyer, and the
Agreements have been duly executed and delivered by Buyer.
3. The Agreements constitute the valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms. The
opinions expressed in this paragraph 3 are subject to the following limitations,
qualifications and exceptions: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights or remedies of creditors; (ii) the effect of
general principles of equity, whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the court before which any proceeding
therefor may be brought; (iii) the unenforceability under certain circumstances
under law or court decisions of provisions providing for the indemnification of
or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy; and (iv) the
unenforceability of any provision requiring the payment of attorney's fees,
except to the extent that a court determines such fees to be reasonable.
4. Neither the execution and delivery by Buyer of the Agreements nor the
consummation of the Merger contemplated by the Agreement will (i) result in any
breach or violation of the certificate of incorporation or bylaws of Buyer; (ii)
result in any violation of any applicable federal or California statute, rule or
regulation applicable to Buyer; (iii) require any consent, approval or
authorization, declaration or filing by Buyer under any federal or California
statute, rule or regulation applicable to Buyer; (iv) result in a breach of, or
constitute a default under, any agreement or instrument identified to us as
material by Buyer, which agreements are listed on Schedule I hereto; or (v)
breach or otherwise violate any of the terms of or provisions of any orders,
judgments or decrees listed on Schedule I hereto, which have been identified to
us by Buyer as being all of the orders, judgments and decrees that are material
to the financial condition or results of operations of Buyer. No opinion is
expressed in clause (ii) or (iii) of this paragraph 4 as to the application or
contravention of any antifraud laws, antitrust laws or trade regulations. The
opinions set forth in this paragraph 4 are based upon our consideration of only
those statutes, rules and regulations that, in our experience, are normally
applicable to transactions such as those contemplated by the Agreement.
5. Acquisition has been duly incorporated and is validly existing and in good
standing under the laws of the State of California, with corporate power and
authority to enter into the Agreements and all documents in connection with the
Agreements to which Acquisition is a party (collectively, the "ACQUISITION
AGREEMENTS"), and to perform its obligations thereunder.
D-2-1
<PAGE>
6. The execution, delivery and performance of the Acquisition Agreements have
been duly authorized by all necessary corporate action on the part of
Acquisition, and the Acquisition Agreements have been duly executed and
delivered by Acquisition.
7. The Acquisition Agreements constitute the valid and binding obligations of
Acquisition, enforceable against Acquisition, in accordance with their
respective terms. The opinions expressed in this paragraph 7 are subject to the
following limitations, qualifications and exceptions: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights or remedies of
creditors; (ii) the effect of general principles of equity, whether enforcement
is considered in a proceeding in equity or at law, and the discretion of the
court before which any proceeding therefor may be brought; (iii) the
unenforceability under certain circumstances under law or court decisions of
provisions providing for the indemnification of or contribution to a party with
respect to liability where such indemnification or contribution is contrary to
public policy; and (iv) the unenforceability of any provision requiring the
payment of attorney's fees, except to the extent that a court determines such
fees to be reasonable.
8. Neither the execution and delivery by Acquisition of the Agreement nor the
consummation of the Merger contemplated by the Agreement will (i) result in any
breach or violation of the articles of incorporation or bylaws of Acquisition;
(ii) result in any violation of any applicable federal or California statute,
rule or regulation applicable to Acquisition; (iii) require any consent,
approval or authorization, declaration or filing by Acquisition under any
federal or California statute, rule or regulation applicable to Acquisition;
(iv) result in a breach of, or constitute a default under, any agreement or
instrument identified to us as material by Acquisition, which agreements are
listed on Schedule I hereto; or (v) breach or otherwise violate any of the terms
of or provisions of any, orders, judgments or decrees listed on Schedule I
hereto, which have been identified to us by Buyer as being all of the orders,
judgments and decrees that are material to the financial condition or results of
operations of Buyer. No opinion is expressed in clause (ii) or (iii) of this
paragraph 8 as to the application or contravention of any antifraud laws,
antitrust laws or trade regulations. The opinions set forth in this paragraph 8
are based upon our consideration of only those statutes, rules and regulations
that, in our experience, are normally applicable to transactions such as those
contemplated by the Agreement.
D-2-2
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
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Section 1.1 Definitions............................................................1
ARTICLE II
MERGER; CLOSING
Section 2.1 The Merger.............................................................9
Section 2.2 Effective Time.........................................................9
Section 2.3 Effects of the Merger..................................................9
Section 2.4 Conversion of the Stock into Cash......................................9
Section 2.5 Stock held by the Company.............................................10
Section 2.6 Closing...............................................................10
Section 2.7 Closing Date..........................................................10
Section 2.8 Payment of Consideration..............................................10
Section 2.10 Post-Closing Purchase Price Adjustment................................12
Section 2.11 Dissenting Shares.....................................................13
Section 2.12 Special Purchase Price Adjustment.....................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties by Buyer and Acquisition...............15
Section 3.2 Representations and Warranties by the Company.........................17
ARTICLE IV
ADDITIONAL COVENANTS AND AGREEMENTS
Section 4.1 Operation of the Business.............................................33
Section 4.2 Regulatory Consents, Authorizations, etc..............................35
Section 4.3 Investigation by Buyer................................................35
Section 4.4 Publicity.............................................................35
Section 4.5 Shareholders' Meeting.................................................36
Section 4.6 Notification of Certain Matters.......................................36
Section 4.7 Preparation of Tax Returns for Pre-Closing Periods....................36
Section 4.8 Preparation of Tax Returns for Straddle Periods.......................36
Section 4.9 Tax Controversies.....................................................38
Section 4.10 Cooperation...........................................................38
Section 4.11 Access to Records and Information.....................................38
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TABLE OF CONTENTS
(continued)
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Section 4.12 Tax Positions.........................................................39
Section 4.13 Income Tax Liability and Refunds......................................39
Section 4.14 No Solicitation or Negotiation........................................39
Section 4.15 Novation Agreements...................................................39
Section 4.16 Further Action........................................................40
ARTICLE V
CONDITIONS TO THE CLOSING
Section 5.1 General Conditions....................................................40
Section 5.2 Conditions to Obligations of Buyer....................................40
Section 5.3 Conditions to Obligations of the Company..............................42
ARTICLE VI
TERMINATION
Section 6.1 Termination...........................................................43
Section 6.2 Effects of Termination................................................43
ARTICLE VII
INDEMNITY
Section 7.1 Indemnification of Buyer..............................................44
Section 7.2 Indemnification by Buyer..............................................44
Section 7.3 Procedure.............................................................44
Section 7.4 Survival..............................................................45
Section 7.5 Limitations on Indemnification of Buyer...............................46
Section 7.6 Limitations on Indemnification by Buyer...............................47
Section 7.7 No Speculative Damages................................................47
Section 7.8 Exclusive Remedy......................................................47
Section 7.9 Adjustment to Merger Consideration....................................47
Section 7.10 Tax Adjustments.......................................................48
ARTICLE VIII
ESCROW
Section 8.1 Assertion of Indemnifiable Claims.....................................48
Section 8.2 Resolution of Claims; Payments........................................49
Section 8.3 Periodic Payments from the Claims Escrow Account......................49
Section 8.4 Termination of the Escrow Account.....................................50
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TABLE OF CONTENTS
(continued)
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Amendments;Waivers....................................................50
Section 9.2 Schedules; Exhibits; Integration......................................50
Section 9.3 FurtherAssurances.....................................................50
Section 9.4 Governing Law.........................................................50
Section 9.5 No Assignment.........................................................51
Section 9.6 Headings..............................................................51
Section 9.7 Counterparts..........................................................51
Section 9.8 Confidentiality.......................................................51
Section 9.9 Parties in Interest...................................................52
Section 9.10 Performance by Subsidiaries...........................................52
Section 9.11 Notices...............................................................52
Section 9.12 Expenses..............................................................53
Section 9.13 Remedies; Waiver......................................................54
Section 9.14 Attorney's Fees.......................................................54
Section 9.15 Knowledge Convention..................................................54
Section 9.16 Representation By Counsel; Interpretation.............................54
Section 9.17 Waiver of Jury Trial..................................................54
Section 9.18 Severability..........................................................54
Section 9.19 Appointment of Shareholders' Representative...........................54
Section 9.20 Entire Agreement......................................................55
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Table of Contents/Authorities.
D-2-1
<PAGE>
Exhibit 3.10
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ZMP, INC.
I
The name of this corporation is ZMP, Inc.
II
The nature of the business of this corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of California other than the banking
business, the trust company business or the practice of a profession permitted
to be incorporated by the California Corporations Code.
III
The total number of shares of shares of stock which this corporation
shall have the authority to issue is one thousand (1,000) shares of Common
Stock, par value $.01 per share.
IV
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may be
altered from time to time in the manner provided in the By-Laws and
vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be
filled, and directors may be removed, as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved by
the stockholders at the time when the election is held and need not be by
ballot.
(c) All corporate powers and authority of the Corporation (except as at the
time otherwise provided by law, by these Articles of Incorporation or by
the By-laws) shall be vested in and exercised by the Board of Directors.
<PAGE>
(d) The Board of Directors shall have the power without the assent or vote
of the stockholders to adopt amend alter or repeal the By-Laws of the
Corporation, except to the extent that the By-Laws or these Articles of
Incorporation otherwise provide, or unless otherwise provided by law.
V
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the General Corporation Law of the State of
California) through bylaw provisions, agreements with agents, vote of
shareholders or disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted in Section 317 of the General Corporation
Law of the State of California, subject only to the applicable limits set forth
in Section 204 of the General Corporation Law of the State of California with
respect to actions for breach of duty to the Corporation and its shareholders.
VII
The Corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation in the manner now or hereafter
prescribed by the laws of the State of California, and all rights herein
conferred upon stockholders or directors are granted subject to this
reservation.
<PAGE>
Exhibit 3.11
AGREEMENT OF MERGER
AGREEMENT OF MERGER entered into on April 23, 1999, by and among
ZMP, Inc., a California corporation (the "COMPANY"), TransDigm Inc., a
Delaware corporation ("PARENT"), and ARA Acquisition Corporation, a
California corporation and a wholly-owned subsidiary of Parent ("Acquisition
Subsidiary").
1. Acquisition Subsidiary, which is a corporation incorporated under
the General Corporation Law of the State of California, and which is
sometimes hereinafter referred to as the "DISAPPEARING CORPORATION," shall
be merged with and into the Company, which is a corporation incorporated
under the General Corporation Law of the State of California, and which is
sometimes hereinafter referred to as the "SURVIVING CORPORATION."
2. The separate existence of the disappearing corporation shall cease
upon the effective date of the merger.
3. The surviving corporation shall continue its existence pursuant to
the provisions of the General Corporation Law of the State of California.
4. Upon consummation of the merger, the Amended and Restated Articles
of Incorporation of the surviving corporation shall be amended in their
entirety to read as follows:
I
The name of this corporation is ZMP, Inc.
II
The name and address in the State of California of this corporation's
initial agent for service of process is: CT CORPORATION SYSTEM
III
The nature of the business of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of California other than the banking business,
the trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
IV
The total number of shares of shares of stock which this corporation shall
have the authority to issue is one thousand (1,000) shares of Common Stock,
par value $.01 per share.
V
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation and for the purpose
of creating,
<PAGE>
defining, limiting and regulating the powers of the Corporation and its
directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may
be altered from time to time in the manner provided in the
By-Laws and vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized
number of directors may be filled, and directors may be removed,
as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved
by the stockholders at the time when the election is held and
need not be by ballot.
(c) All corporate powers and authority of the Corporation (except as
at the time otherwise provided by law, by these Articles of
Incorporation or by the By-laws) shall be vested in and exercised
by the Board of Directors.
(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt amend alter or repeal the
By-Laws of the Corporation, except to the extent that the By-Laws
or these Articles of Incorporation otherwise provide, or unless
otherwise provided by law.
VI
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VII
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the General Corporation Law of the State of
California) through bylaw provisions, agreements with agents, vote of
shareholders or disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted in Section 317 of the General
Corporation Law of the State of California, subject only to the applicable
limits set forth in Section 204 of the General Corporation Law of the State
of California with respect to actions for breach of duty to the Corporation
and its shareholders.
VIII
The Corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation in the manner now or hereafter
prescribed by the laws of the State of California, and all rights herein
conferred upon stockholders or directors are granted subject to this
reservation.
<PAGE>
5. Each outstanding share of the common stock of the disappearing
corporation shall, upon the effective date of the merger, be converted into one
share of the common stock of the surviving corporation.
6. Each share of the capital stock of the Company issued and
outstanding immediately prior to the effectiveness of the merger (which
consists of 105,435 shares of common stock) shall, upon the effective date of
the merger, be converted, in the aggregate, into the right to receive $41.0
million in cash (the "MERGER CONSIDERATION"). The Merger Consideration is
subject to adjustment for payments of indebtedness for borrowed money,
accrued interest thereon, the amount of success bonuses to be paid to the
Company's management, certain transaction costs and indemnification claims,
and for changes in net working capital and the failure of the Surviving
Corporation to enter into a certain contractual arrangement, as provided in
or pursuant to the Agreement and Plan of Reorganization (the "PLAN OF
REORGANIZATION") dated as of March 31, 1999 among Parent, Acquisition
Subsidiary, the Company and TCW Special Placements Fund II, a California
limited partnership solely in its capacity as Shareholders' Representative,
and, pursuant to the Plan of Reorganization, a portion of the Merger
Consideration will be held in escrow accounts which will satisfy adjustments
based solely on changes in net working capital, the failure of the surviving
corporation to enter into a certain contractual arrangement and
indemnification claims. A copy of the Plan of Reorganization shall be
maintained at the principal executive offices of the surviving corporation
and shall be provided without charge to any shareholder of Parent, the
disappearing corporation or the surviving corporation upon written request
therefor.
7. The merger shall have the effects set forth in Section 1107 of the
General Corporation Law of the State of California.
8. The disappearing corporation and the surviving corporation hereby
agree that they will cause to be executed and filed and/or recorded any document
or documents prescribed by the laws of the State of California, and that they
will cause to be performed all necessary acts therein and elsewhere to
effectuate the merger.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition Subsidiary and the Company
have caused this Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
"Parent"
TransDigm Inc.,
a Delaware corporation
By: /s/ W. Nicholas Howley
------------------------------
Name: W. Nicholas Howley
------------------------------
Title: President
------------------------------
By: /s/ Peter B. Radekevich
------------------------------
Name: Peter B. Radekevich
------------------------------
Title: Chief Financial Officer
------------------------------
"Acquisition Subsidiary"
ARA Acquisition Corporation,
a California corporation
By: /s/ W. Nicholas Howley
------------------------------
Name: W. Nicholas Howley
------------------------------
Title: President
------------------------------
By: /s/ Peter B. Radekevich
------------------------------
Name: Peter B. Radekevich
------------------------------
Title: Chief Financial Officer
------------------------------
<PAGE>
"Company"
ZMP, Inc.,
a California corporation
By: /s/ Charles A. Collins
------------------------------
Name: Charles A. Collins
------------------------------
Title: President and Secretary
------------------------------
<PAGE>
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
Charles A. Collins certifies that:
(a) He is the President and the Secretary of ZMP, Inc., a
corporation organized under the laws of the State of California (the
"CORPORATION").
(b) The Corporation has authorized one class of stock, designated
Common Stock.
(c) The number of outstanding shares of Common Stock of the
Corporation entitled to vote on the Record Date, March 1, 1999, for the
Special Meeting or for the written consent of the Shareholders of the
Corporation was 105,435 shares.
(d) The principal terms of the agreement relating to the merger of
ARA Acquisition Corporation, a California corporation, with and into the
Corporation (the "MERGER") in the form attached were approved by the
Corporation's Board of Directors and by the vote of a number of shares of
Common Stock which equaled or exceeded the vote required.
(e) The percentage vote required of the holders of Common Stock
entitled to vote in connection with the Merger is more than 50%.
/s/ Charles A. Collins
----------------------------------
Title: President and Secretary
<PAGE>
Charles A. Collins declares under penalty of perjury under the laws
of the State of California that he has read the foregoing certificate and
knows the contents thereof and that the same is true of his own knowledge.
Dated: April 20, 1999
Name: /s/ Charles A. Collins
------------------------
<PAGE>
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
W. Nicholas Howley and Eileen Fallon certify that:
1. They are the President and the Secretary, respectively, of ARA
Acquisition Corporation, a corporation organized under the laws of the State of
California (the "CORPORATION").
2. The Corporation has authorized one class of stock, designated
Common Stock, of which 1,000 were entitled to vote.
3. The principal terms of the agreement relating to the merger of the
Corporation with and into ZMP, Inc., a California corporation, (the "MERGER") in
the form attached were approved by the Corporation's Board of Directors and by
the vote of a number of shares of each class which equaled or exceeded the vote
required.
4. The percentage vote required of the Common Stock entitled to vote
in connection with the Merger is more than 50%.
/s/ Nicholas Howley
----------------------------------
Title: President
/s/ Eileen Fallon
----------------------------------
Title: Secretary
<PAGE>
W. Nicholas Howley declares under penalty of perjury under the laws of
the State of California that he has read the foregoing certificate and knows the
contents thereof and that the same is true of his own knowledge.
Dated: April 20, 1999
Name: Nicholas Howley
------------------------
Eileen Fallon declares under penalty of perjury under the laws of the
State of California that she has read the foregoing certificate and knows the
contents thereof and that the same is true of her own knowledge.
Dated: April 19, 1999
Name: Eileen Fallon
------------------------
<PAGE>
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
Peter B. Radekevich and Eileen Fallon certify that:
1. They are the CFO and the Secretary, respectively, of TransDigm
Inc., a corporation organized under the laws of the State of Delaware (the
"CORPORATION").
2. The Corporation has authorized one class of stock, designated
Common Stock, of which 1,000 were entitled to vote.
