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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMMISSION FILE NO.333-71397
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
MARATHON POWER TECHNOLOGIES COMPANY
ZMP, INC.
ADAMS RITE AEROSPACE, INC.
(EXACT NAME OF CO-REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
26380 CURTISS WRIGHT PARKWAY, RICHMOND HEIGHTS, OHIO
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
13-3733378
(I.R.S. EMPLOYER IDENTIFICATION NO.)
44143
(ZIP CODE)
Registrant's Telephone Number, Including Area Code: (216) 289-4939
Securities Registered Pursuant to Section 12(b) of The Act: None
Securities Registered Pursuant to Section 12(g) of The Act: None
The Co-Registrants meet the conditions set forth in General Instructions (I)(1)
(a) and (b) of Form 10-K and are therefore filing this form with a reduced
disclosure format.
Indicate by checkmark whether the registrant: (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [X]
There currently is no established publicly traded market for the common equity
of TransDigm Holding Company held by non-affiliates.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (Voting) of TransDigm
Holding Company, $0.01 Par Value 121,195
- ------------------------------------------ -----------------------------------
(Class) (Outstanding at September 30, 1999)
Class A Common Stock (Non-Voting)
of TransDigm Holding Company. $.01 Par Value -0-
- ------------------------------------------ -----------------------------------
(Class) (Outstanding at September 30, 1999)
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm
Holding Company.
Documents incorporated by reference: See Exhibit Index included elsewhere in
this Form 10-K.
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SECTIONS OF THE 10K
INDEX
Page
PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 8
ITEM 3 LEGAL PROCEEDINGS 8
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
PART II
ITEM 5 MARKET FOR OUR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 9
ITEM 6 SELECTED FINANCIAL DATA 9
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 18
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 18
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS 19
ITEM 11 EXECUTIVE COMPENSATION 21
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 25
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 28
SIGNATURES 32
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 -- F-20
EXHIBIT INDEX i - xxxiii
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Special Note Regarding Forward-Looking Statements
This Report on Form 10-K (this "Report") contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
27A of the Securities Act. Discussions containing such forward-looking
statements may be found in Items 1, 3, and 7 hereof, as well as within this
Report generally. In addition, when used in this Report, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, such forward-looking statements are subject to a number of risks
and uncertainties, and we can give no assurance that such plans, intentions or
exceptions will be achieved. Actual results in the future could differ
materially from those described in the forward-looking statements as a result of
many factors set forth herein as well as under the caption "Risk Factors" in the
Registration Statement filed by us on Form S-4 on January 29,1999, as amended
through April 23, 1999.
Many such factors are outside the control of TransDigm Holding Company and its
subsidiaries. Consequently, such forward-looking statements should be regarded
solely as our current plans, estimates and beliefs. We do not undertake and
specifically decline any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
In this Report, the terms "TransDigm " and "Company" refer to TransDigm Inc. and
its subsidiaries. The term "Holdings" refers to TransDigm Holding Company, the
parent company of TransDigm
PART I
ITEM 1. 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 original
equipment manufacturers ("OEMs") and 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.
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.
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TransDigm is comprised of four business units: (1) AdelWiggins, (2)
AeroControlex, (3) Marathon Power Technologies Company ("Marathon"), and (4)
Adams Rite Aerospace, Inc. ("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, 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, Inc. ("ZMP") the corporate parent of Adams Rite Aerospace, were
acquired in August 1997 and April 1999, respectively, as strategic complements
to the AdelWiggins and AeroControlex businesses.
TransDigm was formed in 1993 through a management-led buyout of IMO Industries.
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.
On December 3, 1998, Phase II Acquisition Corp., an entity formed by affiliates
of Odyssey Investment Partners, LP ("Odyssey"), and Holdings consummated a
recapitalization (the "Recapitalization") pursuant to an agreement and plan of
merger (the "Merger Agreement"). In connection therewith, Phase II Acquisition
Corp. was merged with and into Holdings, with Holdings being the surviving
corporation (the "Merger"). The Merger was treated as a recapitalization for
financial reporting purposes, which had no impact on the historical basis of
Holdings' consolidated assets and liabilities.
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
semi-autonomous 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 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.
ADELWIGGINS - AdelWiggins manufactures over 8,000 SKUs, representing 36% of
TransDigm's sales for fiscal 1999, which constitute five of TransDigm's fifteen
major product lines: (A) flexible tube connectors, (B) special connectors, (C)
Adel clamps, (D) Wiggins service systems and (E) heaters and hoses. Tube
connectors are fluid line connectors that provide leak tight joints and are
found in flexible fluid systems on most aircraft platforms including fuel,
water, waste and environmental systems. Special connectors are connectors
designed to allow breaking and reconnecting of fluid lines under pressure and
are found in quick disconnect applications including refueling and other fluid
management systems for military, space and rocket launch applications and in
frangible connectors for large commercial transports. Adel clamps include
cushioned clamps, engineered elastomers, bare metal clamps, clampshells, block
clamps and quick release clamps used to support fuel, hydraulic, fluid and
electric lines and are found in a broad variety of clamps located throughout the
airplane, including in engines to address high temperature and high vibration
requirements. Wiggins service systems include proprietary refueling nozzles and
systems, vents, receivers and quick disconnects and are found in mine refueling
equipment and military applications such as tanks and armored vehicles that
require high flow capabilities and universal compatibility. Heaters and hoses
consists of specialized hoses and heaters, including blanket and ribbon heaters,
heater cuffs, heated nipples and gaskets and heated tanks throughout the
aircraft and are designed to prevent freezing of fluids such as potable water
and waste and to provide heat for hot water service applications.
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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 26%
of its net sales in fiscal 1999. See "Business-Customers."
AeroControlex - AeroControlex manufactures over 13,000 SKUs, representing 36% of
TransDigm's sales for fiscal 1999, 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 69% of its net sales in fiscal 1999. See
"Business-Customers."
MARATHON - Marathon manufactures over 5,000 SKUs, representing 16% of
TransDigm's sales for fiscal 1999, which constitute three of TransDigm's fifteen
major product lines: (A) vented cell nickel-cadmium batteries, (B) static
inverters and (C) sealed cell nickel-cadmium batteries. Vented cell
nickel-cadmium batteries and sealed cell batteries are used for engine starting
and emergency power aboard various aircraft while static inverters convert
direct current to alternating current for use in applications such as flight
instrumentation and communication. Marathon products are used for numerous
military applications, such as the F-16, F-18, Blackhawk, Apache and Cobra
programs. Approximately 50% of Marathon's products have achieved sole sourcing
status with its customers.
Marathon is one of the world's 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 72% of its net sales in fiscal 1999. Vented cell batteries
are marketed under the Marathon(TM) and SuperPower(TM) brand names.
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ADAMS RITE AEROSPACE - Adams Rite Aerospace manufactures over 6,000 SKUs,
representing 12% of TransDigm's sales for fiscal 1999, 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. Adams Rite Aerospace achieved aftermarket sales subsequent to
its acquisition on April 23, 1999 of 50% of its net sales for the period ended
September 30, 1999. See "Business-Customers."
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. In particular, TransDigm focuses on the high-margin,
repeatable aftermarket segment.
TransDigm has structured AdelWiggins', AeroControlex's, Adams Rite Aerospace's,
and Marathon's sales efforts along their collective eleven major product lines,
assigning a Product Line Manager to each line. 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 bookings, sales,
new business and profitability for each product. Assisting the Product Line
Managers are Account Managers and Sales Engineers who are responsible for
covering major OEM and airline accounts. Account Managers and Sales Engineers
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.
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 September
30, 1999, the Company estimated its sales order backlog at $62.5 million
compared to an estimated $63 million as of September 30, 1998 (including $19.8
million relating to Adams Rite Aerospace). The majority of the purchase orders
outstanding as of September 30, 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 the Company's
receipt of purchase orders and the speed with which those orders are filled.
Accordingly, the Company's backlog as of September 30, 1999 may not necessarily
represent the actual amount of shipments or sales for any future period.
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FOREIGN OPERATIONS
The Company manufactures virtually all of its products in the United States.
However, a portion of the Company's current sales is conducted abroad. 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 the
Company 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 the Company's operations and growth strategy.
MANUFACTURING AND ENGINEERING
TransDigm maintains four manufacturing facilities. Each facility serves its
respective operating group and comprises manufacturing, distribution and
engineering as well as corporate functions, including management, sales and
finance. The AdelWiggins, AeroControlex, Marathon and Adams Rite Aerospace
facilities encompass approximately 105,000, 44,000, 150,000 and 100,000 square
feet of manufacturing space in Los Angeles, California, Cleveland, Ohio, Waco,
Texas and Fullerton, California, respectively. In the last several years,
management has taken a number of steps to improve productivity and reduce costs,
including consolidating operations, developing improved control systems that
allow for accurate product line profit and loss accounting, investing in
equipment and tooling, installing modern information systems and implementing a
broad-based employee training program. Management believes that TransDigm's
manufacturing systems and equipment are critical competitive factors that permit
it to meet the rigorous tolerances and cost sensitive price structure of
aircraft customers. TransDigm focuses its manufacturing activities 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 "Business-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 Federal Aviation
Administration ("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. For the year ended September 30,
1999, two customers represented approximately 15% and 14%, respectively, of the
Company's net sales. Two customers represented approximately 20% and 14%,
respectively, of the Company's net sales during the year ended September 30,
1998, and one customer represented approximately 15% of the Company's net sales
for the year ended September 30, 1997.
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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. Some
of TransDigm's business is executed under long-term agreements with customers,
which encompass many products under a common agreement. TransDigm is also a
leading supplier of components used on United States' designed military
aircraft. TransDigm's products are used on a variety of fighter aircraft and
helicopters. Military aircraft using TransDigm's products include the Lockheed
F-15 and F-16, the E2C (Hawkeye) and Blackhawk and Apache helicopters.
COMPETITION
TransDigm competes with a number of established companies, including divisions
of larger companies that have significantly greater financial, technological and
marketing resources than TransDigm. The niche markets within the aerospace
industry served by TransDigm are relatively fragmented with several competitors
for each of the products and services provided by 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.
TransDigm knows of no single competitor, however, 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 entities, 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.
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. The Occupational Health and Safety Act ("OHSA") mandates general
requirements for safe workplaces for all employees. In addition, OHSA provides
special procedures and measures for the handling of certain hazardous and toxic
substances. TransDigm believes that its operations are in material compliance
with OHSA's health and safety requirements.
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RAW MATERIALS AND PATENTS
TransDigm requires the use of various raw materials, including titanium,
aluminum, nickel powder, nickel screen, stainless steel and cadmium, in its
manufacturing processes. The availability and prices of such raw materials may
fluctuate and price increases in these supplies may not be able to be recovered.
TransDigm also purchases a variety of manufactured component parts from various
suppliers. TransDigm is concentrating its orders, however, among fewer suppliers
in order to strengthen its supplier relationships. Raw materials and component
parts are generally available from multiple suppliers at competitive prices.