3. The principal terms of the agreement relating to the merger of the
ARA Acquisition Corporation with and into ZMP, Inc., a California corporation,
(the "MERGER") in the form attached were approved by the Corporation's Board of
Directors and by the vote of a number of shares of each class which equaled or
exceeded the vote required.
4. The Merger was approved by the sole shareholder of the Corporation.
/s/ Peter B. Radekevich
----------------------------------
Title: Chief Financial Officer
/s/ Eileen Fallon
----------------------------------
Title: Secretary
<PAGE>
Peter B. Radekevich declares under penalty of perjury under the
laws of the State of California that he has read the foregoing certificate
and knows the contents thereof and that the same is true of his own knowledge.
Dated: April 19, 1999
Name: /s/ Peter B. Radekevich
-----------------------------
Eileen Fallon declares under penalty of perjury under the laws of the
State of California that she has read the foregoing certificate and knows the
contents thereof and that the same is true of her own knowledge.
Dated: April 19, 1999
Name: /s/ Eileen Fallon
-----------------------------
<PAGE>
EXHIBIT 3.12
ARTICLES OF INCORPORATION
OF
ARP ACQUISITION CORPORATION
I
The name of this Corporation is ARP ACQUISITION CORPORATION.
II
The purpose of this Corporation is to engage in any lawful act or
activity for which a Corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporation Code.
III
The name and address in the State of California of this Corporation's
initial agent for service of process is:
M. Glenn Gilbert
Zimmerman Holdings, Inc.
2600 Mission Avenue, Suite 100
San Marino, California 91108
IV
This Corporation is authorized to issue only one class of shares of
stock and the total number of shares which this Corporation is authorized to
issue is one million (1,000,000).
DATED: July 30, 1986
/s/ Henry Pramov
---------------------------------------
Henry P. Pramov, Incorporator
I hereby declare that I am the person who executed the foregoing
Articles of Incorporation, which execution is my act and deed.
/s/ Henry Pramov
---------------------------------------
Henry P. Pramov
<PAGE>
Exhibit 3.13
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ARP ACQUISITION CORPORATION
IRWIN D. MILLER and M. GLENN GILBERT certify that:
1. They are the President and the Assistant Secretary, respectively, of
ARP Acquisition Corporation, a California corporation.
2. Article I of the Articles of Incorporation of this corporation is
amended to read as follows:
"The name of this corporation is Adams Rite Products, Inc."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The total number of
outstanding shares of the corporation is 50,000. The number of
shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATED: August 13, 1986
/s/ Irwin D. Miller
----------------------------------------
Irwin D. Miller, President
/s/ M. Glenn Gilbert
----------------------------------------
M. Glenn Gilbert, Assistant Secretary
<PAGE>
Exhibit 3.14
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADAMS RITE PRODUCTS, INC.
R. Michael Briggs and Brian P. Alleman certify that:
1. They are the Chairman of the Board and the Secretary, respectively, of
Adams Rite Products, Inc., a California corporation (the "Corporation").
2. The provision set forth below shall be added to the Articles of
Incorporation of the Corporation as Article V, to read in full as follows:
"The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California
law."
3. The provision set forth below shall be added to the Articles of
Incorporation of the Corporation as Article VI, to read in full as follows:
"The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise
permitted in Section 317 of the California Corporations Code, subject only
to the applicable limits set forth in Section 204 of the California
Corporations Code with respect to actions for breach of duty to the
corporation and its shareholders."
4. The foregoing amendments of Articles of Incorporation have been duly
approved by the Board of Directors.
5. The foregoing amendments of Articles of Incorporation have been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the Corporation
is 50,000. The number of shares voting in favor of the amendments equaled or
exceeded the vote required. The percentage vote required was more than 50%.
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: January 24, 1992
/s/ R. Michael Briggs
------------------------------------
R. Michael Briggs
Chairman of the Board
/s/ Brian P. Alleman
------------------------------------
Brian P. Alleman, Secretary
<PAGE>
EXHIBIT 3.15
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADAMS RITE PRODUCTS, INC.
Charles A. Collins and Brian P. Alleman certify that:
1. They are the President and Chief Executive Officer and Secretary and
Chief Financial Officer, respectively, of Adams Rite Products, Inc., a
California corporation (the "Corporation").
2. Articles I of the Articles of Incorporation of the Corporation is
amended to read in full as follows:
"Article I
The name of this corporation is Adams Rite Sabre International, Inc."
3. The foregoing amendment to the Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment to the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporation Code. The total number of outstanding shares of the Corporation
is 50,000. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: December 23, 1992
/s/ Charles Collins
--------------------------------------
Charles A. Collins
President and Chief Executive Officer
/s/ Brian Alleman
--------------------------------------
Brian P. Alleman
Secretary and Chief Financial Officer
<PAGE>
Exhibit 3.16
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADAMS RITE SABRE INTERNATIONAL, INC.
Charles A. Collins and Al Chan certify that:
1. They are the President, Chief Executive Officer and Chairman of the
Board and the Secretary and Chief Financial Officer, respectively, of Adams Rite
Sabre International, Inc., a California corporation (the "Corporation").
2. Article I of the Articles of Incorporation of the Corporation is
amended to read in full as follows:
I
The name of this Corporation is Adams Rite Aerospace, Inc.
3. The foregoing amendment to the Articles of Incorporation has been duly
approved by the Board of Directors of the Corporation.
4. The foregoing amendment to the Articles of Incorporation has been duly
approved by the shareholder holding 100% of the outstanding shares of the
Corporation. The Corporation has only one class of shares, and the number of
outstanding shares is 50,000.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATED: August 1, 1997
/s/ Charles A. Collins
-----------------------------------------------
Charles A. Collins, President, Chief Executive
Officer and Chairman of the Board
/s/ Al Chan
-----------------------------------------------
Al Chan, Secretary and Chief Financial Officer
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Exhibit 3.20
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ZMP, INC.
AMENDED AND RESTATED
BY-LAWS
As Adopted on April 23, 1999
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ZMP, INC.
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
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ARTICLE I SHAREHOLDERS
Section 1.01. Annual Meetings...................................................................1
Section 1.02. Special Meetings..................................................................1
Section 1.03. Notice of Meetings; Waiver........................................................1
Section 1.04. Quorum............................................................................2
Section 1.05. Voting............................................................................2
Section 1.06. Voting by Ballot..................................................................3
Section 1.07. Adjournment.......................................................................3
Section 1.08. Proxies...........................................................................4
Section 1.09. Organization; Procedure...........................................................4
Section 1.10. Consent of Shareholders in Lieu of Meeting........................................4
ARTICLE II BOARD OF DIRECTORS
Section 2.01. General Powers....................................................................5
Section 2.02. Number and Term of Office.........................................................6
Section 2.03. Election of Directors.............................................................5
Section 2.04. Annual and Regular Meetings.......................................................5
Section 2.05. Special Meetings; Notice..........................................................6
Section 2.06. Quorum; Voting....................................................................6
Section 2.07. Adjournment.......................................................................6
Section 2.08. Action Without a Meeting..........................................................7
Section 2.09. Regulations: Manner of Acting.....................................................7
Section 2.10. Action by Telephonic Communications...............................................8
Section 2.11. Resignations......................................................................7
Section 2.12. Removal of Directors..............................................................7
Section 2.13. Vacancies and Newly Created Directorships.........................................7
Section 2.14. Compensation......................................................................8
Section 2.15. Reliance on Accounts and Reports, etc.............................................9
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted...................................................................8
Section 3.02. Powers............................................................................8
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Section 3.03. Proceedings.......................................................................9
Section 3.04. Quorum and Manner of Acting......................................................11
Section 3.05. Action by Telephonic Communications..............................................10
Section 3.06. Absent or Disqualified Members...................................................10
Section 3.07. Resignations.....................................................................10
Section 3.08. Removal..........................................................................10
Section 3.09. Vacancies........................................................................10
ARTICLE IV OFFICERS
Section 4.01. Number...........................................................................10
Section 4.02. Election.........................................................................11
Section 4.03. Salaries.........................................................................11
Section 4.04. Removal and Resignation; Vacancies...............................................11
Section 4.05. Authority and Duties of Officers.................................................11
Section 4.06. The President....................................................................11
Section 4.07. The Vice President...............................................................12
Section 4.08. The Secretary....................................................................12
Section 4.09. The Treasurer....................................................................13
Section 4.10. Additional Officers..............................................................13
Section 4.11. Security.........................................................................13
ARTICLE V CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares.....................................14
Section 5.02. Signatures; Facsimile............................................................14
Section 5.03. Lost, Stolen or Destroyed Certificates...........................................14
Section 5.04. Transfer of Stock................................................................14
Section 5.05. Record Date......................................................................15
Section 5.06. Registered Shareholders..........................................................16
Section 5.07. Transfer Agent and Registrar.....................................................16
ARTICLE VI INDEMNIFICATION
Section 6.01. Nature of Indemnity..............................................................16
Section 6.02. Successful Defense...............................................................17
Section 6.03. Determination That Indemnification Is Proper.....................................17
Section 6.04. Advance Payment of Expenses......................................................17
Section 6.05. Procedure for Indemnification of Directors and Officers..........................18
Section 6.06. Survival; Preservation of Other Rights...........................................19
Section 6.07. Insurance........................................................................19
Section 6.08. Severability.....................................................................19
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ARTICLE VII OFFICES
Section 7.01. Principal Office.................................................................19
Section 7.02. Other Offices....................................................................20
ARTICLE VIII GENERAL PROVISIONS
Section 8.01. Dividends........................................................................20
Section 8.02. Reserves.........................................................................20
Section 8.03. Execution of Instruments.........................................................20
Section 8.04. Corporate Indebtedness...........................................................20
Section 8.05. Deposits.........................................................................21
Section 8.06. Checks...........................................................................21
Section 8.07. Sale, Transfer, etc. of Securities...............................................21
Section 8.08. Voting as Shareholder............................................................21
Section 8.09. Fiscal Year......................................................................21
Section 8.10. Seal.............................................................................21
Section 8.11. Books and Records: Inspection....................................................22
ARTICLE IX AMENDMENT OF BY-LAWS
Section 9.01. Amendment........................................................................22
ARTICLE X CONSTRUCTION
Section 10.01. Construction.....................................................................22
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ZMP, INC.
AMENDED AND RESTATED
BY-LAWS
As adopted on April 23, 1999
ARTICLE I
SHAREHOLDERS
Section 1.01. ANNUAL MEETINGS. The annual meeting of the shareholders
of the Corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, either within or without the State of California, and at such date and
hour, as may be fixed from time to time by resolution of the Board of Directors
and set forth in the notice or waiver of notice of the meeting.
Section 1.02. SPECIAL MEETINGS. Special meetings of the shareholders
may be called at any time by the President (or, in the event of his absence or
disability, by any Vice President), or by the Board of Directors. A special
meeting shall be called by the President (or, in the event of his absence or
disability, by any Vice President), or by the Secretary, immediately upon
receipt of a written request therefor by shareholders holding in the aggregate
not less than 10% of the outstanding shares of the Corporation at the time
entitled to vote at any meeting of the shareholders. If such officers or the
Board of Directors shall fail to call such meeting within 20 days after receipt
of such request, any shareholder executing such request may call such meeting to
be held at a time requested by the person or persons calling the meeting, not
less than 35 nor more than 60 days after the receipt of the request. Such
special meetings of the shareholders shall be held at such places, within or
without the State of California, as shall be specified in the respective notices
or waivers of notice thereof.
Section 1.03. NOTICE OF MEETINGS; WAIVER. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the shareholders, and, (i) in the case of a special meeting, the
general nature of the business to be transacted, or (ii) in the case of the
annual meeting those matters which the Board of Directors, at the time of giving
the notice, intends to present for action by the shareholders, to be given
personally or by first-class mail, not less than ten nor more than sixty days
prior to the meeting, to each shareholder of record entitled to vote at such
meeting. The notice of any meeting at which directors are to be elected shall
include the name of any nominee or nominees which, at the time of the notice,
management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of such
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
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1900 of such Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares pursuant to Section 2007 of such
Code, the notice shall also state the general nature of such proposal.
If such notice is mailed, it shall be deemed to have been given to a
shareholder when deposited in the United States mail, postage prepaid, directed
to the shareholder at his address as it appears on the record of shareholders of
the Corporation, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address. If no such address appears
on the corporation's books or has been so given, notice shall be deemed to have
been given if sent by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where such
office is located.
If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to the shareholder
upon written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of such notice.
Such further notice shall be given as may be required by law.
No notice of any meeting of shareholders need be given to any
shareholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders need be specified in a written
waiver of notice. The attendance of any shareholder at a meeting of shareholders
shall constitute a waiver of notice of such meeting, except when the shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, Assistant Secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.
Section 1.04. QUORUM. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
shareholders shall constitute a quorum for the transaction of business at such
meeting.
Section 1.05. VOTING. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of shareholders
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shall be entitled to one vote for each share outstanding in his name on the
books of the Corporation at the close of business on such record date. If no
record date has been fixed, then every holder of record of shares entitled to
vote at a meeting of shareholders shall be entitled to one vote for each share
of stock standing in his name on the books of the Corporation at the close of
business on the day next preceding the day on which notice of the meeting is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
Any shareholder entitled to vote on any matter (other than the
election of directors) may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal, but,
if the shareholder fails to specify the number of shares such shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares such shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and voting on any matter (other than the election of
directors), provided that the shares voting affirmatively must also constitute
at least a majority of the required quorum, shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the California General Corporation Law or the articles of
incorporation.
At a shareholders' meeting involving the election of directors, no
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of the shareholder's shares) unless such
candidate or candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such notice, then every shareholder entitled to vote
may cumulate such shareholder's votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
Section 1.06. VOTING BY BALLOT. No vote of the shareholders need be
taken by ballot unless required by law (except that all elections for directors
must be by ballot upon demand by a shareholder at the meeting and before the
voting begins). Any vote which need not be taken by ballot may be conducted by
voice vote or in any manner approved by the meeting.
Section 1.07. ADJOURNMENT. If a quorum is not present at any meeting
of the shareholders, the shareholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the shareholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of these
By-Laws, a notice of the adjourned
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meeting, conforming to the requirements of Section 1.03 hereof, shall be given
to each shareholder of record entitled to vote at such meeting. At any adjourned
meeting at which a quorum is present, any business may be transacted that might
have been transacted on the original date of the meeting.
Section 1.08. PROXIES. Any shareholder entitled to vote at any meeting
of the shareholders or to express consent to or dissent from corporate action
without a meeting may authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. A shareholder may
authorize a valid proxy by executing a written instrument signed by such
shareholder, or by causing his or her signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature, or
by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission to the person designated as the holder of
the proxy, a proxy solicitation firm or a like authorized agent. A proxy must be
filed with the Secretary of the corporation. No such proxy shall be voted or
acted upon after the expiration of eleven months from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A shareholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary. Proxies by
telegram, cablegram or other electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the shareholder.
Any copy, facsimile telecommunication or other reliable reproduction of a
writing or transmission created pursuant to this section may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 1.09. ORGANIZATION; PROCEDURE. At every meeting of
shareholders the presiding officer shall be the President or, in the event of
his absence or disability, a presiding officer chosen by a majority of the
shareholders present in person or by proxy. The Secretary, or in the event of
his absence or disability, the Assistant Secretary, if any, or if there be no
Assistant Secretary, in the absence of the Secretary, an appointee of the
presiding officer, shall act as Secretary of the meeting. The order of business
and all other matters of procedure at every meeting of shareholders may be
determined by such presiding officer.
Section 1.10. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. To the
fullest extent permitted by law, whenever the vote of shareholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action,
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such action may be taken without a meeting, without prior notice and without a
vote of shareholders, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be filed with the Secretary of the corporation and
shall be maintained in the corporate records. In the case of election of
directors, such consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy not
created by removal and not filled by the directors by the written consent of the
holders of a majority of the outstanding shares entitled to vote for the
election of directors.
Every written consent shall bear the date of signature of each
shareholder or member who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by law to
the Corporation, written consents signed by a sufficient number of holders or
members to take action are delivered to the Corporation. Any shareholder giving
a written consent, or the shareholder's proxy holders, or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holder, may revoke the consent by a writing received by the Secretary of the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. GENERAL POWERS. Except as may otherwise be provided by
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation.
Section 2.02. NUMBER AND TERM OF OFFICE. The number of Directors
constituting the entire Board of Directors shall be not less than one nor more
than thirteen, which number may be modified from time to time by resolution of
the Board of Directors, but in no event shall the number of Directors be less
than one. Each Director (whenever elected) shall hold office until his successor
has been duly elected and qualified, or until his earlier death, resignation or
removal.
Section 2.03. ELECTION OF DIRECTORS. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the shareholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
shareholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election.
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Section 2.04. ANNUAL AND REGULAR MEETINGS. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the shareholders at the
place of such annual meeting of the shareholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of California) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him at his usual place
of business, or shall be delivered to him personally. Notice of such action need
not be given to any Director who attends the first regular meeting after such
action is taken without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting.
Section 2.05. SPECIAL MEETINGS; NOTICE. Special meetings of the Board
of Directors shall be held whenever called by the President or, in the event of
his absence or disability, by any Vice President, at such place (within or
without the State of California), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. The notice need not
specify the purpose of the meeting nor the place if the meeting is to be held at
the principal executive office of the corporation.
Special meetings of the Board of Directors may be called on 24 hours'
notice, if notice is given to each Director personally or by telephone or
telegram, or on five days' notice, if notice is mailed to each Director,
addressed to him at his usual place of business. Notice of any special meeting
need not be given to any Director who attends such meeting without protesting
the lack of notice to him, prior to or at the commencement of such meeting, or
to any Director who submits a signed waiver of notice, whether before or after
such meeting, and any business may be transacted thereat.