However, any delay in TransDigm's ability to obtain necessary raw materials and
component parts may affect its ability to meet customer production needs.
TransDigm has various trade secrets, proprietary information, trademarks, trade
names, patents, copyrights and other intellectual property rights, which
TransDigm believes, in the aggregate but not individually, are important to its
business.
ENVIRONMENTAL MATTERS
TransDigm's operations and current and/or former facilities are subject to
federal, state and local environmental laws and to regulation by government
agencies, including the Environmental Protection Agency. Among other matters,
these regulatory authorities impose requirements that regulate the emission,
discharge, generation, management, transportation and disposal of hazardous
materials and pollutants, govern response actions to hazardous materials which
may be or have been released to the environment, and require TransDigm to obtain
and maintain permits in connection with its operations. The extensive regulatory
framework imposes significant compliance burdens and risks on TransDigm.
Although management believes that TransDigm's operations and its facilities are
in compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations thereof or the nature of TransDigm's operations will not require
TransDigm to make significant additional expenditures to ensure compliance in
the future. According to some environmental laws, a current or previous owner or
operator of real property may be liable for the costs of investigations, removal
or remediation of hazardous materials at such property. Those laws typically
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous materials. Persons who arrange,
or are deemed to have arranged, for disposal or treatment of hazardous materials
also may be liable for the costs of investigation, removal or remediation of
those substances at the disposal or treatment site, regardless of whether the
affected site is owned or operated by that person. Because TransDigm owns and/or
operates a number of facilities, and because TransDigm arranges for the disposal
of hazardous materials at many disposal sites, TransDigm may incur costs for
investigation, removal and remediation, as well as capital costs associated with
compliance. Although those environmental costs have not been material in the
past and are not expected to be material in the future, there can be no
assurance that changes in environmental laws or unexpected investigations and
clean-up costs will not be material. TransDigm does not currently contemplate
material capital expenditures for environmental compliance remediation for
fiscal 2000 or fiscal 2001.
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.
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EMPLOYEES
As of September 30, 1999, TransDigm had approximately 750 full-time employees
and 37 temporary employees. Approximately 6% of TransDigm employees were
represented by the United Steelworkers Union, and approximately 13% 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.
ITEM 2. PROPERTIES
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. In addition, TransDigm leases and operates
a 100,000 square foot facility in Fullerton, California and approximately 17,000
square feet in Richmond Heights, Ohio, which is also TransDigm's headquarters.
TransDigm also leases certain of its other facilities. Management believes that
its machinery, plants and offices are in satisfactory operating condition and
will have sufficient capacity to meet foreseeable future needs without incurring
significant additional capital expenditures.
ITEM 3. 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 on 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of our security holders.
-8-
<PAGE> 11
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
There is no established public market for the common stock of Holdings.
HOLDERS
As of September 30, 1999, there were 29 record holders of Holdings' common
stock. Holdings is the sole shareholder of TransDigm's common stock.
DIVIDENDS
There have been no cash dividends declared on any class of common equity for the
two most recent fiscal years. See restrictions on Holdings' ability to pay
dividends and TransDigm's ability to transfer funds to Holdings in Note 9 to our
consolidated financial statements appearing elsewhere in this Report.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF TRANSDIGM HOLDING
COMPANY
The following table sets forth selected historical consolidated financial and
other data of Holdings for each of the fiscal years ended September 30,1995
through 1999 which have been derived from Holdings' audited consolidated
financial statements for those years. The selected historical consolidated
financial and other data for the fiscal year ended September 30, 1995 has been
adjusted to give retroactive effect to the change in accounting for put warrants
described in Note 17 to the consolidated financial statements of Holdings as of
and for the years ended September 30, 1998, 1997 and 1996 included with
Amendment No. 3 of the Company's Form S-4 filed with the Commission on April 23,
1999.
The Company acquired Marathon Power Technologies Company on August 8, 1997 and
ZMP, Inc. and its wholly-owned subsidiary, Adams Rite Aerospace, on April
23,1999. Both of the acquisitions were accounted for as a purchase. The results
of operations of Marathon, ZMP and Adams Rite Aerospace are included in
Holdings' consolidated financial statements from the date of each of the
acquisitions.
The information presented below should be read together with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and the consolidated financial statements and the notes thereto included
elsewhere herein.
-9-
<PAGE> 12
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $57,095 $62,897 $78,159 $110,868 $130,818
Gross profit 17,029 21,023 28,856 51,473 60,867
Selling and administrative 6,167 6,459 7,561 10,473 13,620
Amortization of intangibles 4,002 3,838 2,089 2,438 2,063
Research and development 1,058 836 1,116 1,724 2,139
Merger expenses - - - - 40,012
------- ------- ------- -------- --------
Operating income(1) 5,802 9,890 18,090 36,838 3,033
Interest expense, net(2) 5,193 4,510 3,463 3,175 22,722
Warrant put value adjustment 736 2,160 4,800 6,540 -
------- ------- ------- -------- --------
Pre-tax income (loss) (127) 3,220 9,827 27,123 (19,689)
Provision (benefit) for income taxes 134 2,045 5,193 12,986 (2,772)
------- ------- ------- -------- --------
Income (loss) before extraordinary item (261) 1,175 4,634 14,137 (16,917)
Extraordinary item - - (1,462) - -
------- ------- ------- -------- --------
Net income (loss) $ (261) $ 1,175 $ 3,172 $ 14,137 $(16,917)
======= ======= ======= ======== ========
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities $ 3,972 $18,695 $17,468 $ 23,455 $(16,219)
Investing activities 702 (2,494) (43,160) (4,295) 44,599
Financing activities (4,560) (13,475) 28,153 (5,071) 44,061
EBITDA(3) 13,168 17,213 23,856 43,305 9,407
EBITDA, As Defined(4) 13,168 17,213 24,522 43,547 50,562
EBITDA, As Defined, margin 23.1% 27.4% 31.4% 39.3% 38.7%
Depreciation and amortization $7,366 $7,323 $5,766 $6,467 $6,374
Capital expenditures 1,702 2,494 2,285 5,061 3,043
Ratio of earnings to fixed charges(5) 1.7x 3.7x 9.0x
Ratio of EBITDA, As Defined,
to interest expense 2.5x 3.8x 7.1x 13.7x 2.2x
Ratio of total debt to EBITDA,
As Defined 2.4x 1.1x 2.0x 1.0x 5.3x
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital $17,730 $16,300 $16,520 $16,654 $35,531
Total assets 65,758 57,666 101,969 115,785 164,417
Long-term debt, including
current portion 32,074 19,124 50,000 45,000 266,557
Total stockholders' equity (deficiency) 19,285 19,670 22,613 36,427 (127,622)
</TABLE>
-10-
<PAGE> 13
- --------------------
(1) Operating income includes the effect of 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 and
a non-cash charge of $1,143 in fiscal 1999 due to a purchase accounting
adjustment to inventory associated with the acquisition of Adams Rite
Aerospace.
(2) All of the interest expense reported for fiscal 1995 through 1998
represents interest expense of TransDigm. Holdings had no interest
expense prior to the Recapitalization discussed in Note 1 to the
consolidated financial statements of Holdings included elsewhere in
this Report. After the Recapitalization, Holdings incurred $2 million
of interest expense during fiscal 1999 relating to the Holdings PIK
Notes. Holdings has no other interest expense. TransDigm is not an
obligor or a guarantor under the Holdings PIK Notes.
(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 included elsewhere in this Report.
(4) EBITDA, As Defined, is calculated as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
EBITDA $13,168 $17,213 $23,856 $43,305 $ 9,407
Adjustments:
Merger Expenses -- -- -- -- 40,012
Inventory Purchase Accounting
Adjustments -- -- 666 242 1,143
------- ------- ------- ------- -------
EBITDA, As defined $13,168 $17,213 $24,522 $43,547 $50,562
======= ======= ======= ======= =======
</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 $127 and $19,689
for fiscal 1995 and fiscal 1999, respectively.
- 11 -
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. The Company 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 the Company'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 the Company and others.
In connection with the Recapitalization discussed in Note 1 to the consolidated
financial statements, including the financing and the application of the
proceeds thereof, the Company incurred certain nonrecurring costs and charges,
consisting primarily of compensation costs for management bonuses and stock
options that were canceled in conjunction with the Recapitalization, the cost of
terminating a financial advisory services agreement with an affiliate of one of
the Company's stockholders, the write-off of deferred financing costs, and
professional, advisory and financing fees. A one-time charge of approximately
$40 million ($29 million after tax) was recorded during the year ended September
30, 1999. Because the cash costs included in this charge were funded principally
through the proceeds of the subordinated notes and borrowings under the new
Senior Credit Facility, this cost did not materially impact the Company's
liquidity, ongoing operations or market position. For a discussion of the
consequences of the incurrence of indebtedness in connection with the
Recapitalization, see the heading "Liquidity and Capital Resources" in this
section.
On April 23, 1999, the Company acquired ZMP, the corporate parent of Adams Rite
Aerospace, 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 through $36 million of additional borrowings
under the Company's Senior Credit Facility and the use of $5 million of the
Company's cash balances. 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, the
Company acquired four additional major product lines of Adams Rite Aerospace
consisting of mechanical hardware, fluid control products, electromechanical
control products and oxygen system related products. On an historical basis,
Adams Rite Aerospace has realized a lower gross profit as a percentage of net
sales than that achieved by the Company. Although management has taken steps to
increase the profitability of Adams Rite Aerospace's business over the longer
term, consolidation of the financial results of Adams Rite Aerospace with those
of the Company has resulted in a lower profit margin for the Company as a whole,
at least in the near term.
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements. The Company's fiscal year ends on September 30.
- 12-
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data of the Company as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Net sales 100 % 100 % 100 %
--- --- ---
Gross profit 37 46 47
Selling and administrative 10 9 10
Amortization of intangibles 3 2 2
Research and development 1 2 2
Merger expenses -- -- 31
--- --- ---
Operating income 23 33 2
Interest expense - net 4 2 17
Warrant put value adjustment 6 6 --
Provision (benefit) for income taxes 7 12 (2)
Extraordinary item 2 -- --
--- --- ---
Net income (loss) 4% 13 % (13)%
=== === ===
</TABLE>
CHANGES IN RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1998.
- - NET SALES. Net sales increased by $19.9 million, or 17.9%, to $130.8
million for the year ended September 30, 1999 from $110.9 million for
the year ended September 30, 1998, principally due to the acquisition
of ZMP and growth in new business programs.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by
$9.4 million, or 18.3%, to $60.9 million for the year ended September
30, 1999 from $51.5 million for the year ended September 30, 1998.
Approximately $4.8 million of this increase is attributable to the
acquisition of ZMP and the remaining $4.6 million resulted from
improved profitability in the core businesses derived from new business
and productivity efforts. The $4.8 million of ZMP gross profits
recorded during the year ended September 30, 1999 are net of a $1.1
million charge relating to the write-up of Adams Rite Aerospace's
inventory in place at the time of the acquisition. Gross profit as a
percentage of net sales was 47% for the year ended September 30, 1999
and 46% for the year ended September 30, 1998.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased by $3.1 million, or 29.5%, to $13.6 million for the year
ended September 30, 1999 from $10.5 million for the year ended
September 30, 1998. This increase principally resulted from the
acquisition of ZMP discussed previously and additional new business
initiatives. Selling and administrative expenses as a percentage of net
sales increased slightly from 9% for the year ended September 30, 1998
to 10% for the year ended September 30, 1999.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by
$.3 million, or 12.5%, to $2.1 million for the year ended September 30,
1999 from $2.4 million for the year ended September 30, 1998 due to the
amortization of intangible assets recognized in connection with the
acquisition of ZMP.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased
$.4 million, or 24%, to $2.1 million for the year ended September 30,
1999 from $1.7 million for the year ended September 30, 1998. This
increase was primarily attributable to continued new product
development. Research and development expense, as a percentage of net
sales, was 2% for the years ended September 30, 1998 and September 30,
1999.
- 13 -
<PAGE> 16
- - MERGER EXPENSES. Merger costs totaling $40 million were incurred during
fiscal 1999 in connection with the Merger and Recapitalization (see
Note 1 to the consolidated financial statements of Holdings included
elsewhere in this Report). The nature of the merger-related charges is
detailed below:
<TABLE>
(IN THOUSANDS)
<S> <C>
Compensation expense on stock options $ 19,437
Management bonuses 6,450
Termination of financial advisory services agreement 5,850
Professional fees and expenses 7,201
Write-off of deferred financing costs 552
Other 522
---------
$ 40,012
=========
</TABLE>
- - OPERATING INCOME. Operating income decreased from $36.8 million for the
year ended September 30, 1998 to $3.0 million for the year ended
September 30, 1999. Operating income decreased by $33.8 million, or
92%. This decrease was primarily attributable to the Merger and
Recapitalization. As a percentage of net sales, operating income
declined from 33% for the year ended September 30, 1998 to 2% for the
year ended September 30, 1999.
- - INTEREST EXPENSE. Interest expense increased by $19.5 million to $22.7
million for the year ended September 30, 1999 from $3.2 million for the
year ended September 30, 1998 as a result of the increase in the
average level of outstanding borrowings in connection with the
Recapitalization and acquisition of ZMP.
- - INCOME TAXES. Income tax expense (benefit) as a percentage of income
(loss) before income taxes and the non-deductible warrant put value
adjustment was (14%) for fiscal 1999 and 38.6% for fiscal 1998. The tax
benefit recorded for fiscal 1999 was significantly impacted by the
non-deductible expenses incurred in connection with the
Recapitalization
- - NET INCOME (LOSS). The Company incurred a net loss of $16.9 million for
the year ended September 30, 1999 compared to net income of $14.1
million for the year ended September 30, 1998 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 $28.9
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 was due to the higher sales discussed above.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expenses
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.
-14-
<PAGE> 17
- - 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
$0.6 million, or 54.5% to $1.7 million for fiscal 1998 from $1.1
million for fiscal 1997. This increase was primarily attributable to
the acquisition of Marathon. Research and development expense as a
percentage of net sales remained relatively constant at 1.4% in fiscal
1997 and 1.6% in fiscal 1998.
- - OPERATING INCOME. Operating income increased by $18.7 million, or
103.3%, to $36.8 million for fiscal 1998 from $18.1 million for fiscal
1997. Approximately $4.6 million of this increase was attributable to
the acquisition of Marathon and the remainder to the other increases in
gross profit discussed above. As a percentage of revenues, operating
income increased to 33.2% in fiscal 1998 from 23.1% in fiscal 1997.
- - INTEREST EXPENSE. Interest expense for fiscal 1998 approximated the
amount for fiscal 1997 at $3.2 million and $3.5 million, respectively.
The $2.1 increase in interest expense resulting from the additional
borrowings made in connection with the 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 $l.5 million partially offset by a $1.7 million increase in the
warrant put value adjustment during fiscal 1998.
INFLATION
Many of the Company'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 the Company's businesses during the years ended September 30,
1999 and September 30, 1998 were not significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $16.2 million of cash in operating activities
during the year ended September 30, 1999 compared to approximately $23.5 million
generated during the year ended September 30, 1998. Such decrease in operating
cash flows is due to the one-time merger expenses of $40 million, partially
offset by improved operating results.
Cash used in investing activities was approximately $44.6 million during the
year ended September 30, 1999 compared to approximately $4.3 million used during
the year ended September 30, 1998. The change in investing cash flows is
primarily due to the use of $41.6 million of cash for the acquisition of Adams
Rite Aerospace, a $2.0 million decrease in capital expenditures during fiscal
1999 and a post-closing purchase price adjustment of approximately $.8 million
received during the first quarter of fiscal 1998 as a result of the acquisition
of Marathon.
Cash provided by financing activities during the year ended September 30, 1999
was approximately $44.1 million compared to approximately $5.1 million used
during the year ended September 30, 1998. This change in financing cash flows
was due to the incurrence and refinancing of substantial indebtedness as a
result of the Recapitalization and the acquisition of ZMP.
- 15 -
<PAGE> 18
The interest rate for the credit facility is, at TransDigm's option, either (A)
a floating rate equal to the Base Rate plus the Applicable Margin, as defined in
the credit facility, or (B) the Eurodollar Rate 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, plus 2.25%, 2.00%, 1.75% or 1.50% depending on Holdings' ability to
achieve the respective debt coverage ratio specified in the credit facility, as
amended; and (B) bearing an interest rate determined by the Eurodollar Rate,
plus 3.25%, 3.00%, 2.75% or 2.50% depending on Holdings' ability to achieve the
respective debt coverage ratio specified in the 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 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 credit facility) in excess of a
predetermined amount under the credit facility.
The subordinated notes bear interest at 10 3/8% and do 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 credit facility requires
TransDigm to amortize the outstanding indebtedness under each of the Tranche A
and the Tranche B Facilities, commencing in 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.
The Company's primary cash needs will consist of capital expenditures and debt
service. The Company 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 $3 million and
$5.1 million during fiscal 1999 and 1998, respectively.
The Company intends to pursue additional acquisitions that present opportunities
to realize significant synergies, operating expense economies or overhead cost
savings or to increase the Company's market position. The Company 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 there can be no assurance that we will be able to
reach an agreement with respect to any future acquisition. The Company's
acquisition strategy may require substantial capital, and no assurance can be
given that the Company will be able to raise any necessary funds on terms
acceptable to the Company or at all. If the Company incurs additional debt to
finance acquisitions, its total interest expense will increase.
The Company's ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, its indebtedness, including the subordinated
notes, or to fund planned capital expenditures and research and development,
will depend on its future performance, which, to a certain extent,is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its 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 credit facility, will be adequate to meet the Company's future
liquidity needs for at least the next few years. The Company may, however, need
to refinance all or a portion of the principal of the subordinated notes at or
prior to maturity. There can be no assurance that the Company's business will
generate sufficient cash flow from operations and that anticipated revenue
growth and operating improvements will be sufficient to enable the Company to
service its indebtedness, including the subordinated notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will be
able to effect any such refinancing on commercially reasonable terms or at all.
- 16-
<PAGE> 19
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 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." This
statement establishes standards for the way public business enterprises report
financial and descriptive information about their reportable operating segments
such as a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. The Company adopted this standard during
fiscal 1999. The adoption of this statement did not change the Company's segment
reporting. The Company continues to report its operations as one segment.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' 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 adopted this
standard for its fiscal 1999 year-end financial statements.
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. The Company will adopt
this standard during fiscal 2001. While management has not completed its
analysis of this new accounting standard, its adoption is not expected to have a
material effect on the Company's financial statements.
IMPACT OF YEAR 2000 ISSUE
The Company has completed a review of its information technology systems and a
review of its embedded systems at all operating locations in order to assess its
exposure to year 2000 issues. These reviews, including testing and verification,
have been completed internally. The Company purchased all of its computer
software (including embedded systems) 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 the Company with third party
certifications that the Company's systems are year 2000 compliant.
The Company has distributed questionnaires to assess the year 2000 compliance of
its suppliers and customers, including various agencies of the United States
government. The Company has received confirmation from material suppliers and
customers that they are year 2000 compliant.
In the event that year 2000 problems arise within the Company or that its
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 the receipt of orders and collection of payments,
leading to a temporary loss of revenue. The Company has incurred approximately
$405,000 in costs associated with year 2000 compliance and does not expect to
incur any significant, additional costs in the future.
- 17-
<PAGE> 20
The Company has no formal contingency plan in the event year 2000 problems arise
with respect to its information technology systems; however, the Company'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 embedded systems, the Company intends to employ its
existing subcontractor machinists to manufacture the affected components.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of the Company's outstanding indebtedness at September 30, 1998 was repaid
in connection with the Merger and Recapitalization. At September 30, 1999, the
Company is subject to interest rate risk with respect to borrowings under its
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 $119.6 million of borrowings outstanding under the credit facility
at September 30, 1999 was 8.8%. The effect of a hypothetical one percentage
point decrease in interest rates would increase the estimated fair value of the
borrowings outstanding under the credit facility on September 30, 1999 by
approximately $6 million.
Also outstanding at September 30, 1999 was $125 million of Company indebtedness
in the form of subordinated notes and $22 million of Holdings PIK Notes. The
interest rates on both of these borrowings are fixed at 10 3/8% and 12% per
year, respectively. The fair value of the Company's Senior Subordinated Notes
approximated $117.5 million at September 30, 1999 based upon quoted market
prices. A determination of the fair value of the Holdings PIK Notes is not
considered practicable because they are held by a related party and are not
publicly traded. 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.
ADDITIONAL DISCLOSURE REQUIRED BY INDENTURE
Separate financial information of TransDigm is 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. In addition, Holdings' only liability
consists of Holdings PIK Notes of $20 million that bear interest at 12%
annually. Interest expense recognized on the Holdings PIK Notes during the year
ended September 30, 1999 was $2 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
-18-
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors and
executive officers of Holdings and the directors and executive officers of the
Company as of September 30, 1999:
NAME AGE POSITION
Douglas W. Peacock 60 Chairman of the Board of Directors and Chief
Executive Officer
W. Nicholas Howley 47 President, Chief Operating Officer and Director
Robert S. Henderson 43 President, AdelWiggins Group
Raymond F. Laubenthal 38 President, AeroControlex Group
John F. Leary 52 President, Adams Rite Aerospace, Inc.
Albert J. Rodriguez 39 President, Marathon Power Technologies Company
Peter B. Radekevich 47 Chief Financial Officer
Stephen Berger 60 Director
Muzzafar Mirza 41 Director
William Hopkins 36 Director
Thomas R. Wall, IV 41 Director
John W. Paxton 63 Director
Mr. Peacock has been Chairman of the Board of Directors 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 University 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 a Director of Holdings and President, Chief Operating
Officer and Director of TransDigm since the consummation of the
Recapitalization. Mr. Howley is also a Director of Nomad Logistic, Inc. Mr.