Section 2.06. QUORUM; VOTING. At all meetings of the Board of
Directors, the presence of a majority of the total authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, subject to the provisions of Section 310 of the Corporations Code of
California (approval of contracts or transactions in which a director has a
direct or indirect material financial interest), Section 311 (appointment of
committees), and Section 317 (e) (indemnification of directors). A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
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Section 2.07. ADJOURNMENT. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the meeting is adjourned for more than twenty-four (24) hours or
unless the time and place of the adjourned meeting are not announced at the time
of adjournment, in which case notice conforming to the requirements of Section
2.05 shall be given to each Director.
Section 2.08. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Board of Directors may be taken without a meeting,
if all members of the Board shall individually or collectively consent in
writing to such action. Such action by written consent shall have the same force
and effect as a unanimous vote of the Board of Directors. Such written consent
or consents shall be filed with the minutes of the proceedings of the Board.
Section 2.09. REGULATIONS: MANNER OF ACTING. To the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. ACTION BY TELEPHONIC COMMUNICATIONS. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 2.11. RESIGNATIONS. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.12. REMOVAL OF DIRECTORS. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director, cast at a special meeting of shareholders
called for the purpose, or by court order. Any vacancy in the Board of Directors
caused by any such removal may be filled at such meeting by the shareholders
entitled to vote for the election of the Director so removed. If such
shareholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
2.13 of these By-Laws.
Section 2.13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. If any
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue
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to act, and such vacancies and newly created directorships may be filled by a
majority of the Directors then in office, although less than a quorum. A
Director elected to fill a vacancy or a newly created directorship shall hold
office until his successor has been elected and qualified or until his earlier
death, resignation or removal. Any such vacancy or newly created directorship
may also be filled at any time by vote of the shareholders.
Section 2.14. COMPENSATION. The amount, if any, which each Director
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors.
Section 2.15. RELIANCE ON ACCOUNTS AND REPORTS, ETC. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or Committees designated by the Board of Directors, or by any other person as to
the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. HOW CONSTITUTED. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
Committees, including an Executive Committee, each such Committee to consist of
two or more Directors as from time to time may be fixed by the Board of
Directors. The Board of Directors may designate one or more Directors as
alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. Thereafter,
members (and alternate members, if any) of each such Committee may be designated
at the annual meeting of the Board of Directors. Any such Committee may be
abolished or re-designated from time to time by the Board of Directors. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his successor shall have been designated or until he
shall cease to be a Director, or until his earlier death, resignation or
removal.
Section 3.02. POWERS. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided
8
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by resolution or resolutions of the Board of Directors. Neither the Executive
Committee nor any such other Committee shall have the power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
(b) to adopt an agreement of merger or consolidation,
(c) to recommend to the shareholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
(d) to recommend to the shareholders a dissolution of the Corporation
or a revocation of a dissolution,
(e) the approval of any action which, under the General Corporation
Law of California, also requires shareholders' approval or approval of the
outstanding shares,
(f) the filling of vacancies on the Board of Directors or in any
committee,
(g) the fixing of compensation of the directors for serving on the
board or on any committee,
(h) the amendment or repeal of bylaws or the adoption of new bylaws,
(i) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable, or
(j) the appointment of any other committees of the Board of Directors
or the members thereof.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
Section 3.03. PROCEEDINGS. Meetings and action of committees shall be
governed by, and held and taken in accordance with, the provisions of Article II
of these bylaws, with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members, except that the time of regular meetings of
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committees may be determined by resolution of the Board of Directors as well as
the committee, special meetings of committees may also be called by resolution
of the Board of Directors and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. Each such Committee may fix its own rules of
procedure not inconsistent with the provisions of these bylaws and may meet at
such place (within or without the State of California), at such time and upon
such notice, if any, as it shall determine from time to time. Each such
Committee shall keep minutes of its proceedings and shall report such
proceedings to the Board of Directors at the meeting of the Board of Directors
next following any such proceedings.
Section 3.04. QUORUM AND MANNER OF ACTING. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action required or permitted to be taken at any meeting of any such
Committee may be taken without a meeting, if all members of such Committee shall
consent to such action in writing and such writing or writings are filed with
the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 3.05. ACTION BY TELEPHONIC COMMUNICATIONS. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. ABSENT OR DISQUALIFIED MEMBERS. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Section 3.07. RESIGNATIONS. Any member (and any alternate member) of
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. REMOVAL. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by resolution
adopted by a majority of the whole Board of Directors.
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Section 3.09. VACANCIES. If any vacancy shall occur in any Committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
There may also be a Chairman of the Board of Directors, one or more Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers, as the Board of Directors may determine. Any number of offices may
be held by the same person. No officer need be a Director of the Corporation.
Section 4.02. ELECTION. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his successor has been elected
and qualified, or until his earlier death, resignation or removal.
Section 4.03. SALARIES. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4.04. REMOVAL AND RESIGNATION; VACANCIES. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
Section 4.05. AUTHORITY AND DUTIES OF OFFICERS. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.06. THE PRESIDENT. The President shall preside at all
meetings of the shareholders and directors at which he is present, shall be the
chief executive officer and the chief operating officer of the Corporation,
shall have general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the
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Board of Directors are carried into effect. He shall manage and administer the
Corporation's business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating officer of a corporation. He shall have the
authority to sign, in the name and on behalf of the Corporation, checks, orders,
contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and together with the Secretary
or an Assistant Secretary, conveyances of real estate and other documents and
instruments to which the seal of the Corporation is affixed. He shall have the
authority to cause the employment or appointment of such employees and agents of
the Corporation as the conduct of the business of the Corporation may require,
to fix their compensation, and to remove or suspend any employee or agent
elected or appointed by the President or the Board of Directors. The President
shall perform such other duties and have such other powers as the Board of
Directors or the Chairman may from time to time prescribe.
Section 4.07. THE VICE PRESIDENT. Each Vice President shall perform
such duties and exercise such powers as may be assigned to him from time to time
by the President. In the absence of the President, the duties of the President
shall be performed and his powers may be exercised by such Vice President as
shall be designated by the President, or failing such designation, such duties
shall be performed and such powers may be exercised by each Vice President in
the order of their earliest election to that office; subject in any case to
review and superseding action by the President.
Section 4.08. THE SECRETARY. The Secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all the proceedings
of the meetings of the shareholders and of the Board of Directors in books
provided for that purpose.
(b) He shall cause all notices to be duly given in accordance with the
provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he shall furnish a copy of such resolution to the
members of such Committee.
(d) He shall be the custodian of the records and of the seal of the
Corporation and cause such seal (or a facsimile thereof) to be affixed to all
certificates representing shares of the Corporation prior to the issuance
thereof and to all instruments the execution of which on behalf of the
Corporation under its seal shall have been duly authorized in accordance with
these By-Laws, and when so affixed he may attest the same.
(e) He shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by law,
the Certificate of Incorporation
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or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number of shares of stock of the Corporation
of each class issued and outstanding, the names (alphabetically arranged) and
the addresses of the holders of record of such shares, the number of shares held
by each holder and the date as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or
Assistant Secretary shall have signed) certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board of
Directors.
(h) He shall perform, in general, all duties incident to the office of
secretary and such other duties as may be specified in these By-Laws or as may
be assigned to him from time to time by the Board of Directors, or the
President.
Section 4.09. THE TREASURER. The Treasurer shall be the chief
financial officer of the Corporation and shall have the following powers and
duties:
(a) He shall have charge and supervision over and be responsible for
the moneys, securities, receipts and disbursements of the Corporation, and shall
keep or cause to be kept full and accurate records of all receipts of the
Corporation.
(b) He shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the Corporation in
such banks or trust companies or with such bankers or other depositaries as
shall be selected in accordance with Section 8.05 of these By-Laws.
(c) He shall cause the moneys of the Corporation to be disbursed by
checks or drafts (signed as provided in Section 8.06 of these By-Laws) upon the
authorized depositaries of the Corporation and cause to be taken and preserved
proper vouchers for all moneys disbursed.
(d) He shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the Corporation
and of all his transactions as Treasurer, and render a full financial report at
the annual meeting of the shareholders, if called upon to do so.
(e) He shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he may desire with respect to any and all financial transactions
of the Corporation.
(f) He may sign (unless an Assistant Treasurer or the Secretary or an
Assistant Secretary shall have signed) certificates representing stock of the
Corporation the issuance of which shall have been authorized by the Board of
Directors.
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(g) He shall perform, in general, all duties incident to the office of
treasurer and such other duties as may be specified in these By-Laws or as may
be assigned to him from time to time by the Board of Directors, or the
President.
Section 4.10. ADDITIONAL OFFICERS. The Board of Directors may appoint
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate to
any officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
such officer or agent may remove any such subordinate officer or agent appointed
by him, for or without cause.
Section 4.11. SECURITY. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his duties, in such amount and of such character as may
be determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. CERTIFICATES OF STOCK, UNCERTIFICATED SHARES. The shares
of the Corporation shall be represented by certificates, provided that the Board
of Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these By-Laws.
Section 5.02. SIGNATURES; FACSIMILE. All of such signatures on the
certificate may be a facsimile, engraved or printed, to the extent permitted by
law. In case any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 5.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the
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Corporation alleged to have been lost, stolen or destroyed, upon delivery to the
Board of Directors of an affidavit of the owner or owners of such certificate,
setting forth such allegation. The Board of Directors may require the owner of
such lost, stolen or destroyed certificate, or his legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
Section 5.04. TRANSFER OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of California. Subject to the provisions of the Certificate of
Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.
Section 5.05. RECORD DATE. In order to determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof or entitled to give consent to corporate action without a
meeting, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted by the Board of Directors, and which shall not be more than sixty nor
less than ten days before the date of such meeting nor more than sixty days
prior to such action without a meeting. A determination of shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting, provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting. If no record date
has been fixed by the Board of Directors, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the day on which
notice if given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held.
In order that the Corporation may determine the shareholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining shareholders entitled to consent to corporate action in writing
without a meeting, (i) when no prior action by the Board has been taken, shall
be the day on which the first written consent is given, or (ii) when prior
action of the
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Board has been taken, shall be at the close of business on the day on which the
Board adopts the resolution relating thereto, or the sixtieth (60th) day prior
to the date of such other action, whichever is later.
In order that the Corporation may determine the shareholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the shareholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action (other than action by shareholders by written consent without a meeting),
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining shareholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, (i) when no prior action by
the Board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the Board has been taken, shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the date of such other action,
whichever is later.
Section 5.06. REGISTERED SHAREHOLDERS. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. NATURE OF INDEMNITY. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director or officer of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any
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action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he is or was or has agreed
to become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) , judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding had no reasonable cause to believe his conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. SUCCESSFUL DEFENSE. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 hereof or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 6.03. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a director or officer of the Corporation under Section 6.01
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 6.01 hereof. Any indemnification of an employee or
agent of the Corporation under Section 6.01 hereof (unless ordered by a court)
may be made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.01 hereof. Any such
determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of
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directors who were not parties to such action, suit or proceeding, or
(2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or
(3) by the shareholders, with the shares owned by the person to be
indemnified not being entitled to vote thereon, or
(4) by the court in which the proceeding is or was pending upon
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not the
application by the agent, attorney or other person is opposed by the
corporation.
Section 6.04. ADVANCE PAYMENT OF EXPENSES. Expenses (including
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
No indemnification or advance shall be made under this section, except
as provided in Section 6.02 or paragraph (4) of Section 6.03, in any
circumstance where it appears: (1) that it would be inconsistent with a
provision of the articles, bylaws, a resolution of the shareholders, or an
agreement in effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other amounts
were paid, which prohibits or otherwise limits indemnification or (2) that it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 6.05. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Any indemnification of a director or officer of the Corporation under Sections
6.01 and 6.02, or advance of costs, charges and expenses to a director or
officer under Section 6.04 of this Article, shall be made promptly, and in any
event within 30 days, upon the written request of the director or officer. If a
determination by the Corporation that the director or officer is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within 30 days, the
right to indemnification or advances as granted by this Article shall be
enforceable by
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the director or officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6.04 of this Article where the required undertaking, if
any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Section 6.01 of this Article, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel,
and its shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 6.01
of this Article, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel,
and its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the California Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. INSURANCE. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article,
PROVIDED that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire Board of
Directors.
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Section 6.08. SEVERABILITY. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. PRINCIPAL OFFICES. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall likewise fix and designate a
principal business office in the State of California.
Section 7.02. OTHER OFFICES. The Corporation may maintain offices or
places of business at such other locations within or without the State of
California as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. DIVIDENDS. Subject to any applicable provisions of law
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or Committees of the Board of Directors, or by any other person as to
matters the Director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid.
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Section 8.02. RESERVES. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. EXECUTION OF INSTRUMENTS. The President, any Vice
President, the Secretary or the Treasurer may enter into any contract or execute
and deliver any instrument in the name and on behalf of the Corporation. The
Board of Directors or the President may authorize any other officer or agent to
enter into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization may be general or limited to
specific contracts or instruments.
Section 8.04. CORPORATE INDEBTEDNESS. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the President. Such
authorization may be general or confined to specific instances. Loans so
authorized may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors or the President shall authorize. When so authorized by
the Board of Directors or the President, any part of or all the properties,
including contract rights, assets, business or good will of the Corporation,
whether then owned or thereafter acquired, may be mortgaged, pledged,
hypothecated or conveyed or assigned in trust as security for the payment of
such bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation, and of the interest thereon, by instruments executed and
delivered in the name of the Corporation.
Section 8.05. DEPOSITS. Any funds of the Corporation may be deposited
from time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President to make
such determination.
Section 8.06. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.
Section 8.07. SALE, TRANSFER, ETC. OF SECURITIES . To the extent
authorized by the Board of Directors or by the President, any Vice President,
the Secretary or the Treasurer or any other officers designated by the Board of
Directors or the President may sell, transfer, endorse, and assign any shares of
stock, bonds or other securities owned by or held in the name of the
Corporation, and may make, execute and deliver in the name of the Corporation,
under its
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corporate seal, any instruments that may be appropriate to effect any such sale,
transfer, endorsement or assignment.
Section 8.08. VOTING AS SHAREHOLDER. Unless otherwise determined by
resolution of the Board of Directors, the President or any Vice President
shall have full power and authority on behalf of the Corporation to attend
any meeting of shareholders of any corporation in which the Corporation may
hold stock, and to act, vote (or execute proxies to vote) and exercise in
person or by proxy all other rights, powers and privileges incident to the
ownership of such stock. Such officers acting on behalf of the Corporation
shall have full power and authority to execute any instrument expressing
consent to or dissent from any action of any such corporation without a
meeting. The Board of Directors may by resolution from time to time confer
such power and authority upon any other person or persons.
Section 8.09. FISCAL YEAR. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the
Corporation's first fiscal year which shall commence on the date of
incorporation) and shall terminate in each case on December 31.
Section 8.10. SEAL. The seal of the Corporation shall be circular
in form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "California". The form of
such seal shall be subject to alteration by the Board of Directors. The seal
may be used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. BOOKS AND RECORDS: INSPECTION. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of California as may
be determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. AMENDMENT. These By-Laws may be amended, altered or
repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such special
meeting only, notice of such amendment, alteration or repeal is contained in the
notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the shareholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
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ARTICLE X
CONSTRUCTION
Section 10.01. CONSTRUCTION. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions of
the certificate of incorporation of the Corporation as in effect from time to
time, the provisions of such certificate of incorporation shall be controlling.
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Exhibit 3.21
- --------------------------------------------------------------------------------
ADAMS RITE AEROSPACE, INC.
AMENDED AND RESTATED
BY-LAWS
As Adopted on April 23, 1999
- --------------------------------------------------------------------------------
<PAGE>
ADAMS RITE AEROSPACE, INC.
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
ARTICLE I SHAREHOLDERS
Section 1.01. Annual Meetings.....................................................1
Section 1.02. Special Meetings....................................................1
Section 1.03. Notice of Meetings; Waiver..........................................1
Section 1.04. Quorum..............................................................2
Section 1.05. Voting..............................................................2
Section 1.06. Voting by Ballot....................................................3
Section 1.07. Adjournment.........................................................3
Section 1.08. Proxies.............................................................4
Section 1.09. Organization; Procedure.............................................4
Section 1.10. Consent of Shareholders in Lieu of Meeting..........................4
ARTICLE II BOARD OF DIRECTORS
Section 2.01. General Powers......................................................5
Section 2.02. Number and Term of Office...........................................6
Section 2.03. Election of Directors...............................................5
Section 2.04. Annual and Regular Meetings.........................................5
Section 2.05. Special Meetings; Notice............................................6
Section 2.06. Quorum; Voting......................................................6
Section 2.07. Adjournment.........................................................6
Section 2.08. Action Without a Meeting............................................7
Section 2.09. Regulations: Manner of Acting.......................................7
Section 2.10. Action by Telephonic Communications.................................8
Section 2.11. Resignations........................................................7
Section 2.12. Removal of Directors................................................7
Section 2.13. Vacancies and Newly Created Directorships...........................7
Section 2.14. Compensation........................................................8
Section 2.15. Reliance on Accounts and Reports, etc...............................9
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted.....................................................8
Section 3.02. Powers..............................................................8
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Section 3.03. Proceedings.........................................................9
Section 3.04. Quorum and Manner of Acting........................................11
Section 3.05. Action by Telephonic Communications................................10
Section 3.06. Absent or Disqualified Members.....................................10
Section 3.07. Resignations.......................................................10
Section 3.08. Removal............................................................10
Section 3.09. Vacancies..........................................................10
ARTICLE IV OFFICERS
Section 4.01. Number.............................................................10
Section 4.02. Election...........................................................11
Section 4.03. Salaries...........................................................11
Section 4.04. Removal and Resignation; Vacancies.................................11
Section 4.05. Authority and Duties of Officers...................................11
Section 4.06. The President......................................................11
Section 4.07. The Vice President.................................................12
Section 4.08. The Secretary......................................................12
Section 4.09. The Treasurer......................................................13
Section 4.10. Additional Officers................................................13
Section 4.11. Security...........................................................13
ARTICLE V CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares.......................14
Section 5.02. Signatures; Facsimile..............................................14
Section 5.03. Lost, Stolen or Destroyed Certificates.............................14
Section 5.04. Transfer of Stock..................................................14
Section 5.05. Record Date........................................................15
Section 5.06. Registered Shareholders............................................16
Section 5.07. Transfer Agent and Registrar.......................................16
ARTICLE VI INDEMNIFICATION
Section 6.01. Nature of Indemnity................................................16
Section 6.02. Successful Defense.................................................17
Section 6.03. Determination That Indemnification Is Proper.......................17
Section 6.04. Advance Payment of Expenses........................................17
Section 6.05. Procedure for Indemnification of Directors and Officers............18
Section 6.06. Survival; Preservation of Other Rights.............................19
Section 6.07. Insurance..........................................................19
Section 6.08. Severability.......................................................19
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
ARTICLE VII OFFICES
Section 7.01. Principal Office...................................................19
Section 7.02. Other Offices......................................................20
ARTICLE VIII GENERAL PROVISIONS
Section 8.01. Dividends..........................................................20
Section 8.02. Reserves...........................................................20
Section 8.03. Execution of Instruments...........................................20
Section 8.04. Corporate Indebtedness.............................................20
Section 8.05. Deposits...........................................................21
Section 8.06. Checks.............................................................21
Section 8.07. Sale, Transfer, etc. of Securities.................................21
Section 8.08. Voting as Shareholder..............................................21
Section 8.09. Fiscal Year........................................................21
Section 8.10. Seal...............................................................21
Section 8.11. Books and Records: Inspection......................................22
ARTICLE IX AMENDMENT OF BY-LAWS
Section 9.01. Amendment..........................................................22
ARTICLE X CONSTRUCTION
Section 10.01. Construction.......................................................22
</TABLE>
iii
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ADAMS RITE AEROSPACE, INC.