Howley served as Executive Vice President of TransDigm and President of the
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. Henderson became President of the AdelWiggins Group in September 1999. He
previously had served as President of Marathon Power Technologies Company since
April 1997. From November 1994 until April 1997, be served as Manager of
Operations for the AdelWiggins Group. Prom 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. 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 and had prior
extensive experience in manufacturing and engineering at Parker Hannifin
Corporation and Textron. 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.
- 19 -
<PAGE> 22
Mr. Leary has been President of Adams Rite Aerospace, Inc. since June 1999. From
1995 to June 1999, Mr. Leary was a General Operations Manager with Furon
Company. Prom 1991 to 1995, Mr. Leary was the Plant Manager of Emerson Electric,
Chromalox Division. Mr. Leary received his BS in Mechanical Engineering from the
New Jersey Institute of Technology.
Mr. Rodriguez has been President of Marathon Power Technologies Company since
September 1999. From January 1998 until September 1999, Mr. Rodriguez served as
Director of Commercial Operations for the AeroControlex Group. From 1993 to
1997, Mr. Rodriguez served as Director of Sales and Marketing for the
AeroControlex Group. Mr. Rodriguez has prior experience with IMO Industries,
Esterline, as well as Kaiser Electro Precision. Mr. Rodriguez received his
Bachelor of Engineering with a concentration in Chemical Engineering from
Stevens Institute of Technology.
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 Holdings and TransDigm since the
consummation of the Recapitalization. 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. Prom 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 Holdings and TransDigm since the
consummation of the Recapitalization. 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 Holdings and TransDigm since the
consummation of the Recapitalization. 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 has served as a Director of Holdings and TransDigm since their
inception in 1993. 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., Citation Corporation,
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 Holdings and TransDigm since the
consummation of the Recapitalization. Mr. Paxton is also currently chairman of
Odyssey Industrial Technologies, LLC, which is a joint venture with Odyssey
Investment Partners, LLC, and Chairman of the Board, President and Chief
Executive Officer of Telxon Corporation. Prior to joining TransDigm as a
Director, Mr. Paxton was a member of the Board of Directors of Paxar Corporation
("Paxar") and President of Paxar's Printing Solution Group from October 1997 to
the calendar year end 1998. Mr. Paxton served as President and Chief Executive
Officer of Monarch Marking Systems from October 1995 to October 1997. Prior to
joining Monarch Marking Systems, Mr. Paxton joined Litton Industries ("Litton")
as a Corporate Vice President in 1991 when Litton acquired Intermec Corporation.
During his years at Litton, Mr. Paxton had responsibility for the Industrial
Automation Group. He became Corporate Executive Vice President and Chief
Operating Officer of the Industrial Automation Systems Group of Western Atlas,
Inc. when Western Atlas, Inc. was spun off by Litton in March 1994. Mr. Paxton
presently serves as a member of the Board of Directors of AIM, National
Association of Manufacturers, World Economic Forum and Telxon Corporation.
- 20 -
<PAGE> 23
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. Wall, Mirza and Hopkins, reviews Holdings' and TransDigm's audit
policies and oversees the engagement of Holdings' and TransDigm's independent
auditors.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by
TransDigm for services rendered during fiscal 1999, 1998 and 1997 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, 1999 $323,750 $ 225,000 4,500 $ 19,659 (3)
Chairman of the Board 1998 305,000 2,857,500 -- 23,518
and CEO 1997 290,000 220,000 3,097 20,400
W. Nicholas Howley, 1999 215,000 130,000 4,500 10,896 (4)
President, Chief Operating 1998 185,000 2,080,000 -- 14,446
Officer and Director 1997 175,000 125,000 1,900 13,316
Raymond F. Laubenthal, 1999 117,500 35,200 700 7,551 (5)
President of AeroControlex 1998 93,750 232,500 -- 6,128
Group 1997 87,500 29,600 300 5,925
Robert S. Henderson, 1999 137,469 60,000 700 9,744 (6)
President of AdelWiggins 1998 125,000 450,000 -- 10,663
Group 1997 109,000 45,900 200 6,192
Peter B. Radekevich, 1999 118,250 50,000 575 8,558 (7)
Chief Financial 1998 113,000 196,250 -- 8,326
Officer 1997 108,000 40,000 200 7,434
</TABLE>
- ----------------------
(1) Bonus for fiscal year 1998 includes a one-time bonus paid by TransDigm
in connection with the Recapitalization.
(2) Does not include perquisites and other personal benefits because the
value of these items did not exceed the lesser of $50,000 or 10% of
reported salary and bonus of any of the listed executives.
(3) Includes $9,600 in contributions by TransDigm, as projected to calendar
year end 1999, to a plan established under Section 401(k) of the
Internal Revenue Code (the "401(k) plan") and $10,059 of Company-paid
life insurance.
(4) Includes $9,600 in contributions by TransDigm, as projected to calendar
year end 1999, to the 401(k) plan and $1,296 in Company-paid life
insurance.
- 21 -
<PAGE> 24
(5) Includes $7,200 in contributions by TransDigm, as projected to calendar
year end 1999, to the 401(k) plan and $351 in Company-paid life
insurance.
(6) Includes $9,300 in contributions by TransDigm, as projected to calendar
year end 1999, to the 401(k) plan and $444 in Company-paid life
insurance.
(7) Includes $8,000 in contributions by TransDigm, as projected to calendar
year end 1999, to the 401(k) plan and $558 in Company-paid life
insurance.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES SHARES UNDERLYING UNEXERCISED IN-
ACQUIRED UNEXERCISED THE MONEY
EXERCISE ON VALUE OPTIONS/SAR AT OPTIONS/SARs AT
NAME PRICE EXERCISE REALIZED FISCAL YEAR-END FISCAL YEAR-END
<S> <C> <C> <C> <C> <C>
Douglas W. Peacock, $ 100 10,408 $9,804,597 Exercisable 2,992 Exercisable $2,812,480
Chairman of the Board and Unexercisable - Unexercisable -
Chief Executive Officer 335 - - Exercisable 3,097 Exercisable 2,183,385
Unexercisable - Unexercisable -
1,040 - - Exercisable 900 Exercisable -
Unexercisable 3,600 Unexercisable -
W. Nicholas Howley, 100 6,160 5,802,874 Exercisable 3,890 Exercisable 3,656,600
President, Chief Operating Unexercisable - Unexercisable -
Officer and Director 335 - - Exercisable 1,900 Exercisable 1,339,500
Unexercisable - Unexercisable -
1,040 - - Exercisable 900 Exercisable -
Unexercisable 3,600 Unexercisable -
Raymond F. Laubenthal, 100 320 301,440 Exercisable 80 Exercisable 75,200
President of AeroControlex Unexercisable - Unexercisable -
Group 200 - - Exercisable 400 Exercisable 336,000
Unexercisable - Unexercisable -
335 - - Exercisable 300 Exercisable 211,500
Unexercisable - Unexercisable -
1,040 - - Exercisable - Exercisable -
Unexercisable 700 Unexercisable -
Robert S. Henderson, 154 228 202,470 Exercisable 172 Exercisable 152,392
President of AdelWiggins Unexercisable - Unexercisable -
Group 200 - - Exercisable 400 Exercisable 336,000
Unexercisable - Unexercisable -
335 - - Exercisable 200 Exercisable 141,000
Unexercisable - Unexercisable -
1,040 - - Exercisable - Exercisable -
Unexercisable 700 Unexercisable -
Peter B. Radekevich, 100 800 753,600 Exercisable - Exercisable -
Chief Financial Officer Unexercisable - Unexercisable -
200 32 26,944 Exercisable 368 Exercisable 309,120
Unexercisable - Unexercisable -
335 - - Exercisable 200 Exercisable 141,000
Unexercisable - Unexercisable -
1,040 - - Exercisable - Exercisable -
Unexercisable 575 Unexercisable -
</TABLE>
-22-
<PAGE> 25
MANAGEMENT STOCKHOLDERS AGREEMENT
Together with the consummation of the Recapitalization, Holdings, Odyssey and
the employee stockholders of Holdings, including the Named Executive Officers
(the "Management Stockholders") entered into a Management Stockholders'
Agreement (the "Management Stockholders' Agreement") which governs the shares of
common stock of Holdings (the "Common Stock") and options to purchase Common
Stock, in each case, retained by such persons after the Recapitalization and any
new options and shares acquired thereafter, including the exercise of options.
See "Executive Compensation-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 "Executive Compensation-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 entered 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.
-23-
<PAGE> 26
Each of those employment agreements provide that in the event the respective
executive's employment terminates by reason of death, disability, termination
without "cause" or resignation with "good reason" (all as defined in those
employment agreements), Holdings will continue payment of base salary, bonus and
other perquisites and benefits, in the case of Mr. Howley, for 15 months
thereafter and, in the case of Mr. Peacock, for 18 months thereafter or, if
terminated prior to the third anniversary of the Recapitalization, until such
third anniversary, whichever is longer.
Pursuant to those employment agreements, Messrs. Peacock and Howley will receive
annual base salaries no less than $330,000 and $225,000, respectively, in each
case, subject to annual increases as determined by the Compensation Committee,
and annual cash bonuses based on achievement of performance criteria established
by the Board of Directors.
STOCK OPTION PLAN
During fiscal 1999, Holdings adopted 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 governs those options retained pursuant to the
Rollover Investment (the "Rollover Options"). A total of 18,990 shares of Common
Stock of Holdings were reserved for issuance under the Option Plan and 15,115 of
the options were issued during fiscal 1999. The Chief Executive Officer has
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 has 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 has 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 granted 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 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 was 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.
-24-
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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>
Odyssey (as defined in footnote 1) 100,240 (1) 82.7 %
------- -----
Kelso (as defined in footnote 2) 18,422 (2) 15.2
------- -----
Stephen Berger 100,240 (1)(3) 82.7
------- -----
Robert S. Henderson 772 (4) (*)
------- -----
William Hopkins 100,240 (1)(5) 82.7
------- -----
W. Nicholas Howley 6,690 (6) 5.5
------- -----
Raymond F. Laubenthal 780 (7) (*)
------- -----
Muzzafar Mirza 100,240 (1)(8) 82.7
------- -----
Douglas W. Peacock 7,800 (9) 6.4
------- -----
Peter B. Radekevich 568 (10) (*)
------- -----
Thomas R. Wall, IV 18,422 (2) 15.2
------- -----
All officers and directors as a group
(12 members) 135,855 (11) 99.0
-------- -----
</TABLE>
- -----------------------
(*) Less than 1.0%
(1) Consists of 100,240 shares of common stock owned by Odyssey Investment
Partners, LP (the "Fund"), Odyssey Coinvestors, LLC ("Coinvestment"),
TD Coinvestment I, LLC ("TD I"), and TD Coinvestment II, LLC ("TD II"
and together with the Fund, Coinvestment and TD I, "Odyssey"). Odyssey
Capital Partners, LLC is the general partner of the Fund. Odyssey
Investment Partners, LLC is the manager of the Fund and the managing
member of each of Coinvestment, TD I and TD II. The principal business
address for Odyssey is 280 Park Avenue, West Tower, 38th Floor, New
York, N.Y. 10017. Stephen Berger, Muzzafar Mirza, William Hopkins
(directors of Holdings) and Brian Kwait and Paul Barnett are managing
members of Odyssey Capital Partners, LLC and Odyssey Investment
Partners, LLC and, therefore, may each be deemed to share voting and
investment power with respect to such shares deemed to be owned by
Odyssey. Each of them disclaims beneficial ownership of such shares.