AMENDED AND RESTATED
BY-LAWS
As adopted on April 23, 1999
ARTICLE I
SHAREHOLDERS
Section 1.01. ANNUAL MEETINGS. The annual meeting of the shareholders of
the Corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, either within or without the State of California, and at such date and
hour, as may be fixed from time to time by resolution of the Board of Directors
and set forth in the notice or waiver of notice of the meeting.
Section 1.02. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the President (or, in the event of his absence or
disability, by any Vice President), or by the Board of Directors. A special
meeting shall be called by the President (or, in the event of his absence or
disability, by any Vice President), or by the Secretary, immediately upon
receipt of a written request therefor by shareholders holding in the aggregate
not less than 10% of the outstanding shares of the Corporation at the time
entitled to vote at any meeting of the shareholders. If such officers or the
Board of Directors shall fail to call such meeting within 20 days after receipt
of such request, any shareholder executing such request may call such meeting to
be held at a time requested by the person or persons calling the meeting, not
less than 35 nor more than 60 days after the receipt of the request. Such
special meetings of the shareholders shall be held at such places, within or
without the State of California, as shall be specified in the respective notices
or waivers of notice thereof.
Section 1.03. NOTICE OF MEETINGS; WAIVER. The Secretary or any Assistant
Secretary shall cause written notice of the place, date and hour of each meeting
of the shareholders, and, (i) in the case of a special meeting, the general
nature of the business to be transacted, or (ii) in the case of the annual
meeting those matters which the Board of Directors, at the time of giving the
notice, intends to present for action by the shareholders, to be given
personally or by first-class mail, not less than ten nor more than sixty days
prior to the meeting, to each shareholder of record entitled to vote at such
meeting. The notice of any meeting at which directors are to be elected shall
include the name of any nominee or nominees which, at the time of the notice,
management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of such
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
<PAGE>
1900 of such Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares pursuant to Section 2007 of such
Code, the notice shall also state the general nature of such proposal.
If such notice is mailed, it shall be deemed to have been given to a
shareholder when deposited in the United States mail, postage prepaid, directed
to the shareholder at his address as it appears on the record of shareholders of
the Corporation, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address. If no such address appears
on the corporation's books or has been so given, notice shall be deemed to have
been given if sent by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where such
office is located.
If any notice addressed to a shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at such address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder upon written
demand of the shareholder at the principal executive office of the corporation
for a period of one year from the date of the giving of such notice. Such
further notice shall be given as may be required by law.
No notice of any meeting of shareholders need be given to any shareholder
who submits a signed waiver of notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in a written waiver of
notice. The attendance of any shareholder at a meeting of shareholders shall
constitute a waiver of notice of such meeting, except when the shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, Assistant Secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.
Section 1.04. QUORUM. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
shareholders shall constitute a quorum for the transaction of business at such
meeting.
Section 1.05. VOTING. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of shareholders
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<PAGE>
shall be entitled to one vote for each share outstanding in his name on the
books of the Corporation at the close of business on such record date. If no
record date has been fixed, then every holder of record of shares entitled to
vote at a meeting of shareholders shall be entitled to one vote for each share
of stock standing in his name on the books of the Corporation at the close of
business on the day next preceding the day on which notice of the meeting is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
Any shareholder entitled to vote on any matter (other than the election of
directors) may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such shareholder is entitled to vote. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and voting on any matter (other than the election of
directors), provided that the shares voting affirmatively must also constitute
at least a majority of the required quorum, shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the California General Corporation Law or the articles of
incorporation.
At a shareholders' meeting involving the election of directors, no
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of the shareholder's shares) unless such
candidate or candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such notice, then every shareholder entitled to vote
may cumulate such shareholder's votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
Section 1.06. VOTING BY BALLOT. No vote of the shareholders need be taken
by ballot unless required by law (except that all elections for directors must
be by ballot upon demand by a shareholder at the meeting and before the voting
begins). Any vote which need not be taken by ballot may be conducted by voice
vote or in any manner approved by the meeting.
Section 1.07. ADJOURNMENT. If a quorum is not present at any meeting of the
shareholders, the shareholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the shareholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice
of the adjourned
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meeting, conforming to the requirements of Section 1.03 hereof, shall be given
to each shareholder of record entitled to vote at such meeting. At any adjourned
meeting at which a quorum is present, any business may be transacted that might
have been transacted on the original date of the meeting.
Section 1.08. PROXIES. Any shareholder entitled to vote at any meeting of
the shareholders or to express consent to or dissent from corporate action
without a meeting may authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. A shareholder may
authorize a valid proxy by executing a written instrument signed by such
shareholder, or by causing his or her signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature, or
by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission to the person designated as the holder of
the proxy, a proxy solicitation firm or a like authorized agent. A proxy must be
filed with the Secretary of the corporation. No such proxy shall be voted or
acted upon after the expiration of eleven months from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A shareholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary. Proxies by
telegram, cablegram or other electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the shareholder.
Any copy, facsimile telecommunication or other reliable reproduction of a
writing or transmission created pursuant to this section may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 1.09. ORGANIZATION; PROCEDURE. At every meeting of shareholders the
presiding officer shall be the President or, in the event of his absence or
disability, a presiding officer chosen by a majority of the shareholders present
in person or by proxy. The Secretary, or in the event of his absence or
disability, the Assistant Secretary, if any, or if there be no Assistant
Secretary, in the absence of the Secretary, an appointee of the presiding
officer, shall act as Secretary of the meeting. The order of business and all
other matters of procedure at every meeting of shareholders may be determined by
such presiding officer.
Section 1.10. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. To the fullest
extent permitted by law, whenever the vote of shareholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of shareholders, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take
4
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such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be filed with the Secretary of the corporation and
shall be maintained in the corporate records. In the case of election of
directors, such consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy not
created by removal and not filled by the directors by the written consent of the
holders of a majority of the outstanding shares entitled to vote for the
election of directors.
Every written consent shall bear the date of signature of each shareholder
or member who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by law to the
Corporation, written consents signed by a sufficient number of holders or
members to take action are delivered to the Corporation. Any shareholder giving
a written consent, or the shareholder's proxy holders, or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holder, may revoke the consent by a writing received by the Secretary of the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. GENERAL POWERS. Except as may otherwise be provided by law,
by the Certificate of Incorporation or by these By-Laws, the property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and the Board of Directors may exercise all the powers of
the Corporation.
Section 2.02. NUMBER AND TERM OF OFFICE. The number of Directors
constituting the entire Board of Directors shall be not less than one nor more
than thirteen, which number may be modified from time to time by resolution of
the Board of Directors, but in no event shall the number of Directors be less
than one. Each Director (whenever elected) shall hold office until his successor
has been duly elected and qualified, or until his earlier death, resignation or
removal.
Section 2.03. ELECTION OF DIRECTORS. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the shareholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
shareholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election.
5
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Section 2.04. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the shareholders at the
place of such annual meeting of the shareholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of California) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him at his usual place
of business, or shall be delivered to him personally. Notice of such action need
not be given to any Director who attends the first regular meeting after such
action is taken without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting.
Section 2.05. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors shall be held whenever called by the President or, in the event of his
absence or disability, by any Vice President, at such place (within or without
the State of California), date and hour as may be specified in the respective
notices or waivers of notice of such meetings. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Special meetings of the Board of Directors may be called on 24 hours'
notice, if notice is given to each Director personally or by telephone or
telegram, or on five days' notice, if notice is mailed to each Director,
addressed to him at his usual place of business. Notice of any special meeting
need not be given to any Director who attends such meeting without protesting
the lack of notice to him, prior to or at the commencement of such meeting, or
to any Director who submits a signed waiver of notice, whether before or after
such meeting, and any business may be transacted thereat.
Section 2.06. QUORUM; VOTING. At all meetings of the Board of Directors,
the presence of a majority of the total authorized number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the vote of a majority of the Directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors, subject
to the provisions of Section 310 of the Corporations Code of California
(approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 (appointment of committees),
and Section 317 (e) (indemnification of directors). A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
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Section 2.07. ADJOURNMENT. A majority of the Directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the meeting is adjourned for more than twenty-four (24) hours or unless the time
and place of the adjourned meeting are not announced at the time of adjournment,
in which case notice conforming to the requirements of Section 2.05 shall be
given to each Director.
Section 2.08. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board.
Section 2.09. REGULATIONS: MANNER OF ACTING. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board of
Directors may adopt such rules and regulations for the conduct of meetings of
the Board of Directors and for the management of the property, affairs and
business of the Corporation as the Board of Directors may deem appropriate. The
Directors shall act only as a Board, and the individual Directors shall have no
power as such.
Section 2.10. ACTION BY TELEPHONIC COMMUNICATIONS. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting.
Section 2.11. RESIGNATIONS. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.12. REMOVAL OF DIRECTORS. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director, cast at a special meeting of shareholders
called for the purpose, or by court order. Any vacancy in the Board of Directors
caused by any such removal may be filled at such meeting by the shareholders
entitled to vote for the election of the Director so removed. If such
shareholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
2.13 of these By-Laws.
Section 2.13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. If any vacancies
shall occur in the Board of Directors, by reason of death, resignation, removal
or otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue
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to act, and such vacancies and newly created directorships may be filled by a
majority of the Directors then in office, although less than a quorum. A
Director elected to fill a vacancy or a newly created directorship shall hold
office until his successor has been elected and qualified or until his earlier
death, resignation or removal. Any such vacancy or newly created directorship
may also be filled at any time by vote of the shareholders.
Section 2.14. COMPENSATION. The amount, if any, which each Director shall
be entitled to receive as compensation for his services as such shall be fixed
from time to time by resolution of the Board of Directors.
Section 2.15. RELIANCE ON ACCOUNTS AND REPORTS, ETC. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or Committees designated by the Board of Directors, or by any other person as to
the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. HOW CONSTITUTED. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more Committees,
including an Executive Committee, each such Committee to consist of two or more
Directors as from time to time may be fixed by the Board of Directors. The Board
of Directors may designate one or more Directors as alternate members of any
such Committee, who may replace any absent or disqualified member or members at
any meeting of such Committee. Thereafter, members (and alternate members, if
any) of each such Committee may be designated at the annual meeting of the Board
of Directors. Any such Committee may be abolished or re-designated from time to
time by the Board of Directors. Each member (and each alternate member) of any
such Committee (whether designated at an annual meeting of the Board of
Directors or to fill a vacancy or otherwise) shall hold office until his
successor shall have been designated or until he shall cease to be a Director,
or until his earlier death, resignation or removal.
Section 3.02. POWERS. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided
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by resolution or resolutions of the Board of Directors. Neither the Executive
Committee nor any such other Committee shall have the power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee may,
to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
(b) to adopt an agreement of merger or consolidation,
(c) to recommend to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets,
(d) to recommend to the shareholders a dissolution of the Corporation or a
revocation of a dissolution,
(e) the approval of any action which, under the General Corporation Law of
California, also requires shareholders' approval or approval of the outstanding
shares,
(f) the filling of vacancies on the Board of Directors or in any committee,
(g) the fixing of compensation of the directors for serving on the board or
on any committee,
(h) the amendment or repeal of bylaws or the adoption of new bylaws,
(i) the amendment or repeal of any resolution of the Board of Directors
which by its express terms is not so amendable or repealable, or
(j) the appointment of any other committees of the Board of Directors or
the members thereof.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
Section 3.03. PROCEEDINGS. Meetings and action of committees shall be
governed by, and held and taken in accordance with, the provisions of Article II
of these bylaws, with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members, except that the time of regular meetings of
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committees may be determined by resolution of the Board of Directors as well as
the committee, special meetings of committees may also be called by resolution
of the Board of Directors and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. Each such Committee may fix its own rules of
procedure not inconsistent with the provisions of these bylaws and may meet at
such place (within or without the State of California), at such time and upon
such notice, if any, as it shall determine from time to time. Each such
Committee shall keep minutes of its proceedings and shall report such
proceedings to the Board of Directors at the meeting of the Board of Directors
next following any such proceedings.
Section 3.04. QUORUM AND MANNER OF ACTING. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action required or permitted to be taken at any meeting of any such
Committee may be taken without a meeting, if all members of such Committee shall
consent to such action in writing and such writing or writings are filed with
the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 3.05. ACTION BY TELEPHONIC COMMUNICATIONS. Members of any Committee
designated by the Board of Directors may participate in a meeting of such
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.
Section 3.06. ABSENT OR DISQUALIFIED MEMBERS. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Section 3.07. RESIGNATIONS. Any member (and any alternate member) of any
Committee may resign at any time by delivering a written notice of resignation,
signed by such member, to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 3.08. REMOVAL. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by resolution
adopted by a majority of the whole Board of Directors.
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Section 3.09. VACANCIES. If any vacancy shall occur in any Committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
There may also be a Chairman of the Board of Directors, one or more Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers, as the Board of Directors may determine. Any number of offices may
be held by the same person. No officer need be a Director of the Corporation.
Section 4.02. ELECTION. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his successor has been elected
and qualified, or until his earlier death, resignation or removal.
Section 4.03. SALARIES. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4.04. REMOVAL AND RESIGNATION; VACANCIES. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
Section 4.05. AUTHORITY AND DUTIES OF OFFICERS. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.06. THE PRESIDENT. The President shall preside at all meetings of
the shareholders and directors at which he is present, shall be the chief
executive officer and the chief operating officer of the Corporation, shall have
general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the
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Board of Directors are carried into effect. He shall manage and administer the
Corporation's business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating officer of a corporation. He shall have the
authority to sign, in the name and on behalf of the Corporation, checks, orders,
contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and together with the Secretary
or an Assistant Secretary, conveyances of real estate and other documents and
instruments to which the seal of the Corporation is affixed. He shall have the
authority to cause the employment or appointment of such employees and agents of
the Corporation as the conduct of the business of the Corporation may require,
to fix their compensation, and to remove or suspend any employee or agent
elected or appointed by the President or the Board of Directors. The President
shall perform such other duties and have such other powers as the Board of
Directors or the Chairman may from time to time prescribe.
Section 4.07. THE VICE PRESIDENT. Each Vice President shall perform such
duties and exercise such powers as may be assigned to him from time to time by
the President. In the absence of the President, the duties of the President
shall be performed and his powers may be exercised by such Vice President as
shall be designated by the President, or failing such designation, such duties
shall be performed and such powers may be exercised by each Vice President in
the order of their earliest election to that office; subject in any case to
review and superseding action by the President.
Section 4.08. THE SECRETARY. The Secretary shall have the following powers
and duties:
(a) He shall keep or cause to be kept a record of all the proceedings of
the meetings of the shareholders and of the Board of Directors in books provided
for that purpose.
(b) He shall cause all notices to be duly given in accordance with the
provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution of
the Board of Directors, he shall furnish a copy of such resolution to the
members of such Committee.
(d) He shall be the custodian of the records and of the seal of the
Corporation and cause such seal (or a facsimile thereof) to be affixed to all
certificates representing shares of the Corporation prior to the issuance
thereof and to all instruments the execution of which on behalf of the
Corporation under its seal shall have been duly authorized in accordance with
these By-Laws, and when so affixed he may attest the same.
(e) He shall properly maintain and file all books, reports, statements,
certificates and all other documents and records required by law, the
Certificate of Incorporation
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or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the Corporation
and shall cause the stock and transfer books to be kept in such manner as to
show at any time the number of shares of stock of the Corporation of each class
issued and outstanding, the names (alphabetically arranged) and the addresses of
the holders of record of such shares, the number of shares held by each holder
and the date as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or
Assistant Secretary shall have signed) certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board of
Directors.
(h) He shall perform, in general, all duties incident to the office of
secretary and such other duties as may be specified in these By-Laws or as may
be assigned to him from time to time by the Board of Directors, or the
President.
Section 4.09. THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall have the following powers and duties:
(a) He shall have charge and supervision over and be responsible for the
moneys, securities, receipts and disbursements of the Corporation, and shall
keep or cause to be kept full and accurate records of all receipts of the
Corporation.
(b) He shall cause the moneys and other valuable effects of the Corporation
to be deposited in the name and to the credit of the Corporation in such banks
or trust companies or with such bankers or other depositaries as shall be
selected in accordance with Section 8.05 of these By-Laws.
(c) He shall cause the moneys of the Corporation to be disbursed by checks
or drafts (signed as provided in Section 8.06 of these By-Laws) upon the
authorized depositaries of the Corporation and cause to be taken and preserved
proper vouchers for all moneys disbursed.
(d) He shall render to the Board of Directors or the President, whenever
requested, a statement of the financial condition of the Corporation and of all
his transactions as Treasurer, and render a full financial report at the annual
meeting of the shareholders, if called upon to do so.
(e) He shall be empowered from time to time to require from all officers or
agents of the Corporation reports or statements giving such information as he
may desire with respect to any and all financial transactions of the
Corporation.
(f) He may sign (unless an Assistant Treasurer or the Secretary or an
Assistant Secretary shall have signed) certificates representing stock of the
Corporation the issuance of which shall have been authorized by the Board of
Directors.
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(g) He shall perform, in general, all duties incident to the office of
treasurer and such other duties as may be specified in these By-Laws or as may
be assigned to him from time to time by the Board of Directors, or the
President.
Section 4.10. ADDITIONAL OFFICERS. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors. The Board of Directors from time to time may delegate to any
officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
such officer or agent may remove any such subordinate officer or agent appointed
by him, for or without cause.
Section 4.11. SECURITY. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his duties, in such amount and of such character as may be
determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. CERTIFICATES OF STOCK, UNCERTIFICATED SHARES. The shares of
the Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these By-Laws.
Section 5.02. SIGNATURES; FACSIMILE. All of such signatures on the
certificate may be a facsimile, engraved or printed, to the extent permitted by
law. In case any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 5.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the
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Corporation alleged to have been lost, stolen or destroyed, upon delivery
to the Board of Directors of an affidavit of the owner or owners of such
certificate, setting forth such allegation. The Board of Directors may require
the owner of such lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any such new
certificate.
Section 5.04. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of California. Subject to the provisions of the Certificate of
Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.
Section 5.05. RECORD DATE. In order to determine the shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof or entitled to give consent to corporate action without a meeting, the
Board of Directors may fix, in advance, a record date, which record date shall
not precede the date on which the resolution fixing the record date is adopted
by the Board of Directors, and which shall not be more than sixty nor less than
ten days before the date of such meeting nor more than sixty days prior to such
action without a meeting. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any adjournment
of the meeting, provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting. If no record date has been fixed by the
Board of Directors, the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice if given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
In order that the Corporation may determine the shareholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining shareholders entitled to consent to corporate action in writing
without a meeting, (i) when no prior action by the Board has been taken, shall
be the day on which the first written consent is given, or (ii) when prior
action of the
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Board has been taken, shall be at the close of business on the day
on which the Board adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such other action, whichever is later.
In order that the Corporation may determine the shareholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the shareholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action
(other than action by shareholders by written consent without a meeting), the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty days prior to such action. If no record
date is fixed, the record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, (i) when no prior action by the Board
has been taken, shall be the day on which the first written consent is given, or
(ii) when prior action of the Board has been taken, shall be at the close of
business on the day on which the Board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such other action, whichever is
later.
Section 5.06. REGISTERED SHAREHOLDERS. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. NATURE OF INDEMNITY. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director or officer of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any
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action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he is or was or has agreed
to become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) , judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding had no reasonable cause to believe his conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
6.01 hereof or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 6.03. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a director or officer of the Corporation under Section 6.01
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 6.01 hereof. Any indemnification of an employee or
agent of the Corporation under Section 6.01 hereof (unless ordered by a court)
may be made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.01 hereof. Any such
determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum consisting of
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directors who were not parties to such action, suit or proceeding, or
(2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or
(3) by the shareholders, with the shares owned by the person to be
indemnified not being entitled to vote thereon, or
(4) by the court in which the proceeding is or was pending upon application
made by the corporation or the agent or the attorney or other person rendering
services in connection with the defense, whether or not the application by the
agent, attorney or other person is opposed by the corporation.
Section 6.04. ADVANCE PAYMENT OF EXPENSES. Expenses (including attorneys'
fees) incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
No indemnification or advance shall be made under this section, except as
provided in Section 6.02 or paragraph (4) of Section 6.03, in any circumstance
where it appears: (1) that it would be inconsistent with a provision of the
articles, bylaws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification or (2) that it would be
inconsistent with any condition expressly imposed by a court in approving a
settlement.
Section 6.05. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any
indemnification of a director or officer of the Corporation under Sections 6.01
and 6.02, or advance of costs, charges and expenses to a director or officer
under Section 6.04 of this Article, shall be made promptly, and in any event
within 30 days, upon the written request of the director or officer. If a
determination by the Corporation that the director or officer is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within 30 days, the
right to indemnification or advances as granted by this Article shall be
enforceable by
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the director or officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6.04 of this Article where the required undertaking, if
any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Section 6.01 of this Article, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel,
and its shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 6.01
of this Article, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel,
and its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the California Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. INSURANCE. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article,
PROVIDED that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire Board of
Directors.
19
<PAGE>
Section 6.08. SEVERABILITY. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. PRINCIPAL OFFICES. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall likewise fix and designate a
principal business office in the State of California.
Section 7.02. OTHER OFFICES. The Corporation may maintain offices or places
of business at such other locations within or without the State of California as
the Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. DIVIDENDS. Subject to any applicable provisions of law and
the Certificate of Incorporation, dividends upon the shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting of
the Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee designated
by the Board of Directors shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers or employees, or
Committees of the Board of Directors, or by any other person as to matters the
Director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Corporation, as to the value and amount of the assets, liabilities and/or
net profits of the Corporation, or any other facts pertinent to the existence
and amount of surplus or other funds from which dividends might properly be
declared and paid.
20
<PAGE>
Section 8.02. RESERVES. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. EXECUTION OF INSTRUMENTS. The President, any Vice President,
the Secretary or the Treasurer may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. The Board
of Directors or the President may authorize any other officer or agent to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization may be general or limited to
specific contracts or instruments.
Section 8.04. CORPORATE INDEBTEDNESS. No loan shall be contracted on behalf
of the Corporation, and no evidence of indebtedness shall be issued in its name,
unless authorized by the Board of Directors or the President. Such authorization
may be general or confined to specific instances. Loans so authorized may be
effected at any time for the Corporation from any bank, trust company or other
institution, or from any firm, corporation or individual. All bonds, debentures,
notes and other obligations or evidences of indebtedness of the Corporation
issued for such loans shall be made, executed and delivered as the Board of
Directors or the President shall authorize. When so authorized by the Board of
Directors or the President, any part of or all the properties, including
contract rights, assets, business or good will of the Corporation, whether then
owned or thereafter acquired, may be mortgaged, pledged, hypothecated or
conveyed or assigned in trust as security for the payment of such bonds,
debentures, notes and other obligations or evidences of indebtedness of the
Corporation, and of the interest thereon, by instruments executed and delivered
in the name of the Corporation.
Section 8.05. DEPOSITS. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President to make
such determination.
Section 8.06. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.
Section 8.07. SALE, TRANSFER, ETC. OF SECURITIES . To the extent authorized
by the Board of Directors or by the President, any Vice President, the Secretary
or the Treasurer or any other officers designated by the Board of Directors or
the President may sell, transfer, endorse, and assign any shares of stock, bonds
or other securities owned by or held in the name of the Corporation, and may
make, execute and deliver in the name of the Corporation, under its
21
<PAGE>
corporate seal, any instruments that may be appropriate to effect any such sale,
transfer, endorsement or assignment.
Section 8.08. VOTING AS SHAREHOLDER. Unless otherwise determined by
resolution of the Board of Directors, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend any meeting
of shareholders of any corporation in which the Corporation may hold stock, and
to act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock.
Such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. FISCAL YEAR. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. SEAL. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "California". The form of such seal shall be
subject to alteration by the Board of Directors. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or reproduced, or may be used
in any other lawful manner.
Section 8.11. BOOKS AND RECORDS: INSPECTION. Except to the extent otherwise
required by law, the books and records of the Corporation shall be kept at such
place or places within or without the State of California as may be determined
from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. AMENDMENT. These By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors at any
special or regular meeting of the Board if, in the case of such special meeting
only, notice of such amendment, alteration or repeal is contained in the notice
or waiver of notice of such meeting; or
(b) at any regular or special meeting of the shareholders if, in the case
of such special meeting only, notice of such amendment, alteration or repeal is
contained in the notice or waiver of notice of such meeting.
22
<PAGE>
ARTICLE X
CONSTRUCTION
Section 10.01. CONSTRUCTION. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions of
the certificate of incorporation of the Corporation as in effect from time to
time, the provisions of such certificate of incorporation shall be controlling.
23
<PAGE>
Exhibit 4.2
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as of
April 23, 1999 among Adams Rite Aerospace, Inc. a California corporation, ZMP,
Inc. a California corporation (collectively, the "GUARANTEEING SUBSIDIARIES,"
and, each a "GUARANTEEING SUBSIDIARY"), each a subsidiary of TransDigm Inc., a
Delaware corporation (the "COMPANY"), the Company, TransDigm Holding Company, a
Delaware corporation ("HOLDINGS") and Marathon Power Technologies Company, a
Delaware corporation ("MARATHON" and together with Holdings and the Guaranteeing
Subsidiaries, the "GUARANTORS") and State Street Bank and Trust Company, as
trustee under the indenture referred to below (the "TRUSTEE").
W I T N E S S E T H
WHEREAS, the Company, Holdings and Marathon have heretofore executed
and delivered to the Trustee an indenture (the "INDENTURE"), dated as of
December 3, 1998 providing for the issuance of an aggregate principal amount of
up to $200.0 million of 10 3/8% Senior Subordinated Notes due 2008 (the "Notes")
and the guarantees thereof by Holdings and Marathon;
WHEREAS, the Indenture provides that under certain circumstances newly
acquired Subsidiaries of the Company shall execute and deliver to the Trustee a
supplemental indenture pursuant to which such Subsidiaries shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth therein (the "GUARANTEE"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, each
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees
as follows:
(a) Along with all Guarantors named in the Indenture, to jointly and
severally Guarantee to each Holder of a Note authenticated and
delivered by the
1
<PAGE>
Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of the Indenture,
the Notes or the obligations of the Company hereunder or
thereunder, that:
(i) the principal of and interest on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of and interest on the Notes, if any, if
lawful, and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that same will
be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or
any performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay
the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Notes or the
Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any
provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor.
(c) The following is hereby waived: diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency
or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands
whatsoever.
(d) This Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the
Indenture or pursuant to Section 6 hereof.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors, or any
custodian, Trustee, liquidator or other similar official acting
in relation to either the Company or the Guarantors, any amount
paid by either to the Trustee or such Holder, this Guarantee, to
the extent theretofore discharged, shall be reinstated in full
force and effect.
2
<PAGE>
(f) Each Guaranteeing Subsidiary shall not be entitled to any right
of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in
Article 6 of the Indenture for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 of the
Indenture, such obligations (whether or not due and payable)
shall forthwith become due and payable by the Guarantors for the
purpose of this Guarantee.
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does
not impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 11.03 of the Indenture, after giving effect
to any maximum amount and any other contingent and fixed
liabilities that are relevant under any applicable Bankruptcy or
fraudulent conveyance laws, and after giving effect to any
collections from, rights to receive contribution from or payments
made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under Article 11 of the
Indenture, the obligations of each Guaranteeing Subsidiary shall
be limited to the maximum amount as will result in the
obligations of such Guarantor under its Guarantee not
constituting a fraudulent transfer or conveyance.
3. SUBORDINATION. The obligations of each Guaranteeing Subsidiary
under its guarantee pursuant to this Supplemental Indenture shall be junior and
subordinated to the Senior Debt of each such Guaranteeing Subsidiary on the same
basis as the Notes are junior and subordinated to the Senior Debt of the
Company. For the purposes of the foregoing sentence, the Trustee and the Holders
shall have the right to receive and/or retain payments by each Guaranteeing
Subsidiary only at such time as they may receive and/or retain payments in
respect of the notes pursuant to the indenture, including article 10 thereof.
4. EXECUTION AND DELIVERY. Each guaranteeing subsidiary agrees that
the guarantees shall remain in full force and effect notwithstanding any failure
to endorse on each note a notation of such guarantee.
5. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
Each Guaranteeing Subsidiary will be subject to Section 11.05 of the Indenture.
6. RELEASES. In the event of a sale or other disposition of all of the
assets of any guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all to the
3
<PAGE>
capital stock of any Guarantor, then such guarantor (in the event of a sale or
other disposition, by way of merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor) will be released and relieved of any obligations under
its Guarantee; PROVIDED that the net proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture,
including without limitation section 4.10 of the Indenture. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of the indenture, including without limitation
Section 4.10 of the Indenture, the Trustee shall execute any documents
reasonably required in order to evidence the release of any Guarantor from its
obligations under its Guarantee.
(a) Any Guarantor not released from its obligations under its
Guarantee shall remain liable for the full amount of principal of
and interest on the and for the other obligations of any
guarantor under the indenture as provided in Article 10 of the
indenture.
7. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of either Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
9. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiaries and the Company.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: April 23, 1999
TRANSDIGM, INC.
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
TRANSDIGM HOLDING COMPANY
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
ADAMS RITE AEROSPACE, INC.
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
ZMP, INC.
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
<PAGE>
STATE STREET BANK AND TRUST COMPANY, as
Trustee
By: /s/ Michael Hopkins
-----------------------------------------
Name: Michael Hopkins
Title: Vice President
<PAGE>
Exhibit 4.11
SECOND AMENDMENT TO CREDIT AGREEMENT
SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of April 23, 1999, among TRANSDIGM HOLDING COMPANY, a Delaware
corporation ("Holdings"), TRANSDIGM INC., a Delaware corporation (the
"Borrower"), the various lending institutions party to the Credit Agreement
referred to below (each, a "Lender" and, collectively, the "Lenders"), and
BANKERS TRUST COMPANY, as Administrative Agent for the Lenders (the
"Administrative Agent"). All capitalized terms used herein and not otherwise
defined herein shall have the meanings provided such terms in the Credit
Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Lenders and the
Administrative Agent are parties to a Credit Agreement, dated as of December 3,
1998 (as amended through, but not including, the date hereof, the "Credit
Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement
as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENTS TO CREDIT AGREEMENT.
1. Section 1.01 of the Credit Agreement is hereby amended by
deleting clause (a) thereof in its entirety and inserting the following new
clause (a) in lieu thereof:
"(a) Subject to and upon the terms and conditions set forth
herein, (A) each Lender with an A Term Loan Commitment on the Initial
Borrowing Date severally agrees to make on such date, and (B) each
Lender with an A Term Loan Commitment on the AR Acquisition Date
severally agrees to make on such date, in each case, a term loan (each,
an "A Term Loan" and, collectively, the "A Term Loans") to the
Borrower, which A Term Loans: (i) shall be incurred pursuant to two
single drawings, the first of which shall be on the Initial Borrowing
Date and the second of which shall be on the AR Acquisition Date; (ii)
shall be denominated in U.S. Dollars; (iii) except as hereafter
provided, shall, at the option of the Borrower, be incurred and
maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, provided that (x) all A Term Loans made as part of the same
Borrowing shall, unless otherwise specifically provided herein, consist
of A Term Loans of the same Type and (y) unless the Administrative
Agent has determined that the Syndication Date has occurred (at which
time this clause (y) shall no longer be applicable), no more than four
Borrowings of A Term Loans to be maintained as Eurodollar Loans may be
incurred prior to the 60th day after the Initial Borrowing Date (each
of which Borrowings of Eurodollar Loans may only have an Interest
Period of (A) in the case of the first two such Borrowings, seven days,
and (B) in the case of the remaining two Borrowings, one month, and the
first of which Borrowings may only be made on the Initial Borrowing
Date or on or prior to the sixth Business Day after the
<PAGE>
Initial Borrowing Date and with each such Borrowing made thereafter to
be made only on the last day of the Interest Period of the immediately
preceding Borrowing); and (iv) shall not exceed for any such Lender at
the time of incurrence thereof on the Initial Borrowing Date or the AR
Acquisition Date, as the case may be, that aggregate principal amount
as is equal to the A Term Loan Commitment of such Lender as in effect
on the Initial Borrowing Date or the AR Acquisition Date, as the case
may be (before giving effect to any reductions thereto on such
respective date pursuant to Section 3.03(b)). Once repaid, A Term Loans
incurred hereunder may not be reborrowed."
2. Section 1.01 of the Credit Agreement is hereby further
amended by deleting clause (b) thereof in its entirety and inserting the
following new clause (b) in lieu thereof:
"(b) Subject to and upon the terms and conditions set forth
herein, (A) each Lender with a B Term Loan Commitment on the Initial
Borrowing Date severally agrees to make on such date, and (B) each
Lender with a B Term Loan Commitment on the AR Acquisition Date
severally agrees to make on such date, in each case, a term loan (each,
a "B Term Loan" and, collectively, the "B Term Loans" and, together
with the A Term Loans, the "Term Loans") to the Borrower, which B Term
Loans: (i) shall be incurred pursuant to two single drawings, the first
of which shall be on the Initial Borrowing Date and the second of which
shall be on the AR Acquisition Date; (ii) shall be denominated in U.S.