-25-
<PAGE> 28
(2) 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, Frank K. Bynum,
Jr. and Philip E. Berney may be deemed to share beneficial ownership
of shares beneficially owned by KIA IV-TD, KP IV and KEP II by virtue
of their status as general partners of KP IV, which is the managing
member of KIA IV-TD, and as general partners of KEP II, but each
disclaims such beneficial ownership. The address of each of KIA IV-TD,
KP IV, KEP II and Messrs. Wall, Schuchert, Nickell, Matelich,
Goldberg, Wahrhaftig, Bynum and Berney is c/o Kelso & Company, 320
Park Avenue, 24th Floor, New York, New York 10022.
(3) Includes 100,240 shares and votes deemed to be beneficially owned by
Odyssey (as defined). Mr. Berger is a senior managing member of Odyssey
Capital Partners, LLC and Odyssey Investment Partners, LLC. 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.
(4) Includes 772 shares purchasable within 60 days upon the exercise of
options held by Mr. Henderson.
(5) Includes 100,240 shares and votes deemed to be beneficially owned by
Odyssey. Mr. Hopkins is a managing member of Odyssey Capital Partners,
LLC and Odyssey Investment Partners, LLC. 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.
(6) Includes 6,690 shares purchasable within 60 days upon the exercise of
options held by Mr. Howley.
(7) Includes 780 shares purchasable within 60 days upon the exercise of
options held by Mr. Laubenthal.
(8) Includes 100,240 shares and votes deemed to be beneficially owned by
Odyssey. Mr. Mirza is a managing member of Odyssey Capital Partners,
LLC and Odyssey Investment Partners, LLC. 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.
(9) Includes 6,989 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.
(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) 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 16,382 shares, or 13.5%, which are purchasable
within 60 days upon the exercise of options.
-26-
<PAGE> 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX ALLOCATION AGREEMENT
TransDigm and Holdings are parties to a Tax Allocation Agreement. 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 "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 15.2% of the Common
Stock of Holdings. 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, 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
"Directors and Executive Officers" for a description of certain agreements that
have been entered into with certain members of management in connection with the
Recapitalization. See "Certain Relationships and Related Transactions-
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.
-27-
<PAGE> 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included in a
separate section of this Report following the signature pages:
Consolidated Balance Sheets - September 30, 1999 and September 30, 1998
Consolidated Statements of Operations - Years Ended September 30, 1999,
September 30, 1998 and September 30, 1997
Consolidated Statements of Changes in Shareholders' Equity (Deficiency) - Years
Ended September 30, 1999, September 30, 1998 and September 30, 1997
Consolidated Statements of Cash Flows - Years Ended September 30, 1999,
September 30, 1998 and September 30, 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in a separate section of
this Report following the signature pages - Valuation and Qualifying Accounts -
Years Ended September 30, 1999, September 30, 1998 and September 30, 1997.
(a)(3) EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
*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).
-28-
<PAGE> 31
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
*3.10 Amended and Restated Articles of Incorporation, filed on April 23,
1999, of ZMP, Inc.
*3.11 Certificate of Ownership and 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 Aerospace Products, Inc. (Adams Rite
Aerospace, Inc.).
*3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles
of Incorporation of Adams Rite Aerospace Products, Inc. (Adams Rite
Aerospace, Inc.).
*3.16 Certificate of Amendment, filed on August 11,1997, of the Articles of
Incorporation of Adams Rite Aerospace 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 Notes due 2009 (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).
-29-
<PAGE> 32
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
*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 Employment Agreement dated May 19, 1999, between TransDigm Holding
Company and Douglas W. Peacock.
10.5 Employment Agreement dated May 19, 1999, between TransDigm Holding
Company and W. Nicholas Howley.
*10.6 TransDigm Inc. Senior Executive Benefits Plan.
*10.7 Summary of Annual Incentive Compensation Plan for Key Management
Employees of TransDigm Inc.
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of EBITDA, As Defined, to Interest Expense.
12.3 Computation of Ratio of Total Debt to EBITDA, As Defined.
*21.1 Subsidiaries of TransDigm Holding Company.
24.1 Power of Attorney - TransDigm Holding Company
24.2 Power of Attorney - TransDigm Inc.
24.3 Power of Attorney - Marathon Power Technologies Company
24.4 Power of Attorney - ZMP, Inc.
24.5 Power of Attorney - Adams Rite Aerospace, Inc.
*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.
- -----------------
(*) (Incorporated by reference to same titled exhibit to the
Co-Registrants' Registration Statement on Form S-4 dated January 29,
1999 File No.333-71397, as amended.)
-30-
<PAGE> 33
(b) REPORTS ON FORM 8-K
We did not file any reports on Form 8-K during the fourth quarter of fiscal
1999.
(c) EXHIBITS
The exhibits which are listed under Item 14(a)(3) are filed or incorporated
by reference herein.
(d) SEPARATE FINANCIAL STATEMENTS AND SCHEDULES
The following financial statement schedule is included in a separate
section of this Report following the signature pages - Valuation and
Qualifying Accounts - Years Ended September 30,1999, September 30, 1998 and
September 30, 1997.
-31-
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Act of 1934, as
amended, each of the Co-Registrants has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Richmond Heights, State of Ohio, on December 23, 1999.
TRANSDIGM HOLDING COMPANY
By: /s/ Peter B. Radekevich
-----------------------------------------
Peter B. Radekevich
Chief Financial Officer
TRANSDIGM INC.
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
-32-
<PAGE> 35
TRANSDIGM HOLDING COMPANY
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*
- -------------------------- Chief Executive Officer (Principal December 23, 1999
Douglas W. Peacock Executive Officer) and Chairman
of the Board
*
- -------------------------- President and Chief Operating Officer December 23, 1999
W. Nicholas Howley (Principal Operating Officer)
and Director
/s/Peter B. Radekevich Chief Financial Officer (Principal December 23, 1999
- -------------------------- Financial and Accounting Officer)
Peter B. Radekevich
* Director December 23, 1999
- --------------------------
Stephen Berger
* Director December 23, 1999
- --------------------------
William Hopkins
* Director December 23, 1999
- --------------------------
Muzzafar Mirza
* Director December 23, 1999
- --------------------------
John W. Paxton
* Director December 23, 1999
- --------------------------
Thomas R. Wall, IV
</TABLE>
-33-
<PAGE> 36
TRANSDIGM INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chief Executive Officer (Principal December 23, 1999
- -------------------------- Executive Officer) and Chairman of
Douglas W. Peacock the Board
* President and Chief Operating Officer December 23, 1999
- -------------------------- (Principal Operating Officer) and
W. Nicholas Howley Director
/s/Peter B. Radekevich Chief Financial Officer (Principal December 23, 1999
- -------------------------- Financial and Accounting Officer)
Peter B. Radekevich
* Director December 23, 1999
- --------------------------
Stephen Berger
* Director December 23, 1999
- --------------------------
William Hopkins
* Director December 23, 1999
- --------------------------
Muzzafar Mirza
* Director December 23, 1999
- --------------------------
John W. Paxton
* Director December 23, 1999
- --------------------------
Thomas R. Wall, IV
</TABLE>
-34-
<PAGE> 37
MARATHON POWER TECHNOLOGIES COMPANY
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chief Executive Officer (Principal December 23, 1999
- --------------------------- Executive Officer) and Chairman
Douglas W. Peacock of the Board
* President (Principal Operating Officer) December 23, 1999
- ---------------------------
Albert J. Rodriguez
/s/Peter B. Radekevich Chief Financial Officer (Principal December 23, 1999
- --------------------------- Financial and Accounting Officer)
Peter B. Radekevich
*
- --------------------------- Director December 23, 1999
W. Nicholas Howley
</TABLE>
-35-
<PAGE> 38
ZMP, INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board and Executive December 23, 1999
- --------------------------- Vice President (Principal Executive
Douglas W. Peacock Officer)
*
- --------------------------- President (Principal Operating Officer) December 23, 1999
John F. Leary
/s/Peter B. Radekevich Treasurer and Chief Financial Officer December 23, 1999
- --------------------------- (Principal Financial and Accounting
Peter B. Radekevich Officer)
* Executive Vice President and Director December 23, 1999
- ---------------------------
W. Nicholas Howley
</TABLE>
-36-
<PAGE> 39
ADAMS RITE AEROSPACE, INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board and Executive December 23, 1999
- --------------------------- Vice President (Principal Executive
Douglas W. Peacock Officer)
*
- --------------------------- President (Principal Operating Officer) December 23, 1999
John F. Leary
/s/Peter B. Radekevich Treasurer and Chief Financial Officer December 23, 1999
- --------------------------- (Principal Financial and Accounting
Peter B. Radekevich Officer)
* Executive Vice President and Director December 23, 1999
- ---------------------------
W. Nicholas Howley
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-K pursuant to the Power of Attorney executed by
the above-named officers and Directors of the Co-Registrants and filed with
the Securities and Exchange Commission on behalf of such officers and
Directors.
By: /s/ Peter B. Radekevich
------------------------------------
Peter B. Radekevich,
ATTORNEY-IN-FACT
-37-
<PAGE> 40
TRANSDIGM HOLDING COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K:
FISCAL YEAR ENDED SEPTEMBER 30,1999
ITEM 8 AND ITEM 14(a) (1)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
PAGE
FINANCIAL STATEMENTS:
Independent Auditors' Report F-1
Consolidated Balance Sheets at September 30, 1999 and
September 30,1998 F-2
Consolidated Statements of Operations for the Years Ended
September 30, 1999, September 30,1998 and September 30,
1997 F-3
Consolidated Statements of Changes in Shareholders' Equity
(Deficiency) for the Years Ended September 30, 1999,
September 30, 1998 and September 30, 1997 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, September 30, 1998 and September 30, 1997 F-5
Notes to Consolidated Financial Statements F-6 -- F-18
SUPPLEMENTARY DATA:
Independent Auditors' Report F-19
Valuation and Qualifying Accounts for the Years Ended
September 30, 1999, September 30, 1998 and
September 30, 1997 F-20
<PAGE> 41
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 30,1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and of cash flows for each of the three years
in the period ended September 30, 1999. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 1, 1999
F-1
<PAGE> 42
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,729 $ 19,486
Accounts receivable - net (Note 4) 22,399 12,530
Inventories (Note 5) 29,217 18,280
Income taxes refundable 2,810
Deferred income taxes (Note 11) 6,614 3,799
Prepaid expenses and other 398 165
-------- --------
Total current assets 64,167 54,260
PROPERTY, PLANT AND EQUIPMENT - Net (Note 6) 25,422 21,951
INTANGIBLE ASSETS - Net (Note 7) 58,555 35,294
DEBT ISSUE COSTS - Net 10,951 606
DEFERRED INCOME TAXES AND OTHER (Note 11) 5,322 3,674
-------- --------
TOTAL ASSETS $164,417 $115,785
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) 1999 1998
CURRENT LIABILITIES:
Current portion of long-term debt (Note 9) $ 7,595 $ 5,000
Accounts payable 5,322 5,667
Accrued liabilities (Note 8) 15,719 10,239
Put warrants 16,700
-------- -------
Total current liabilities 28,636 37,606
LONG-TERM DEBT - Less current portion
(Note 9) 258,962 40,000
NON-CURRENT PORTION OF ACCRUED
PENSION COSTS AND OTHER (Note 10) 3,118 1,752
--------- ---------
Total liabilities 290,716 79,358
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 15) --------- ---------
REDEEMABLE COMMON STOCK (Note 12) 1,323
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.01 par value (Note 12):
Voting shares, issued and
outstanding 119,925 shares in 1999
and 236,120 shares in 1998 102,097 22,945
Non-voting shares, issued and outstanding
13,750 shares in 1998 1,336
--------- ---------
Total 102,097 24,281
Retained earnings (deficit) (229,237) 12,900
Accumulated other comprehensive income
(loss)(Note 10) (482) (754)
--------- ---------
Total stockholders' equity
(deficiency) (127,622) 36,427
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 164,417 $115,785
========= ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 43
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
<S> <C> <C> <C>
NET SALES $130,818 $110,868 $78,159
COST OF SALES (Including charge
of $1,143, $242 and $666 in
1999, 1998 and 1997,
respectively, due to
inventory purchase
accounting adjustments) (Note 2) 69,951 59,395 49,303
-------- -------- -------
GROSS PROFIT 60,867 51,473 28,856
-------- -------- -------
OPERATING EXPENSES:
Selling and administrative 13,620 10,473 7,561
Amortization of intangibles 2,063 2,438 2,089
Research and development 2,139 1,724 1,116
Merger expenses (Note 1) 40,012
-------- -------- -------
Total operating expenses 57,834 14,635 10,766
-------- -------- -------
INCOME FROM OPERATIONS 3,033 36,838 18,090
INTEREST EXPENSE - NET 22,722 3,175 3,463
WARRANT PUT VALUE ADJUSTMENT 6,540 4,800
-------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS (19,689) 27,123 9,827
INCOME TAX PROVISION (BENEFIT) (Note 11) (2,772) 12,986 5,193
-------- -------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (16,917) 14,137 4,634
EXTRAORDINARY LOSS FROM EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES OF $975 1,462
(Note 9) -------- -------- -------
NET INCOME (LOSS) $(16,917) $ 14,137 $ 3,172
======== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 44
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIENCY)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
COMMON ACCUMULATED
STOCK RETAINED OTHER
(VOTING AND EARNINGS COMPREHENSIVE
CLASS A SHARES) (DEFICIT) INCOME (LOSS) TOTAL
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1996 $ 24,459 $ (4,409) $ (380) $ 19,670
---------
Comprehensive Income:
Net income 3,172 3,172
Other comprehensive loss (122) (122)
Comprehensive income ---------
3,050
Issuance of common stock 67 67
Purchase of common stock (174) (174)
-------- ---------- --------- --------
BALANCE, SEPTEMBER 30,1997 24,352 (1,237) (502) 22,613
--------
Comprehensive Income:
Net income 14,137 14,137
Other comprehensive loss (252) (252)
Comprehensive income --------
13,885
Purchase of common stock (71) (71)
-------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1998 24,281 12,900 (754) 36,427
--------
Comprehensive Loss:
Net loss (16,917) (16,917)
Other comprehensive income 272 272
Comprehensive loss --------
(16,645)
Issuance of common stock 100,652 100,652
Payment of consideration in
recapitalization (22,808) (224,356) (247,164)
Purchase of common stock (28) (28)
Accretion of redeemable
common stock (864) (864)
-------- ---------- -------- ---------
BALANCE, SEPTEMBER 30,1999 $ 102,097 (229,237) $ (482) $(127,622)
========= ========== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 45
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (16,917) $ 14,137 $ 3,172
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 4,311 4,029 3,677
Amortization of intangibles 2,063 2,438 2,089
Amortization of debt discount and debt issue costs 2,165 267 757
Interest deferral on Holdings PIK Notes 2,000
Warrant put value adjustment 6,540 4,800
Deferred income taxes (1,078) (341) (1,733)
Extraordinary charge for early extinguishment
of debt (Note 9) 1,462
Changes in assets and liabilities, net of effects from
acquisition of businesses (Note 2):
Accounts receivable (5,234) (821) (1,343)
Inventories (842) (870) 337
Prepaid expenses and other assets (2,500) 148 787
Accounts payable (744) 392 1,233
Accrued and other liabilities 557 (2,464) 2,230
-------- ------- -------
Net cash provided by (used in) operating activities (16,219) 23,455 17,468
-------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures (3,043) (5,061) (2,285)
Acquisition of ZMP, Inc. (Note 2) (41,556)
Acquisition of Marathon Power
Technologies Company (Note 2) 766 (40,875)
-------- ------- -------
Net cash used in investing activities (44,599) (4,295) (43,160)
-------- ------- -------
(Continued)
</TABLE>
F-5
<PAGE> 46
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1999 1998 1997
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from subordinated notes, net of fees of $6,868 118,132
Proceeds from new credit facility, net of fees of $5,361 118,639
Proceeds from Holdings PIK Notes and common stock,
net of fees of $341 19,659
Payment of consideration in recapitalization -
common stock and warrants (263,896)
Proceeds from exercise of stock options and issuance of
common stock, including redeemable common stock 100,998 67
Proceeds from term loan, net of fees of $873 49,127
Repayment of term loans and subordinated notes
including prepayment charge of $867 in 1997 (Note 9) (49,443) (5,000) (20,867)
Purchase of common stock (28) (71) (174)
--------- -------- -------
Net cash provided by (used in) financing
activities 44,061 (5,071) 28,153
--------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (16,757) 14,089 2,461
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 19,486 5,397 2,936
--------- -------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,729 $ 19,486 $ 5,397
========= ======== =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for interest $ 14,955 $ 3,640 $ 2,600
========= ======== =======
Cash paid during the year for income taxes $ 1,195 $ 13,490 $ 5,468
========= ======== =======
(Concluded)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 47
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT$
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holding Company ("Holdings"), through its wholly-owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of
proprietary mechanical components servicing predominantly the aircraft
industry. TransDigm, along with its wholly-owned subsidiaries, Marathon
Power Technologies Company ("Marathon"), ZMP, Inc. ("ZMP") and Adams Rite
Aerospace, Inc., ("Adams Rite Aerospace") (collectively, the "Company"),
offers a broad line of component products including tube connectors,
valves, batteries, static inverters, pumps, quick disconnects, clamps, ball
bearing and sliding controls, mechanical hardware, fluid controls, lavatory
hardware, electromechanical controls, and oxygen systems related products.
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 refinanced all of
their 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. The
Senior Credit Facility was subsequently increased to $154 million in
connection with the acquisition of ZMP and Adams Rite Aerospace (see Note
2).
In connection with the Merger, the Company incurred a one-time charge of
approximately $40 million during the year consisting primarily of
compensation costs recognized as a result of the cancellation of certain
stock options, the costs of terminating a financial advisory services
agreement, the write-off of deferred financing costs and professional
advisory fees.
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.
F-7
<PAGE> 48
2. ACQUISITIONS
MARATHON POWER TECHNOLOGIES COMPANY - 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. A post-closing purchase price adjustment of
approximately $.8 million was received from the seller 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 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 and is being amortized on a straight-line basis over 40 years. The
senior term debt was subsequently refinanced in conjunction with the Merger
(see Note 1).
The acquisition has been accounted for as a purchase and Marathon's
operations have been included in Holdings financial statements since the
date of the acquisition.
ZMP, INC. AND ADAMS RITE AEROSPACE, INC. - On April 23, 1999, TransDigm
acquired all of the outstanding common stock of ZMP, the corporate parent
of Adams Rite Aerospace, through a merger. Adams Rite Aerospace
manufactures mechanical hardware, fluid controls, lavatory hardware,
electromechanical controls and oxygen systems related products. The
purchase price for the acquisition was $41 million, subject to adjustment
for changes in working capital and other matters as defined in the merger
agreement. The acquisition was funded through $36 million of additional
borrowings under the Company's credit facility and the use of approximately
$5 million of the Company's cash balances. As a result of the acquisition,
ZMP and Adams Rite Aerospace became wholly-owned subsidiaries of TransDigm.
The Company accounted for the acquisition as a purchase and included the
results of operations of the acquired companies in the accompanying fiscal
1999 consolidated financial statements from the effective date of the
acquisition. The purchase price was allocated based on a preliminary
determination of estimated fair values at the date of the acquisition as
follows (in thousands):
Current assets $ 18,218
Property and equipment 4,739
Goodwill 25,457
Other assets 382
Current liabilities (6,494)
Other liabilities (451)
---------
Net $ 41,851
=========
Goodwill is being amortized on a straight-line basis over forty years.
F-8
<PAGE> 49
PRO-FORMA INFORMATION - The following table summarizes the unaudited,
consolidated pro-forma results of operations, as if the acquisitions
had occurred at the beginning of the following periods ended September 30
(in thousands):
1999 1998
Net sales $ 151,624 $ 146,920
Income from operations 1,913 40,069
Net income (loss) (18,646) 13,867
The consolidated pro-forma operating loss for the year ended September
30, 1999 includes the following charges recognized by Adams Rite Aerospace
prior to the acquisition: (1) $1.4 million ($.84 million after tax) for
compensation expense recognized in connection with a common stock warrant
granted to its former chief executive officer and (2) $.8 million ($.8
million after tax) for costs directly related to the acquisition.
This pro-forma information is not necessarily indicative of the results
that actually would have been obtained if the operations had been combined
as of the beginning of 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. All significant
intercompany balances and transactions have been eliminated.
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. Provision for potentially obsolete or slow-moving
inventory is made based on management's analysis of inventory levels and
future sales forecasts. 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.
DEBT ISSUE COSTS AND DISCOUNTS - The cost of obtaining financing 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 5 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, 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 generally 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.
F-9
<PAGE> 50
PUT WARRANTS - Prior to their redemption in connection with the Merger (see
Note 1), the Company recorded a liability for the estimated put value of
its outstanding warrants to purchase common stock and recognized in
earnings any changes in the estimated put value.
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.
COMPREHENSIVE INCOME - The Company adopted the provisions of Statement No.
130 of the Financial Accounting Standards Board (the "FASB"), Reporting
Comprehensive Income, during the first quarter of fiscal 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 sheets and statements of changes in
stockholders' equity (deficiency), net of taxes of $390,000 and $521,000
at September 30, 1999 and 1998, respectively.