Dollars; (iii) except as hereafter provided, shall, at the option of
the Borrower, be incurred and maintained as, and/or converted into,
Base Rate Loans or Eurodollar Loans, provided that (x) all B Term Loans
made as part of the same Borrowing shall, unless otherwise specifically
provided herein, consist of B Term Loans of the same Type and (y)
unless the Administrative Agent has determined that the Syndication
Date has occurred (at which time this clause (y) shall no longer be
applicable), no more than four Borrowings of B Term Loans to be
maintained as Eurodollar Loans may be incurred prior to the 60th day
after the Initial Borrowing Date (each of which Borrowings of
Eurodollar Loans (I) may only have the same Interest Period as is then
permitted for a Borrowing of A Term Loans that are maintained as
Eurodollar Loans and (II) shall begin and end on the same day as a
Borrowing of A Term Loans that are maintained as Eurodollar Loans); and
(iv) shall not exceed for any such Lender at the time of incurrence
thereof on the Initial Borrowing Date or the AR Acquisition Date, as
the case may be, that aggregate principal amount as is equal to the B
Term Loan Commitment of such Lender as in effect on the Initial
Borrowing Date or the AR Acquisition Date, as the case may be (before
giving effect to any reductions thereto on such respective date
pursuant to Section 3.03(c)). Once repaid, B Term Loans incurred
hereunder may not be reborrowed."
3. Section 3.03 of the Credit Agreement is hereby amended by
deleting clauses (b) and (c) thereof in their entirety and inserting the
following new clauses (b) and (c), respectively, in lieu thereof:
"(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total A Term Loan Commitment (and
the A Term Loan
2
<PAGE>
Commitment of each Lender) shall terminate in its entirety on the
Initial Borrowing Date (after giving effect to the incurrence of A
Term Loans on such date); provided that, notwithstanding the
foregoing, the portion of the Total A Term Loan Commitment effected
pursuant to the Second Amendment shall terminate in its entirety on
the AR Acquisition Date (after giving effect to the incurrence of A
Term Loans on such date).
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total B Term Loan Commitment (and
the B Term Loan Commitment of each Lender) shall terminate in its
entirety on the Initial Borrowing Date (after giving effect to the
incurrence of B Term Loans on such date); provided that,
notwithstanding the foregoing, the portion of the Total B Term Loan
Commitment effected pursuant to the Second Amendment shall terminate in
its entirety on the AR Acquisition Date (after giving effect to the
incurrence of B Term Loans on such date)."
4. Section 4.02 of the Credit Agreement is hereby amended by
deleting the table appearing in clause (b) thereof in its entirety and inserting
the following new table in lieu thereof:
<TABLE>
<CAPTION>
"TRANCHE A SCHEDULED REPAYMENT DATE AMOUNT
- ----------------------------------- ----------
<S> <C>
August 15, 1999 $4,133,333
November 15, 1999 $1,705,000
February 15, 2000 $1,705,000
May 15, 2000 $1,705,000
August 15, 2000 $1,705,000
November 15, 2000 $2,583,333
February 15, 2001 $2,583,333
May 15, 2001 $2,583,334
August 15, 2001 $2,583,333
November 15, 2001 $2,583,333
February 15, 2002 $2,583,334
May 15, 2002 $2,583,333
August 15, 2002 $2,583,333
November 15, 2002 $3,461,667
February 15, 2003 $3,461,667
May 15, 2003 $3,461,667
August 15, 2003 $3,461,666
November 15, 2003 $3,306,667
February 15, 2004 $3,306,667
May 15, 2004 $3,306,667
August 15, 2004 $3,306,667
A Term Loan Maturity Date $3,306,666".
</TABLE>
3
<PAGE>
5. Section 4.02 of the Credit Agreement is hereby further
amended by deleting the table appearing in clause (c) thereof in its entirety
and inserting the following new table in lieu thereof:
<TABLE>
<CAPTION>
"TRANCHE B SCHEDULED REPAYMENT DATE AMOUNT
- ----------------------------------- --------
<S> <C>
August 15, 1999 $310,000
November 15, 1999 $310,000
February 15, 2000 $155,000
May 15, 2000 $155,000
August 15, 2000 $155,000
November 15, 2000 $155,000
February 15, 2001 $155,000
May 15, 2001 $155,000
August 15, 2001 $155,000
November 15, 2001 $155,000
February 15, 2002 $155,000
May 15, 2002 $155,000
August 15, 2002 $155,000
November 15, 2002 $155,000
February 15, 2003 $155,000
May 15, 2003 $155,000
August 15, 2003 $155,000
November 15, 2003 $155,000
February 15, 2004 $155,000
May 15, 2004 $155,000
August 15, 2004 $155,000
November 15, 2004 $155,000
February 15, 2005 $9,713,333
May 15, 2005 $9,713,333
August 15, 2005 $9,713,334
November 15, 2005 $9,713,333
February 15, 2006 $9,713,333
B Term Loan Maturity Date $9,713,334".
</TABLE>
6. Section 4.02 of the Credit Agreement is hereby further
amended by inserting the following new clause (m) at the end thereof:
"(m) In addition to any other mandatory repayments pursuant to
this Section 4.02, on any date upon which Holdings or any of its
Subsidiaries receives proceeds from any purchase price adjustment
effected pursuant to the AR Acquisition Agreement, 100% of such
proceeds shall be applied to repay Revolving Loans (if any) outstanding
at such time (with no corresponding reduction to the Total Revolving
Loan Commitment)."
4
<PAGE>
7. Section 7.02 of the Credit Agreement is hereby amended by
(i) inserting the words "and the AR Transaction Documents" immediately following
the words "Transaction Documents" in each place such words appear therein and
(ii) inserting the words "and AR Transaction Document" immediately following the
words "Transaction Document" in each place such words appear therein.
8. Section 7.03 of the Credit Agreement is hereby amended by
inserting the words "or the AR Transaction Documents" immediately following the
words "Transaction Documents" appearing therein.
9. Section 7.05(a) of the Credit Agreement is hereby amended
by deleting such clause (a) in its entirety and inserting the following new
clause (a) in lieu thereof:
"(a) All proceeds of Term Loans incurred (i) on the Initial
Borrowing Date, shall be used by the Borrower to finance the
Transaction and to pay fees and expenses incurred in connection
therewith and (ii) on the AR Acquisition Date, shall be used by the
Borrower to finance the AR Transaction and to pay fees and expenses
incurred in connection therewith, provided that such fees and expenses
shall not exceed $2,000,000.
10. Section 7.05(b) of the Credit Agreement is hereby amended
by inserting the following parenthetical at the end thereof:
"(exclusive of Revolving Loans and Swingline Loans incurred to finance
the AR Transaction, although no more than $8,000,000 of Revolving Loans
and Swingline Loans in the aggregate may be used to finance the AR
Transaction)".
11. Section 7.06 of the Credit Agreement is hereby amended by
(i) inserting "(a)" immediately after the heading thereof and (ii) inserting the
following new clause (b) at the end thereof:
"(b) Except as may have been obtained or made on or prior to
the AR Acquisition Date (and which remain in full force and effect on
the AR Transaction Date), no order, consent, approval, license,
authorization or validation of, or filing, recording or registration
with, or exemption by, any foreign or domestic governmental or public
body or authority, or any subdivision thereof, is required to authorize
or is required in connection with (i) the execution, delivery and
performance of any AR Transaction Document or (ii) the legality,
validity, binding effect or enforceability of any AR Transaction
Document."
12. Section 7.09 of the Credit Agreement is hereby amended by
(i) inserting the words "and the AR Projections" immediately following the word
"Projections" appearing in the first parenthetical thereof and (ii) inserting
the words "and the AR Transaction Documents" immediately following the words
"Transaction Documents" appearing in the third parenthetical thereof.
5
<PAGE>
13. Section 7.10(a) of the Credit Agreement is hereby amended
by (i) inserting a reference to "and the AR Acquisition Date" immediately
following the reference to "Initial Borrowing Date" appearing therein, (ii)
inserting a reference to "and, to the extent applicable, the AR Transaction,"
immediately following the reference to "Transaction" appearing therein and (iii)
inserting a reference to "and, to the extent applicable, the AR Transaction
Documents," immediately following the reference to "Transaction Documents"
appearing therein.
14. Section 7.10(b) of the Credit Agreement is hereby amended
by inserting the following new clauses (iii) and (iv) at the end thereof:
"(iii) The audited consolidated balance sheets of AR Holdings
and its Subsidiaries for the fiscal years ended June 28, 1996, June 27,
1997 and June 26, 1998, respectively, and the unaudited consolidated
balance sheet or AR Holdings and its Subsidiaries for its fiscal
quarter ended December 31, 1998, and (in each case) the related
consolidated statements of income, cash flows and shareholders' equity
of AR Holdings and its Subsidiaries for the fiscal years or six month
period, as the case may be, ended on such dates, copies of which have
been furnished to the Lenders prior to the Second Amendment Effective
Date, present fairly in all material respects the consolidated
financial position of AR Holdings and its Subsidiaries at the date of
such balance sheets and the consolidated results of the operations of
AR Holdings and its Subsidiaries for the periods covered thereby. All
of the foregoing historical financial statements have been prepared in
accordance with GAAP consistently applied except as otherwise disclosed
in the notes thereto and, in the case of the six month financial
statements, (x) such financial statements shall reflect adjustments
consistent with those reflected in such statements delivered to the
Administrative Agent prior to the Second Amendment Effective Date and
(y) the absence of footnotes and normal year-end audit adjustments.
(iv) The PRO FORMA consolidated balance sheet of Holdings and
its Subsidiaries at December 31, 1998 and the PRO FORMA consolidated
statement of income of Holdings and its Subsidiaries for the twelve
months ended December 31, 1998, in each case after giving effect to the
Transaction and the financing therefor, copies of which have been
furnished to the Lenders prior to the Second Amendment Effective Date,
present fairly in all material respects the PRO FORMA consolidated
financial position of Holdings and its Subsidiaries as of December 31,
1998 and the PRO FORMA consolidated results of operations of Holdings
and its Subsidiaries for the twelve-month period ended on December 31,
1998. Such pro forma financial statements have been prepared on a basis
consistent with the historical financial statements set forth in clause
(i) of this Section 7.10(b)."
15. Section 7.10(d) of the Credit Agreement is hereby amended
by (i) inserting the phrase "and the AR Acquisition Date" immediately after the
phrase "Initial Borrowing Date" appearing therein and (ii) inserting the word
"each" immediately after the word "on" appearing in the first parenthetical
thereof.
6
<PAGE>
16. Section 7.10(e) of the Credit Agreement is hereby amended
by (i) inserting "(i)" immediately after the reference to "(e)" thereof and (ii)
inserting the following new clause (ii) at the end thereof:
"(ii) The AR Projections have been prepared on a basis
consistent with the financial statements referred to in Section 7.10(b)
(except as may otherwise be indicated in the AR Projections), and are
based on good faith estimates and assumptions made by the management of
Holdings. On the AR Acquisition Date (i) such management believed that
the AR Projections were reasonable and attainable and (ii) there is no
fact known to Holdings or any of its Subsidiaries which could have a
Material Adverse Effect which has not been disclosed herein or in such
other documents, certificates and statements furnished to the Lenders
for use in connection with the AR Transaction."
17. Section 7.24 of the Credit Agreement is hereby amended by
(i) inserting the words "and in the AR Transaction Documents" immediately after
the words "Transaction Documents" appearing therein and (ii) inserting the words
"or the AR Acquisition Date, as the case may be," immediately following the
words "Initial Borrowing Date" appearing therein.
18. Section 7 of the Credit Agreement is hereby further
amended by inserting the following new Section 7.28 immediately after Section
7.27 appearing therein:
"7.28 CONSUMMATION OF AR TRANSACTION. At the time of
consummation thereof, the AR Transaction shall have been consummated in
all material respects in accordance with the terms of the respective AR
Transaction Documents and all applicable laws. At the time of
consummation thereof, all necessary and material consents and approvals
of, and filings and registrations with, and all other actions in
respect of, all governmental agencies, authorities or instrumentalities
required to make or consummate the AR Transaction have been obtained,
given, filed or taken or waived and are or will be in full force and
effect (or effective judicial relief with respect thereto has been
obtained). All applicable waiting periods with respect thereto have or,
prior to the time when required, will have, expired without, in all
such cases, any action being taken by any competent authority which
restrains, prevents, or imposes material adverse conditions upon the AR
Transaction. Additionally, there does not exist any judgment, order or
injunction prohibiting or imposing material adverse conditions upon the
AR Transaction, or the occurrence of any Credit Event or the
performance by Holdings and its Subsidiaries of their respective
obligations under the AR Transaction Documents and all applicable laws.
The AR Transaction has been consummated in all material respects in
accordance with the respective AR Transaction Documents and all
applicable laws."
19. Section 8.10 of the Credit Agreement is hereby amended by
inserting the following new sentence at the end thereof:
"Notwithstanding the foregoing, AR Holdings and its Subsidiaries may
have a fiscal year end and fiscal quarter ends on dates that are
different than those of Holdings and its other Subsidiaries, although
Holdings agrees to cause AR Holdings to change its and its
Subsidiaries' fiscal year and fiscal quarter ends to dates that are
consistent with those of
7
<PAGE>
Holdings and its other Subsidiaries as promptly as practicable
following the Second Amendment Effective Date."
20. Section 8.14(a) of the Credit Agreement is hereby amended
by inserting the following new sentence at the end thereof:
"The Borrower and the Lenders hereby agree that the AR Acquisition
shall be a Permitted Acquisition subject to the terms of this Section
8.14 although clauses (viii) and (ix) above shall be determined without
regard to, and shall not apply to, the AR Acquisition so long as (x)
the aggregate consideration paid in connection with the AR Acquisition
(without giving effect to any Indebtedness acquired and refinanced in
connection therewith) does not exceed $29,000,000, (y) substantially
all Indebtedness of AR Holdings and its Subsidiaries is refinanced at
the time of the consummation of the AR Transaction and (z) the AR
Transaction is financed with no more than $34,000,000 of Term Loans and
no more than $8,000,000 of Revolving Loans and Swingline Loans."
21. Section 9.08(a) of the Credit Agreement is hereby amended
by (i) deleting the reference to the amount "$6,500,000" appearing in clause (i)
thereof and inserting the amount "$7,500,000" in lieu thereof, (ii) deleting in
its entirety the table appearing in said Section and inserting the following new
table in lieu thereof:
<TABLE>
<CAPTION>
"FISCAL YEAR ENDING AMOUNT
------------------ ------
<S> <C>
September 30, 2000 $7,500,000
September 30, 2001 $7,500,000
September 30, 2002 $7,500,000
September 30, 2003 $7,500,000
September 30, 2004 $7,500,000
September 30, 2005 $8,500,000
September 30, 2006 $9,000,000";
</TABLE>
and (iii) inserting the parenthetical "(other than the AR Acquisition)"
immediately following the words "any Permitted Acquisition" appearing in the
second sentence thereof.
22. Section 9.09 of the Credit Agreement is hereby amended by
(i) deleting in its entirety the table appearing in said Section and inserting
the following new table in lieu thereof:
<TABLE>
<CAPTION>
"FISCAL QUARTER ENDING CLOSEST TO AMOUNT
-------------------------------- ------
<S> <C>
December 31, 1998 $40,000,000
March 31, 1999 $44,000,000
June 30, 1999 $44,000,000
September 30, 1999 $48,000,000
December 31, 1999 $48,000,000
March 31, 2000 $48,000,000
June 30, 2000 $48,000,000
8
<PAGE>
September 30, 2000 $52,000,000
December 31, 2000 $52,000,000
March 31, 2001 $52,000,000
June 30, 2001 $52,000,000
September 30, 2001 $56,000,000
December 31, 2001 $56,000,000
March 31, 2002 $56,000,000
June 30, 2002 $56,000,000
September 30, 2002 $62,000,000
December 31, 2002 $62,000,000
March 31, 2003 $62,000,000
June 30, 2003 $62,000,000
September 30, 2003
and the last day of each fiscal quarter of
Holdings ending thereafter $69,000,000";
</TABLE>
and (ii) inserting the parenthetical "(other than the AR Acquisition)"
immediately following the words "any Permitted Acquisition" appearing in the
second sentence thereof.
23. Section 9.10 of the Credit Agreement is hereby amended by
deleting in its entirety the table appearing in said Section and inserting the
following new table in lieu thereof:
<TABLE>
<CAPTION>
"FISCAL QUARTER ENDING CLOSEST TO RATIO
-------------------------------- -----
<S> <C>
March 31, 1999 1.65:1.00
June 30, 1999 1.65:1.00
September 30, 1999 1.65:1.00
December 31, 1999 1.75:1.00
March 31, 2000 1.85:1.00
June 30, 2000 1.85:1.00
September 30, 2000 1.85:1.00
December 31, 2000 2.00:1.00
March 31, 2001 2.00:1.00
June 30, 2001 2.00:1.00
September 30, 2001 2.15:1.00
December 31, 2001 2.25:1.00
March 31, 2002 2.25:1.00
June 30, 2002 2.25:1.00
September 30, 2002
and the last day of each fiscal quarter of Holdings ending
thereafter 2.50:1.00"
</TABLE>
24. Section 9.11 of the Credit Agreement is hereby amended by
deleting the reference therein to "5.00" and inserting a reference to "5.25" in
lieu thereof.
9
<PAGE>
25. Section 11 of the Credit Agreement is hereby amended by
deleting the definitions of "A Term Loan Commitment" and "B Term Loan
Commitment" appearing therein and inserting the following new definitions of "A
Term Loan Commitment" and "B Term Loan Commitment" in lieu thereof:
"A Term Loan Commitment" shall mean, with respect to each
Lender, the amount set forth opposite such Lender's name in Annex I (as
in effect on the Initial Borrowing Date in the case of A Term Loans
incurred on such date and as in effect on the AR Acquisition Date in
the case of A Term Loans incurred on such date, in either case)
directly below the column entitled "A Term Loan Commitment," as the
same may be terminated pursuant to Sections 3.03 and/or Section 10.
"B Term Loan Commitment" shall mean, with respect to each
Lender, the amount set forth opposite such Lender's name in Annex I (as
in effect on the Initial Borrowing Date in the case of B Term Loans
incurred on such date and as in effect on the AR Acquisition Date in
the case of B Term Loans incurred on such date, in either case)
directly below the column entitled "B Term Loan Commitment," as the
same may be terminated pursuant to Sections 3.03 and/or Section 10.
26. Section 11 of the Credit Agreement is hereby further
amended by (i) inserting the text "and up to $1,750,000 in the aggregate of
one-time cash and non-cash severance expenses directly associated with the AR
Acquisition" immediately following the reference to "Subordinated Note Offering
Memorandum" appearing in the definition of "Consolidated EBITDA" and (ii)
deleting the word "and" appearing at the end of the final clause (x) appearing
in the definition of "Consolidated EBITDA" and inserting the following new
clause (z) at the end of said definition:
"and (z) in determining Consolidated EBITDA for purposes of Sections
9.09 and 9.10, Consolidated EBITDA for any period shall be calculated
on a Pro Forma Basis to give effect to the AR Acquisition to the extent
such acquisition occurred during such period and the assets acquired
pursuant to such acquisition were not subsequently sold or otherwise
disposed of by Holdings or any of its Subsidiaries during such period".
27. Section 11 of the Credit Agreement is hereby further
amended by inserting in the appropriate alphabetical order the following new
definitions:
"Adams Rite Aerospace" shall mean Adams Rite Aerospace, Inc.,
a California corporation.
"AR Acquisition" shall mean the merger of a Wholly-Owned
Domestic Subsidiary of the Borrower with and into AR Holdings, with AR
Holdings being the surviving corporation of such merger, pursuant to
the terms of the AR Acquisition Agreement and the other AR Acquisition
Documents.
"AR Acquisition Agreement" shall mean the Agreement and Plan
of Reorganization, dated as of February __, 1999, by and among the
Borrower, a Wholly-
10
<PAGE>
Owned Domestic Subsidiary of the Borrower, AR Holdings and a
representative for the shareholders of AR Holdings.
"AR Acquisition Date" shall mean the date on which the AR
Transaction is consummated and the incurrence of Term Loans pursuant to
the Second Amendment is made, which date shall be the Second Amendment
Effective Date.
"AR Acquisition Documents" shall mean the AR Acquisition
Agreement and any other agreements, instruments and documents entered
into in connection with the AR Acquisition.
"AR Holdings" shall mean ZMP, Inc., a California corporation
and the owner of all of the outstanding capital stock of Adams Rite
Aerospace.
"AR Projections" shall mean the projections, dated __________,
1999, which were prepared by or on behalf of Holdings in connection
with the AR Transaction and which were delivered to the Lenders prior
the Second Amendment Effective Date.
"AR Refinancing" shall mean the refinancing of substantially
all of the Indebtedness of AR Holdings and its Subsidiaries as part of
the AR Acquisition.
"AR Refinancing Documents" shall mean any agreements,
instruments and documents entered into in connection with the AR
Refinancing.
"AR Transaction" shall mean, collectively, the AR Acquisition
and the AR Refinancing.
"AR Transaction Documents" shall mean the AR Acquisition
Documents and the AR Refinancing Documents.
"Second Amendment" shall mean the Second Amendment to this
Agreement, dated as of February 16, 1999.
"Second Amendment Effective Date" shall have the meaning
provided in paragraph II.6. of the Second Amendment.
28. Annexes I and II to the Credit Agreement are hereby
amended by deleting same in their entirety and inserting in lieu thereof
Schedules I and II, respectively, attached hereto.
29. In connection with the incurrence of A Term Loans and B
Term Loans pursuant to this Amendment, the Lenders and the Borrower hereby agree
that, notwithstanding anything to the contrary contained in the Credit
Agreement, the Borrower and the Administrative Agent may take all such actions
as may be necessary to ensure that all Lenders with outstanding A Term Loans and
B Term Loans, as the case may be, continue to participate in each Borrowing of
outstanding A Term Loans and B Term Loans (after giving effect to the incurrence
of A Term Loans and B Term Loans pursuant to this Amendment) on a PRO RATA basis
(including by having
11
<PAGE>
the A Term Loans or B Term Loans, as the case may be, incurred pursuant to this
Amendment added to the then outstanding Borrowings of A Term Loans or B Term
Loans, as the case may be, on a pro rata basis even though as a result thereof
such new A Term Loan or B Term Loan, as the case may be, may effectively have a
shorter Interest Period than the existing A Term Loans or B Term Loans, as the
case may be), and it is hereby agreed that (x) to the extent any existing
Borrowings of A Term Loans and B Term Loans that are maintained as Eurodollar
Loans are affected as a result thereof, any breakage costs of the type described
in Section 1.11 of the Credit Agreement incurred by such Lenders in connection
therewith shall be for the account of the Borrower or (y) to the extent the A
Term Loans and B Term Loans that are incurred pursuant to this Amendment are
added to the then outstanding Borrowings of A Term Loans or B Term Loans, as the
case may be, which are maintained as Eurodollar Loans, the Lenders that have
made such additional A Term Loans or B Term Loans, as the case may be, shall be
entitled to receive an effective interest rate on such additional Term Loans as
is equal to the Eurodollar Rate as in effect two Business Days prior to the
incurrence of such additional Term Loans plus the then Applicable Eurodollar
Margin.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Lenders to enter into this
Amendment, each of Holdings and the Borrower hereby represents and warrants
that:
(a) no Default or Event of Default exists as of the Second
Amendment Effective Date (as defined below), both before and after
giving effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects on the Second Amendment Effective Date, both
before and after giving effect to this Amendment, with the same effect
as though such representations and warranties had been made on and as
of the Second Amendment Effective Date (it being understood that any
representation or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
2. All parties hereto hereby acknowledge and agree that all
extensions of credit (including all Term Loans and all amounts owing with
respect thereto) pursuant to the Credit Agreement, as amended hereby, shall be
entitled to the benefits of all Guaranties and Security Documents executed and
delivered pursuant to the Credit Agreement, and to the benefit of all other
Credit Documents.
3. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
4. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same
12
<PAGE>
instrument. A complete set of counterparts shall be lodged with the Borrower and
the Administrative Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
6. This Amendment shall become effective on the date (the
"Second Amendment Effective Date") when the following conditions have been met
to the satisfaction of the Administrative Agent and the Required Lenders
(determined immediately after the occurrence of the Second Amendment Effective
Date):
(i) each of Holdings, the Borrower, each Subsidiary Guarantor,
the Required Lenders (determined before giving effect to this
Amendment) and each Lender which is providing an A Term Loan Commitment
and/or a B Term Loan Commitment pursuant to this Amendment shall have
signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at the Notice
Office;
(ii) (x) there shall have been delivered to the Administrative
Agent and the Lenders true and correct copies of all AR Transaction
Documents, certified as such by an Authorized Officer of Holdings or
the Borrower, and all terms and conditions of the AR Transaction
Documents shall be in form and substance reasonably satisfactory to the
Administrative Agent, and (y) the AR Transaction shall have been
consummated in accordance with the AR Transaction Documents (without
giving effect to any amendment or modification thereof or waiver with
respect thereto unless consented to by the Administrative Agent) and
the relevant requirements of the Credit Agreement (as amended hereby);
(iii) the Administrative Agent shall have received from each
Credit Party (including any Credit Party acquired pursuant to the AR
Acquisition) certified copies of resolutions of the Board of Directors
or statements of unanimous written consent in lieu thereof of such
Credit Party with respect to the matters set forth in this Amendment
and the transactions contemplated herein and such resolutions shall be
in form and substance reasonably satisfactory to the Administrative
Agent;
(iv) (A) AR Holdings and each Domestic Subsidiary thereof
acquired in connection with the AR Acquisition (including Adams Rite
Aerospace) shall have (i) executed and delivered to the Administrative
Agent a subsidiary assumption agreement pursuant to which each such
Person shall become a party to the Subsidiaries Guaranty, the Pledge
Agreement and the Security Agreement and (ii) complied with any other
requirements of Sections 8.11 and 9.15 of the Credit Agreement to the
extent required by the Administrative Agent to be complied with on the
Second Amendment Effective Date and (B) Holdings and the other Credit
Parties shall have duly pledged and delivered to the Collateral Agent
any additional Pledge Agreement Collateral acquired pursuant to the AR
13
<PAGE>
Acquisition, together with the officer's certificate referred to in
Section 3.3 of the Pledge Agreement;
(v) the Administrative Agent shall have received a solvency
certificate from the Chief Financial Officer of Holdings in the form of
Exhibit J to the Credit Agreement, except that such certificate shall
be dated the Second Amendment Effective Date and shall be modified (to
the satisfaction of the Administrative Agent) to provide that such
certificate is being provided after giving effect to the AR
Transaction;
(vi) the Administrative Agent shall have received a
certificate, dated the Second Amendment Effective Date and signed on
behalf of the Borrower by the President or any Vice President of the
Borrower, stating that all of the conditions in clause (i) of this
Paragraph 6 and in Section 6.01 of the Credit Agreement have been
satisfied, and all of the representations and warranties contained in
Section 7 of the Credit Agreement (as amended hereby) are true and
correct in all material respects, in each such case, on such date;
(vii) the Administrative Agent shall have received (x) true
and correct copies of the historical financial statements, the pro
forma financial statements and the AR Projections referred to in
Sections 7.10(b)(iii), (b)(iv) and (e)(ii) of the Credit Agreement (as
amended hereby), all of which shall be in form and substance reasonably
satisfactory to the Administrative Agent and the Required Lenders and
(y) true and correct copies of the certificates required to be
delivered pursuant to Section 8.14(a) of the Credit Agreement (as
amended hereby);
(viii) the Borrower shall have paid to the Administrative
Agent and the Lenders all costs, fees and expenses (including, without
limitation, legal fees and expenses) payable to the Administrative
Agent and the Lenders to the extent then due;
(ix) all corporate and legal proceedings and all instruments
and agreements in connection with the transactions contemplated by this
Amendment and the AR Transaction Documents shall be reasonably
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of
all documents and papers, including records of corporate proceedings or
governmental approvals, good standing certificates and bring-down
telegrams or facsimiles, if any, which the Administrative Agent may
have reasonably requested in connection therewith, such documents and
papers where appropriate to be certified by proper corporate or
governmental authorities;
(x) the Administrative Agent shall have received, and shall be
reasonably satisfied with both the form and substance of, an opinion of
Latham & Watkins, counsel to Holdings and the Borrower, with respect to
the matters contemplated by this Amendment; and
(xi) the Administrative Agent shall have received (A) executed
Financing Statements (Form UCC-1) in appropriate form for filing under
the UCC or other
14
<PAGE>
appropriate filing offices of each jurisdiction as may be necessary or,
in the reasonable opinion of the Collateral Agent, desirable to perfect
the security interests in all of the Collateral acquired pursuant to
the AR Acquisition, (B) certified copies of Requests for Information or
Copies (Form UCC-11), or equivalent reports, listing all effective
financing statements that name AR Holdings or any of its Subsidiaries
as debtor and that are filed in the jurisdictions referred to in clause
(A) above, together with copies of such other financing statements that
name AR Holdings or any of its Subsidiaries as debtors (none of which
shall cover the Collateral except to the extent evidencing Permitted
Liens or in respect of which the Collateral Agent shall have received
appropriate termination statements executed by the secured party
thereunder), (C) evidence of the completion of all other recordings and
filings of, or with respect to, such security interests as may be
necessary or, in the reasonable opinion of the Collateral Agent,
desirable to perfect the security interests intended to be created by
the Security Documents, and (D) evidence (including appropriate pay-off
letters, UCC-3 termination statements, mortgage releases and other
release documents) that the capital stock of AR Holdings and its
Subsidiaries and all assets of such Persons have been acquired pursuant
to the AR Acquisition free and clear of all Liens.
Notwithstanding anything to the contrary contained above or elsewhere in this
Second Amendment, unless both the Second Amendment Effective Date and the AR
Acquisition Date occur on or prior to March 31, 1999, the Second Amendment
Effective Date shall not thereafter occur and this Amendment shall be of no
further force or effect. Unless the Administrative Agent has received actual
notice from any Lender that the conditions contained above have not been met,
upon the satisfaction of the condition described in clause (i) of the
immediately preceding sentence and upon the Administrative Agent's good faith
determination that the other conditions described above have been met, the
Second Amendment Effective Date shall be deemed to have occurred, regardless of
any subsequent determination that one or more of the conditions thereto had not
been met (although the occurrence of the Second Amendment Effective Date shall
not release the Borrower from any liability for failure to satisfy one or more
of the applicable conditions specified above). The Administrative Agent will
give the Borrower and each Lender prompt notice of the occurrence of the Second
Amendment Effective Date. The acceptance by the Borrower of the proceeds of the
Loans on the AR Acquisition Date shall be deemed to constitute a representation
and warranty by the Borrower (including, without limitation, for purposes of
Section 10.02 of the Credit Agreement) to the effect that all conditions
contained above in this Paragraph 6 have been satisfied as of the Second
Amendment Effective Date.
7. From and after the Second Amendment Effective Date, all
references in the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
* * *
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
TRANSDIGM HOLDING COMPANY
By /s/ Peter B. Radekevich
--------------------------------------------
Title: Chief Financial Officer
TRANSDIGM INC.
By /s/ Peter B. Radekevich
--------------------------------------------
Title: Chief Financial Officer
MARATHON POWER TECHNOLOGIES COMPANY
By /s/ Peter B. Radekevich
--------------------------------------------
Title: Chief Financial Officer
BANKERS TRUST COMPANY, Individually and
as Administrative Agent
By /s/ Gregory Shefrin
--------------------------------------------
Title: Principal
CREDIT SUISSE FIRST BOSTON,
Individually and as Syndication Agent
By /s/ Bill O'Daly
--------------------------------------------
Title: Vice President
By /s/ Robert Hetu
--------------------------------------------
Title: Vice President
BANK OF NOVA SCOTIA
By /s/ Robert Gaviglio
--------------------------------------------
Title: Senior Relationship Manager
FLEET NATIONAL BANK,
Individually and as Documentation Agent
By /s/ James C. Silva
--------------------------------------------
Title: Vice President
16
<PAGE>
NBD BANK
By /s/ Gary L. Wilson
------------------------------------------
Title: First Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By
------------------------------------------
Title:
HELLER FINANCIAL, INC.
By /s/ Scott Ziemke
------------------------------------------
Title: Assistant Vice President
NATIONAL CITY BANK
By /s/ Joseph D. Robison
------------------------------------------
Title: Vice President
INDOSUEZ CAPITAL FUNDING II A, LIMITED
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano
------------------------------------------
Title: Vice President
INDOSUEZ CAPITAL FUNDING IV, L.P.
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano
------------------------------------------
Title: Vice President
PARIBAS CAPITAL FUNDING LLC
By /s/ Jeffrey J. Youle
------------------------------------------
Title:
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By /s/ Diane Exter
------------------------------------------
Title: Portfolio Manager
17
<PAGE>
TORONTO DOMINION (NEW YORK), INC.
By
-----------------------------------------
Title:
18
<PAGE>
ANNEX I
<TABLE>
<CAPTION>
Outstanding Outstanding A B Revolving
Lender A B Term Loan Term Loan Loan
------ Term Loans Term Loans Commitment Commitment Commitment
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Bankers Trust Company $7,672,500 $9,012,500 $0 $0 $5,115,000
Credit Suisse First Boston $6,277,500 $1,237,500 $0 $0 $4,185,000
Bank of Nova Scotia $6,000,000 $0 $0 $1,000,000 $4,000,000
Fleet National Bank $4,125,000 $4,125,000 $2,000,000 $1,500,000 $2,750,000
NBD Bank $6,000,000 $0 $4,000,000 $2,000,000 $4,000,000
General Electric Capital $4,125,000 $4,125,000 $3,500,000 $2,000,000 $2,750,000
Corporation
Heller Financial, Inc. $5,400,000 $2,000,000 $2,000,000 $1,000,000 $3,600,000
National City Bank. $5,400,000 $2,000,000 $3,500,000 $2,000,000 $3,600,000
Indosuez Capital Funding $0 $3,750,000 $0 $0 $0
II A, Ltd.
Indosuez Capital Funding $0 $3,750,000 $1,000,000 $1,000,000 $0
IV, L.P.
Paribas Capital Funding $0 $7,500,000 $1,000,000 $2,000,000 $0
LLC
Sankaty High Yield Asset $0 $7,500,000 $0 $2,500,000 $0
Partners, L.P.
Toronto Dominion (New $0 $0 $0 $2,000,000 $0
York), Inc.