SEGMENT REPORTING - The Company adopted Statement No.131 of the FASB,
Disclosures About Segments of an Enterprise and Related Information, during
the current fiscal year. This statement establishes standards for the way
public business enterprises report financial and descriptive information
about their reportable operating segments such as a measure of segment
profit or loss, certain specific revenue and expense items, and segment
assets. The adoption of this statement did not change the Company's segment
reporting. The Company continues to report its operations as one segment.
In addition, substantially all of the Company's operations are located
within the United States.
4. SALES AND ACCOUNTS RECEIVABLE
SALES - 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.
Information concerning the Company's net sales by its principal product
categories is as follows for the years ended September 30, 1999 and 1998
(in thousands):
<TABLE>
1999 1998
<S> <C> <C>
AeroControlex Division (principally
mechanical controls, valves,
compressors, and pumps) $ 47,592 $ 43,363
AdelWiggins Division (principally
connectors, clamps, service systems,
heaters and hoses) 47,418 44,637
Marathon (principally batteries and
static inverters) 20,945 22,868
Adams Rite Aerospace (principally
faucets, oxygen systems,
hardware and electromechanical
controls) 14,863
--------- ---------
Total $ 130,818 $ 110,868
========= =========
</TABLE>
Sales by product information prior to 1998 is not considered material and
is therefore not presented.
For the year ended September 30, 1999, two customers represented
approximately 15% and 14%, respectively, of the Company's net sales. Two
customers represented approximately 20% and 14%, respectively, of the
Company's net sales during the year ended September 30, 1998 and one
customer represented approximately 15% of the Company's net sales for the
year ended September 30, 1997.
Export sales to customers, primarily in Western Europe, were $30.7 million
in 1999, $17.8 million in 1998, and $15.5 million in 1997.
F-10
<PAGE> 51
ACCOUNTS RECEIVABLE - Accounts receivable consist of the following
at September 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Due from U.S. government or prime contractors under
U.S. government programs $ 2,033 $ 1,217
Commercial customers 20,807 11,578
Allowance for uncollectible accounts (441) (265)
--------- --------
Accounts receivable - net $ 22,399 $ 12,530
========= ========
</TABLE>
Approximately 9% of the Company's receivables at September 30, 1999 were due
from one customer and approximately 27% of the receivables were due from
entities, which principally operate outside of the United States. Credit is
extended based on an evaluation of each customer's financial condition and
collateral is generally not required.
5. INVENTORIES
Inventories consist of the following at September 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Work-in-progress and finished goods $ 28,846 $ 19,312
Raw materials and purchased component parts 7,481 3,303
--------- --------
Total 36,327 22,615
Reserve for excess and obsolete inventory (7,110) (4,335)
--------- --------
Inventories - net $ 29,217 $ 18,280
========= ========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September
30 (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land and improvements $ 4,691 $ 4,683
Buildings and improvements 10,404 8,125
Machinery and equipment 28,211 22,492
Furniture and fixtures 3,222 3,706
Construction in progress 274 150
--------- --------
Total 46,802 39,156
Accumulated depreciation (21,380) (17,205)
--------- --------
Property, plant and equipment - net $ 25,422 $ 21,951
========= ========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the
following at September 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Goodwill $ 57,284 $ 33,341
Technology and other 1,271 1,953
--------- --------
Total $ 58,555 $ 35,294
========= ========
</TABLE>
Accumulated amortization of intangibles was $18.5 million at September 30, 1999
and $16.5 million at September 30, 1998.
F-11
<PAGE> 52
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30 (in
thousands):
1999 1998
Compensation and related benefits $ 5,260 $ 3,993
Interest 4,593 135
Estimated losses on uncompleted contracts 2,809 3,012
Sales returns and repairs 1,841 1,391
Environmental costs 157 280
Income taxes 380
Other 1,059 1,048
--------- --------
Total $ 15,719 $ 10,239
======== ========
9. DEBT
SUMMARY - The Company's long-term debt consists of the following
at September 30 (in thousands):
1999 1998
Term loans $119,557 $ 45,000
Senior Subordinated Notes 125,000
Holdings PIK Notes 22,000
-------- --------
Total debt 266,557 45,000
Current maturities (7,595) (5,000)
-------- --------
Long-term portion $258,962 $ 40,000
======== ========
REVOLVING CREDIT SWING LINE, AND TERM LOANS - In connection with the Merger (see
Note 1) and the acquisition of ZMP and Adams Rite Aerospace (see Note 2),
TransDigm repaid its existing term loans and obtained a new $154 million Senior
Credit Facility with a group of financial institutions, which consists of (1) a
$30 million revolving credit line (including $3 million of available swing line
loans) maturing in 2004 and (2) a term loan facility in the aggregate of $124
million, consisting of a $62 million Tranche A Facility maturing in 2004 and a
$62 million Tranche B Facility maturing in 2006. At September 30, 1999, the
Company had $30 million of borrowings (the entire revolving credit line)
available under the credit facility.
The interest rate for the credit facility is, at TransDigm's option, either (A)
a floating rate equal to the Base Rate plus the Applicable Margin, as defined
in the credit facility; or (B) the Eurodollar Rate for fixed periods of one,
two, three, or six months, plus the Applicable Margin. The 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
credit facility) in excess of a predetermined amount under the credit facility.
The interest rate on outstanding borrowings at September 30, 1999 ranged from
8.625% to 8.875%.
F-12
<PAGE> 53
All obligations under the Senior Credit Facility are guaranteed by Holdings and
each of the subsidiaries, direct and indirect, of TransDigm. The indebtedness
outstanding under the Senior Credit Facility is secured by a pledge of the stock
of TransDigm and all of its domestic subsidiaries and a perfected lien and
security interest in assets other than real estate (tangible and intangible) of
TransDigm, its direct and indirect subsidiaries and Holdings. The agreement also
contains a number of restrictive covenants that, among other things, restrict
Holdings, TransDigm and their subsidiaries from various actions, including
mergers and sales of assets, use of proceeds, granting of liens, incurrence of
indebtedness, voluntary prepayment of indebtedness, capital expenditures, paying
dividends, business activities, investments and acquisitions, and transactions
with affiliates. The agreement also requires the Company to comply with certain
financial covenants pertaining to earnings, interest coverage and leverage. The
Company is in compliance with all financial covenants of the Senior Credit
Facility as of September 30, 1999. The maturities of the Company's term loans by
fiscal year are as follows: $7.6 million in 2000, $11 million in both 2001 and
2002, $14.4 million in 2003, $13.8 million in 2004 and $61.8 million thereafter.
SENIOR SUBORDINATED NOTES - TransDigm's Senior Subordinated Notes (the "Notes")
bear interest at an annual rate of 10 3/8%, maturing on December 1, 2008 and are
unsecured obligations of TransDigm ranking subordinate to the Company's senior
debt, as defined in the note agreement. Up to 35% of the Notes are redeemable by
TransDigm prior to December 1, 2001 with the proceeds of an equity offering. The
Notes are also redeemable after December 1, 2003, in whole or in part, at
specified redemption prices, which decline over the remaining term of the Notes.
If a change in control of the Company occurs, the holders of the Notes will have
the right to demand that the Company redeem the Notes at a purchase price equal
to 101% of the principal amount of the Notes plus accrued interest. The Notes
contain many of the same restrictive covenants included in the Senior Credit
Facility. The Company is in compliance with all financial covenants of the Notes
as of September 30, 1999.
HOLDINGS PIK NOTES - In connection with the Merger (see Note 1), Holdings issued
$20 million of pay-in-kind notes due 2009 ("Holdings PIK Notes" or "PIK Notes").
The PIK Notes are unsecured obligations of Holdings, which has no significant
assets or operations. Interest on the PIK Notes is accrued at an annual fixed
rate of 12% and is payable semi-annually in the form of additional PIK Notes
through December 2003. Thereafter, cash interest is payable semi-annually
commencing in the year 2004. The PIK Notes are redeemable by Holdings prior to
their maturity under certain circumstances and contain many of the same
restrictive covenants included in the Notes and Senior Credit Facility. The
Company is in compliance with all financial covenants of the PIK Notes as of
September 30, 1999.
EXTRAORDINARY LOSS - 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 $0.7 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 $0.8 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.
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.
The following information for the defined benefit plans is provided pursuant to
Statement No.132 of the FASB, Employers' Disclosures About Pensions and Other
Postretirement Benefits, which became effective during the year ended September
30,1999. This statement modified the financial statement footnote disclosures
regarding the plans but did not change the manner in which retirement plan
obligations or expenses are measured or recognized in the financial statements.
F-13
<PAGE> 54
<TABLE>
<CAPTION>
1999 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, beginning of year $ 4,969 $ 4,096
Service cost 83 86
Interest cost 319 306
Benefits paid (252) (233)
Change in assumptions (278) 714
------- -------
Benefit obligation, end of year $ 4,841 $ 4,969
======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets, beginning of year $ 2,817 $ 2,232
Actual return on plan assets 223 150
Employer contribution 593 668
Benefits paid (252) (233)
------- -------
Fair value of plan assets, end of year $ 3,381 $ 2,817
======= =======
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS AT
SEPTEMBER 30 CONSIST OF:
Intangible assets $ (208) $ (226)
Accrued liabilities 600 400
Non-current portion of accrued pension costs 861 1,752
Accumulated other comprehensive income (872) (1,275)
------- -------
Net amount recognized $ 381 $ 651
======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30:
Discount rate 7.0% 6.5%
Expected return on plan assets 6.0% 7.5%
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 83 $ 86
Interest cost 319 306
Expected return on plan assets (177) (190)
Net amortization and deferral 70 94
------- -------
Net periodic pension cost $ 295 $ 296
======= =======
</TABLE>
The Company also sponsors a defined contribution employee savings plan that
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 year ended September 30, 1999 was
approximately $.7 million and, for the years ended September 30, 1998 and 1997,
was approximately $.6 million in each year.