TOTAL: $45,000,000 $45,000,000 $17,000,000 $17,000,000 $30,000,000
</TABLE>
<PAGE>
Annex II
<TABLE>
<S> <C>
BANKERS TRUST COMPANY 130 Liberty Street
New York, NY 10006
Attention: Greg Shefrin
Telephone No.: (212) 250-1724
Facsimile No.: (212) 250-7218
CREDIT SUISSE FIRST BOSTON 11 Madison Avenue
New York, NY 10010
Attention: Bill O'Daly
Telephone No.: (212) 325-9909
Facsimile No.: (212) 325-8388
BANK OF NOVA SCOTIA One Liberty Plaza
New York, NY 10006
Attention: Robert Gaviglio
Telephone No.: (212) 225-5054
Facsimile No.: (212) 225-5090
FLEET BANK One Federal Street
Mail Stop: MA OF D03C
Boston, MA 02110
Attention: Jim Silva
Telephone No.: (617) 346-4399
Facsimile No.: (617) 346-4806
NBD BANK 611 Woodward Street
Detroit, MI 48226
Attention: Paul DeMelo
Telephone No.: (313) 225-2520
Facsimile No.: (313) 225-1212
GE CAPITAL CORPORATION 335 Madison Avenue
New York, NY 10017
Attention: Kenneth Li
Telephone No.: (212) 370-8040
Facsimile No.: (212) 983-8767
HELLER FINANCIAL INC. 500 West Monroe Street
Chicago, IL 60661
Attention: Linda Wolf
Telephone No.: (312) 441-7894
Facsimile No.: (312) 441-7357
<PAGE>
Annex II
Page 2
NATIONAL CITY BANK 1900 East North Street
7th Floor
Cleveland, OH 44114
Attention: Joseph Robinson
Telephone No.: (216) 575-9254
Facsimile No.: (216) 575-9396
INDOSUEZ CAPITAL FUNDING 1211 Avenue of the Americas
New York, NY 10036
Attention: Maklikah Buchweitz
Telephone No.: (212) 278-2213
Facsimile No.: (212) 278-2254
PARIBAS CAPITAL LLC 787 Seventh Avenue
New York, NY 10019
Attention: Francois Gauvin
Telephone No.: (212) 841-2548
Facsimile No.: (212) 841-2363
SANKATY HIGH YIELD ASSET PARTNERS, L.P. 2 Copley Place
Boston, MA 02116
Attention: Diane Exter
Telephone No.: (617) 572-3216
Facsimile No.: (617) 572-3274
TORONTO DOMINION (NEW YORK), INC 909 Fannie Street
Suite 1700
Houston, TX 77101
Attention: David Parker
Telephone No.: (713) 653-8248
Facsimile No.: (713)
----------
</TABLE>
<PAGE>
Exhibit 4.12
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of April 23, 1999, among TRANSDIGM HOLDING COMPANY, a Delaware
corporation ("Holdings"), TRANSDIGM INC., a Delaware corporation (the
"Borrower"), the various lending institutions party to the Credit Agreement
referred to below (each, a "Lender" and, collectively, the "Lenders"), and
BANKERS TRUST COMPANY, as Administrative Agent for the Lenders (the
"Administrative Agent"). All capitalized terms used herein and not otherwise
defined herein shall have the meanings provided such terms in the Credit
Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Lenders and the
Administrative Agent are parties to a Credit Agreement, dated as of December 3,
1998 (as amended through, but not including, the date hereof, the "Credit
Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement
as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENT TO CREDIT AGREEMENT.
1. Section 11 of the Credit Agreement is hereby amended by
deleting the definitions of "Applicable Base Rate Margin" and "Applicable
Eurodollar Rate Margin" appearing therein and inserting the following new
definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Rate
Margin" in lieu thereof:
"Applicable Base Rate Margin" shall mean:
(a) in the case of A Term Loans, Revolving Loans and Swingline
Loans maintained as Base Rate Loans, (i) for the period from the
Initial Borrowing Date through but not including February 16, 1999,
2.50%, (ii) for the period from February 16, 1999 through but including
the first Start Date after the Initial Borrowing Date, 2.25% and (iii)
from and after any Start Date to and including the corresponding End
Date, the respective percentage per annum set forth in clause (A), (B),
(C) or (D) below if, but only if, as of the Test Date for such Start
Date the applicable condition set forth in clause (A), (B), (C), or (D)
below, as the case may be, is met:
(A) 2.25% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be greater than or equal to
4.00:1.00;
<PAGE>
(B) 2.00% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be less than 4.00:1.00 and
greater than or equal to 3.00:1.00;
(C) 1.75% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be less than 3.00:1.00 but
greater than or equal to 2.50:1.00; or
(D) 1.50% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be less than 2.50:1.00
Notwithstanding anything to the contrary contained above in this clause
(a), (x) each of the percentages set forth above in this definition
which would otherwise be in effect for any Applicable Margin Period
shall be reduced by .25% from and after the respective Start Date to
and including the corresponding End Date for such Applicable Margin
Period if, but only if, as of the Test Date for such Start Date both
the Senior Leverage Ratio for the Test Period ended on such Test Date
shall be less than 2.75:1.00 and the Consolidated Interest Coverage
Ratio for such Test Period shall be greater than 1.80:1.00 and (y) the
Applicable Base Rate Margin for A Term Loans, Revolving Loans and
Swingline Loans shall be 2.25% at all times when a Default or an Event
of Default shall exist; and
(b) in the case of B Term Loans maintained as Base Rate Loans,
2.50%.
"Applicable Eurodollar Rate Margin" shall mean:
(a) in the case of A Term Loans and Revolving Loans maintained
as Eurodollar Loans, (i) for the period from the Initial Borrowing Date
through but not including February 16, 1999, 3.50%, (ii) for the period
from February 16, 1999 through but including the first Start Date after
the Initial Borrowing Date, 3.25% and (iii) from and after any Start
Date to and including the corresponding End Date, the respective
percentage per annum set forth in clause (A), (B), (C) or (D) below if,
but only if, as of the Test Date for such Start Date the applicable
condition set forth in clause (A), (B), (C) or (D) below, as the case
may be, is met:
(A) 3.25% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be greater than or equal to
4.00:1.00;
(B) 3.00% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be less than 4.00:1.00 and
greater than or equal to 3.00:1.00;
2
<PAGE>
(C) 2.75% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be less than 3.00:1.00 and
greater than or equal to 2.50:1.00; or
(D) 2.50% if, but only if, as of the Test Date for
such Start Date the Total Leverage Ratio for the Test Period
ended on such Test Date shall be less than 2.50:1.00.
Notwithstanding anything to the contrary contained above in this clause
(a), (x) each of the percentages set forth above in this definition
which would otherwise be in effect for any Applicable Margin Period
shall be reduced by .25% from and after the respective Start Date to
and including the corresponding End Date for such Applicable Margin
Period if, but only if, as of the Test Date for such Start Date both
the Senior Leverage Ratio for the Test Period ended on such Test Date
shall be less than 2.75:1.00 and the Consolidated Interest Coverage
Ratio for such Test Period shall be greater than 1.80:1.00 and (y) the
Applicable Eurodollar Rate Margin for A Term Loans and Revolving Loans
maintained as Eurodollar Loans shall be 3.25% at all times when a
Default or an Event of Default shall exist; and
(b) in the case of B Term Loans maintained as Eurodollar
Loans, 3.50%.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Lenders to enter into this
Amendment, each of Holdings and the Borrower hereby represents and warrants
that:
(a) no Default or Event of Default exists as of the Third
Amendment Effective Date (as defined below), both before and after
giving effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects on the Third Amendment Effective Date, both
before and after giving effect to this Amendment, with the same effect
as though such representations and warranties had been made on and as
of the Third Amendment Effective Date (it being understood that any
representation or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
2. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative Agent.
3
<PAGE>
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the
"Third Amendment Effective Date") when each of Holdings, the Borrower and each
Lender shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at the Notice Office.
6. From and after the Third Amendment Effective Date, all
references in the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
* * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
TRANSDIGM HOLDING COMPANY
By /s/ Peter B. Radekevich
--------------------------------------------
Title: Chief Financial Officer
TRANSDIGM INC.
By /s/ Peter B. Radekevich
--------------------------------------------
Title: Chief Financial Officer
BANKERS TRUST COMPANY, Individually and
as Administrative Agent
By /s/ Gregory Shefrin
--------------------------------------------
Title: Principal
CREDIT SUISSE FIRST BOSTON,
Individually and as Syndication Agent
By /s/ Bill O'Daly
--------------------------------------------
Title: Vice President
By /s/ Robert Hetu
--------------------------------------------
Title: Vice President
BANK OF NOVA SCOTIA
By /s/ Robert Gaviglio
--------------------------------------------
Title: Senior Relationship Manager
FLEET NATIONAL BANK,
Individually and as Documentation Agent
By /s/ James C. Silva
--------------------------------------------
Title: Vice President
NBD BANK
By /s/ Gary C. Wilson
------------------------------------------
Title: First Vice President
5
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By
------------------------------------------
Title:
HELLER FINANCIAL, INC.
By /s/ Scott Ziemke
------------------------------------------
Title: Assistant Vice President
NATIONAL CITY BANK
By /s/ Joseph D. Robison
------------------------------------------
Title: Vice President
INDOSUEZ CAPITAL FUNDING II A, LIMITED
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano
------------------------------------------
Title: Vice President
INDOSUEZ CAPITAL FUNDING IV, L.P.
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano
------------------------------------------
Title: Vice President
PARIBAS CAPITAL FUNDING LLC
By /s/ Jeffrey J. Youle
------------------------------------------
Title:
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By /s/ Diane Exter
------------------------------------------
Title: Portfolio Manager
TORONTO DOMINION (NEW YORK), INC.
By
------------------------------------------
Title:
<PAGE>
Exhibit 5.1
[Letterhead]
April 23, 1999
(File No.) 027584-0001
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
8233 Imperial Drive
Waco, Texas 76712
Re: Registration Statement on Form S-4
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
FILE NO. 333-71397
Ladies and Gentlemen:
In connection with the registration of $125,000,000 in aggregate
principal amount of 10-3/8% Senior Subordinated Notes due 2008 (the "New Notes")
by TransDigm Inc., a Delaware corporation (the "Company"), and the guarantees of
the New Notes (the "New Guarantees") by each of TransDigm Holding Company, a
Delaware corporation ("Holdings"), Marathon Power Technologies Company, a
Delaware corporation ("Marathon"), ZMP, Inc., a
<PAGE>
Latham & Watkins
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
April 23, 1999
Page 2
California corporation ("ZMP"), and Adams Rite Aerospace, Inc., a California
corporation ("Adams Rite Aerospace" and, together with Holdings, Marathon and
ZMP, the "Guarantors"), in each case, under the Securities Act of 1933, as
amended (the "Act"), on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on January 29, 1999 (File No. 333-50219), as
the same has been amended on or prior to the date hereof, and as it may be
further amended (collectively the "Registration Statement"), you have
requested our opinion with respect to the matters set forth below. The New
Notes and the New Guarantees will be issued pursuant to an indenture, dated
as of December 3, 1998, among the Company, Holdings and Marathon and State
Street Bank and Trust Company, as trustee (the "Trustee"), as supplemented by
a supplemental indenture, dated April 23, 1999, among the Company, the
Guarantors and the Trustee (such indenture, as supplemented by such
supplemental indenture, the "Indenture"). The New Notes and the New
Guarantees will be issued in exchange for the Company's outstanding 10-3/8%
Senior Subordinated Notes due 2008 (the "Old Notes") and the guarantees of
the Old Notes by the Guarantors (the "Old Guarantees") on the terms set forth
in the prospectus contained in the Registration Statement and the Letter of
Transmittal filed as an exhibit thereto (the "Exchange Offer").
In our capacity as your special counsel, we are familiar with the
proceedings taken and proposed to be taken by the Company and the Guarantors in
connection with the authorization and issuance of the New Notes and the New
Guarantees, respectively, and for the purposes of this opinion, have assumed
such proceedings will be timely completed in the manner currently proposed. In
addition, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us as
copies. As to facts material to the opinions, statements and assumptions
expressed herein, we have, with your consent, relied upon oral or written
statements and representations of officers and other representatives of the
Company, the Guarantors and others.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the States of New
York and California and the General Corporation Law of the State of Delaware,
and we express no opinion with respect to the applicability thereto, or the
effect thereon, of the laws of any other jurisdiction or, in the case of
<PAGE>
Latham & Watkins
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
April 23, 1999
Page 3
Delaware, any other laws, or as to any matters of municipal law or the laws of
any other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
(1) The New Notes to be exchanged for the Old Notes pursuant to the
Exchange Offer have been duly authorized by all necessary corporate action on
the part of the Company, and, when duly executed, issued and authenticated in
accordance with the terms of the Exchange Offer and the Indenture and exchanged
for the Old Notes in accordance with the terms of the Exchange Offer, will be
the legally valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms.
(2) Each of the New Guarantees has been duly authorized by all
necessary corporate action on the part of the Guarantors, and, when duly
executed and endorsed on the New Notes in accordance with the terms of the
Indenture and upon the due execution, issuance and authentication of the New
Notes in accordance with the terms of the Exchange Offer and the Indenture and
exchange of the New Notes for the Old Notes in accordance with the terms of the
Exchange Offer, will be the legally valid and binding obligation of each of the
Guarantors, enforceable against each of the Guarantors in accordance with its
terms.
The opinions rendered in paragraphs 1 and 2 relating to the
enforceability of the New Notes and the New Guarantees are subject to the
following exceptions, limitations and qualifications: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors; (ii) the effect of general principles of equity, whether enforcement
is considered in a proceeding in equity or at law, and the discretion of the
court before which any proceeding therefor may be brought and (iii) we express
no opinion concerning the enforceability of the waiver of rights or defenses
contained in Section 4.06 of the Indenture.
To the extent that the obligations of the Company or any of the
Guarantors under the Indenture, the New Notes or the New Guarantees may be
dependent upon such matters, we have assumed for purposes of this opinion that
(i) the Trustee (a) is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; (b) has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture; (c) is duly qualified to engage in the activities contemplated by
the Indenture; (d) has duly authorized, executed and delivered the Indenture and
(e) has complied with any applicable requirement to file returns and pay taxes
under the Franchise Tax Law of the State of California; (ii) the Indenture is
the legally valid and binding agreement of the Trustee, enforceable against
<PAGE>
Latham & Watkins
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
April 23, 1999
Page 4
the Trustee in accordance with its terms; and (iii) that the Trustee is in
compliance, generally and with respect to acting as Trustee under the Indenture,
with all applicable laws and regulations. We have also assumed, with your
consent, that the choice of law provisions in the Indenture would be enforced by
any court in which enforcement thereof might be sought.
We have not been requested to express and, with your knowledge and
consent, do not render any opinion as to the applicability to the obligations of
the Company and the Guarantors under the Indenture, the New Notes and the New
Guarantees, as applicable, of Sections 547 and 548 of the Bankruptcy Code or
applicable state law (including, without limitation, Article 10 of the New York
Debtor & Creditor Law) relating to preferences and fraudulent transfers and
obligations.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
Exhibit 12.1
TRANSDIGM INC.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION> Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------ ------ ------ ------ ------ --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Total earnings (loss) $(5,323) $ (261) $1,175 $3,172 $14,137 6,328 4,118 (24,824) 2,094
Income tax provision (credit) (2,307) 134 2,045 5,193 12,986 4,000 2,590 (7,566) 1,281
Extraordinary Item 1,462
---------------------------------------------------------------------------------------------
Pre-tax earnings (loss) (7,630) (127) 3,220 9,827 27,123 10,328 6,708 (32,390) 3,375
---------------------------------------------------------------------------------------------
Fixed charges:
Interest charges 4,823 5,193 4,510 3,463 3,175 28,952 1,046 2,276 6,884
Interest factor of operating
rents 198 190 188 178 197 300 50 50 75
---------------------------------------------------------------------------------------------
Total fixed charges 5,021 5,383 4,698 3,641 3,372 29,252 1,096 2,326 6,959
---------------------------------------------------------------------------------------------
Earnings as adjusted (2,609) 5,256 7,918 13,468 30,495 39,580 7,804 (30,064) 10,334
---------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges - - 1.7 3.7 9.0 1.4 7.1 -- 1.5
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 12.2
Ratio of EBITDA (as defined) to Interest Expense:
- -------------------------------------------------
<TABLE>
<CAPTION>
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA (as defined) $ 9,875 $13,168 $17,213 $24,522 $43,547 49,014 9,651 11,078 12,824
Interest expense 4,823 5,193 4,510 3,463 3,175 28,952 1,046 2,276 6,884
------- ------- ------- ------- ------- ------- ------ ------ ------
Ratio 2.1 2.5 3.8 7.1 13.7 1.7 9.2 4.9 1.9
</TABLE>
<PAGE>
Exhibit 12.3
Ratio of EBITDA (as defined) less Capital Expenditures to Interest Expense:
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA (As Defined) $9,875 $13,168 $17,213 $24,522 $43,547 $49,014 9,651 11,078 12,824
Less - capital expenditures 1,941 1,702 2,494 2,285 5,061 8,888 628 712 1,402
------- ------- ------- ------- ------- ------- ------ ------ ------
7,934 11,466 14,719 22,237 38,486 40,126 9,023 10,366 11,422
Interest expense 4,823 5,193 4,510 3,463 3,175 28,952 1,046 2,276 6,884
------- ------- ------- ------- ------- ------- ------ ------ ------
Ratio 1.6 2.2 3.3 6.4 12.1 1.4 8.6 4.6 1.7
</TABLE>
<PAGE>
Exhibit 12.4
Ratio of Total Debt to EBITDA (as defined):
- -------------------------------------------
<TABLE>
<CAPTION>
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total debt $36,399 $32,074 $19,124 $50,000 $45,000 271,291 50,000 236,200 278,200
EBITDA (as defined) 9,875 13,168 17,213 24,522 43,547 49,014 9,651 11,078 12,824
------- ------- ------- ------- ------- -------- ------ ------- -------
Ratio 3.7 2.4 1.1 2.0 1.0 5.5 5.2 21.3 21.7
</TABLE>
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-71397 of TransDigm Inc. of our report dated November 9, 1998 (except for
Note 18 for which the date is December 3, 1998) relating to the consolidated
financial statements of TransDigm Holding Company appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated November
9, 1998 relating to the consolidated financial statement schedule appearing
elsewhere in the Registration Statement.
We also consent to the reference to us under the headings "Summary Historical
and Pro Forma Financial Data," "Selected Historical Consolidated Financial Data"
and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
April 23, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of TransDigm, Inc. of our report dated
January 17, 1997 relating to the consolidated financial statements of Marathon
Power Technologies Company for the years ended December 31, 1996 and 1995, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
April 23, 1999
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-71397 of TransDigm, Inc. of our report dated August 26, 1998 (except for
Note 9 as to which the date is April 23, 1999) appearing in the Prospectus,
which is a part of such Registration Statement, and to the reference to us under
the headings "Summary Historical Consolidated Financial Data" and "Experts" in
such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
April 23, 1999