F-14
<PAGE> 55
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following
for the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current $ (1,694) $ 13,327 $ 6,926
Deferred (481) (341) (1,733)
Benefit of operating loss carryforward -
state and local income taxes (597)
-------- -------- --------
Total $ (2,772) $ 12,986 $ 5,193
======== ======== ========
</TABLE>
The difference between the provision (benefit) for income taxes at the federal
statutory income tax rate and the tax shown in the consolidated statements of
operations for the years ended September 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tax at statutory rate of 34% (35% in 1996) $ (6,694) $ 9,493 $ 3,341
State and local income taxes (56) 1,053 445
Nondeductible merger expenses 4,290
Nondeductible warrant put value adjustment 2,289 1,632
Benefit from foreign sales corporation (615) (349) (394)
Nondeductible goodwill amortization 394 353 70
Other - net (91) 147 99
-------- -------- --------
Provision (benefit) for income taxes $ (2,772) $ 12,986 $ 5,193
======== ========= =========
</TABLE>
The components of the deferred tax assets at September 30 consist
of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CURRENT ASSET:
Estimated losses on uncompleted contracts $ 1,143 $ 1,175
Employee benefits 1,379 649
Sales returns and repairs 697 548
Other accrued liabilities 2,798 1,427
Net operating loss carryforwards -
state and local income taxes (expiring
from 2004 through 2014) 597 --
------- --------
Total $ 6,614 $ 3,799
======= ========
NON-CURRENT ASSET:
Intangible assets $ 3,639 $ 3,724
Retirement and other accrued obligations 1,215 596
Holdings PIK Notes interest 680
Property, plant and equipment (914) (646)
------- --------
Total $ 4,620 $ 3,674
======= ========
</TABLE>
F-15
<PAGE> 56
12. COMMON STOCK AND OPTIONS
COMMON 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, 1999, common stock issued to
management personnel is subject to the Management Shareholders' Agreement which
provides management shareholders the right (a "put") to require the Company to
repurchase their shares of common stock under certain conditions at fair market
value. Accordingly, the estimated put value of the 1,270 outstanding shares of
voting common stock held by management for which it is probable that the put
rights will be exercised has been classified as redeemable common stock in the
accompanying September 30, 1999 consolidated balance sheet.
During the years ended September 30, 1999, 1998 and 1997, the Company issued
common stock (voting and non-voting Class A) principally to Odyssey in
connection with the Merger in 1999 (see Note 1) and to employees and members of
its board of directors in prior years, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Number of shares* 101,503 - 200
======== ======= =========
Proceeds* $100,652 $ - $ 67
======== ======= =========
</TABLE>
During the years ended September 30, 1999, 1998 and 1997, the Company also
repurchased common stock (voting and non-voting Class A), principally as a
result of the Merger in 1999 (see Note 1) and from terminated employees in prior
years, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Number of shares* 231,448 175 410
======== ======= =========
Acquisition costs* $247,192 $ 71 $ 174
======== ======= =========
</TABLE>
* - Excluding put warrants and redeemable common stock.
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.
The options are not exercisable more than ten years after the date the options
are granted. A summary of the status of the Company's stock option plans as of
September 30, 1999, 1998 and 1997 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- ------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 37,467 $ 158 37,467 $ 158 31,150 $ 116
Granted 15,115 1,040 7,597 324
Exercised/cancelled
(see Note 1) (22,183) 121 (220) 145
Forfeited (1,060) 147
-------- ------ -------
Outstanding at end of year 30,399 623 37,467 158 37,467 158
======== ====== =======
Exercisable at end of year 17,084 298 19,670 113 17,121 110
======== ====== =======
</TABLE>
F-16
<PAGE> 57
The following table summarizes information about stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
<S> <C> <C> <C> <C>
$ 100 7,002 4.8 7,002
154 172 5.8 172
200 1,613 6.5 1,613
335 6,497 7.5 6,497
1,040 15,115 9.6 1,800
------ ------
30,399 17,084
====== ======
</TABLE>
At September 30, 1999, 3,875 remaining options were available for award under
the Company's stock option plans.
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 No. 123 of the FASB, the Company's net loss for the year ended
September 30, 1999 would have increased by approximately $634,000 and the
Company's net income for the preceding two years would have been reduced by
approximately $115,000 in each year.
The weighted average fair value of options granted during the years ended
September 30, 1999 and 1997 was $383.89 and $125.65, 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: risk-free
interest rates ranging from 5.99% to 6.85%, expected life of approximately seven
years, expected volatility and dividend yield of 0%.
13. LEASES
The Company leases office space for its corporate headquarters and one of its
divisions. The Company also leases the manufacturing facility utilized by Adams
Rite Aerospace. The office space lease requires rental payments of approximately
$200,000 per year through 2004. TransDigm may also be required to share in the
operating costs of the facility under certain conditions. The Adams Rite
Aerospace facility lease requires rental payments ranging from $540,000 to
$780,000 through December 2012. TransDigm also has commitments under operating
leases for vehicles and equipment. Rental expense was $688,000 in 1999, $599,000
in 1998, and $540,000 in 1997. Future, minimum rental commitments at September
30, 1999 under operating leases having initial or remaining non-cancelable lease
terms exceeding one year are $974,000 in 2000, $927,000 in 2001, $862,000 in
2002, $786,000 in 2003, $725,000 in 2004, and $4,365,000 thereafter.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash and cash
equivalents, accounts receivable and payable, accrued liabilities and long-term
debt. The carrying value of the Company's cash and cash equivalents, accounts
receivable and payable, and accrued liabilities approximates 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. The fair value of the Company's Senior
Subordinated Notes approximated $117,500,000 at September 30, 1999 based upon
quoted market prices. A determination of the fair value of the Holdings PIK
Notes is not considered practicable because they are held by a related party
(see Note 1) and are not publicly traded.
F-17
<PAGE> 58
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,
the Company does not believe the condition of the soil and groundwater at the
Waco facility will require incurrence of material expenditures; however, there
can be no assurance that additional contamination will not be discovered or that
the remediation required by the TNRCC will not be material to the financial
condition, results of operations, or cash flows of the Company.
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 STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(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. The Company will adopt this
standard during fiscal 2001.
While management has not completed its analysis of this new accounting standard,
its adoption is not expected to have a material effect on the Company's
financial statements.
* * * * * *
F-18
<PAGE> 59
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, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency) and of cash flows for each of the three years in the period ended
September 30, 1999 and have issued our report thereon dated November 1, 1999;
such consolidated financial statements and report are included on pages F-1
through F-18 of this Form 10-K. Our audits also included the consolidated
financial statement schedule of the Company, shown on page F-20. 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 1, 1999
F-19
<PAGE> 60
TRANSDIGM HOLDING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------------------
ADDITIONS
--------------------------------------
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND MARATHON ZMP FROM END OF
DESCRIPTION PERIOD EXPENSES ACQUISITION ACQUISITION RESERVE (1 ) PERIOD
<S> <C> <C> <C> <C> <C> <C>
Year Ended September 30, 1999:
Allowance for doubtful accounts $ 265 $ 35 $ 150 $ 9 $ 441
Reserve for excess and
and obsolete inventory 4,335 (437) 2,583 (629) 7,110
Sales returns and repairs 1,391 392 828 770 1,841
Environmental 280 (42) 81 157
Year Ended September 30, 1998:
Allowance for doubtful accounts 503 (165) 73 265
Reserve for excess and
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
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
</TABLE>
(1) For the allowance for doubtful accounts and 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.
F-20
<PAGE> 61
EXHIBIT INDEX
TO FORM 10K FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C>
10.4 Employment Agreement Dated May 19, 1999
Between TransDigm Holding Company and
Douglas W. Peacock i
10.5 Employment Agreement Dated May 19, 1999
Between TransDigm Holding Company and
W. Nicholas Howley xiv
12.1 Computation of Ratio of Earnings to Fixed Charges xxv
12.2 Computation of Ratio of EBITDA (As Defined) to
Interest Expense xxvi
12.3 Computation of Ratio of Total Debt to EBITDA
(As Defined) xxvii
24.1 Power of Attorney - TransDigm Holding Company xxviii
24.2 Power of Attorney - TransDigm Inc. xxix
24.3 Power of Attorney - Marathon Power Technologies Company xxx
24.4 Power of Attorney - ZMP, Inc. xxxi
24.5 Power of Attorney - Adams Rite Aerospace, Inc. xxxii
27 Financial Data Schedule xxxiii
</TABLE>
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of May 19, 1999 and effective as of December 3, 1998,
as described herein, is made by and between TransDigm Holding Company, a
Delaware corporation (the "Company"), and Douglas W. Peacock (the "Executive").
RECITALS:
WHEREAS, the Executive has heretofore been employed by the Company as Chairman
of the Board and Chief Executive Officer; and
WHEREAS, in connection with a contemplated merger and recapitalization of the
Company, it is the desire of the Company to assure itself of the continuity of
the management services of the Executive following the consummation of such
transactions; and
WHEREAS, the Company and the Executive intend this Agreement to be effective as
of the consummation of the aforementioned contemplated merger and
recapitalization, which occurred on December 3,1998 (the "Effective Date");
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" shall have the meaning set forth in Section
4(a).
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CAUSE" shall mean either of the following: (i) the continued
failure by the Executive, after written notice from the Board,
substantially to perform his duties and responsibilities as an
officer or employee or director of the Company or any of its
subsidiaries (other than any such failure resulting from incapacity
due to reasonably documented physical or mental illness), or (ii)
the engagement by the Executive in serious misconduct which is
material to the performance by the Executive of his duties and
obligations for the Company or any of its subsidiaries, including,
without limitation, the disclosure of material secret or
confidential information of the Company or any of its subsidiaries,
(d) "CHANGE IN CONTROL" shall mean a change in ownership or control of
the Company effected through a transaction or series of transactions
(other than an offering of Common Stock to the general public
through a registration statement filed with the Securities and
Exchange Commission) whereby any "person" or related "group" of
"persons" (as such terms are used in Sections 13(d) and 14(d)(2) of
the Exchange Act) (other than the Company, any of its subsidiaries,
an employee benefit plan maintained by the Company or any of its
subsidiaries, a Principal Stockholder or a "person" that, prior to
such transaction, directly or indirectly controls, is controlled by,
or is under common control with, the Company or a Principal
Stockholder) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company possessing more than fifty percent (50%)
of the total combined voting power of the Company's securities
outstanding immediately after such acquisition.
(e) "COMMON STOCK" shall mean the common stock of the Company, $0.01 par
value per share.
(f) "COMPANY" shall have the meaning set forth in the preamble hereto.
i
<PAGE> 2
(g) "COMPENSATION COMMITTEE" shall mean the Compensation Committee of
the Board whose members shall be appointed by the Board from time to
time and shall initially include Stephen Berger, as Chairman,
Muzzafar Mirza and William Hopkins.
(h) "DATE OF TERMINATION" shall mean (i) if the Executive's employment
is terminated by reason of his death, the date of his death, and
(ii) if the Executive's employment is terminated pursuant to
Sections 5(a)(ii) - (viii), the date specified in the Notice of
Termination; PROVIDED, HOWEVER, that as set forth in Section
4(l)(i), for purposes of the Management Stockholders' Agreement, the
Executive shall not be deemed to have incurred a termination of
employment upon the commencement of or during the Non-Executive
Term.
(i) "DISABILITY" shall mean the inability of the Executive to perform
his duties and responsibilities as an officer or employee of the
Company or any of its subsidiaries on a full-time basis for more
than six months within any 12-month period because of a physical,
mental or emotional incapacity resulting from injury, sickness or
disease.
(j) "EBITDA" with respect to any period of determination shall mean the
sum of the following (without duplication): (i) consolidated net
income (or loss) of the Company and, if applicable, its subsidiaries
for such period (exclusive of the effect of extraordinary items and
non-cash gains and losses), as determined by the Company's
independent certified public accountants in accordance with
generally accepted accounting principles consistently applied, as
such principles are in effect at the date hereof, plus (ii) amounts
deducted from net revenues in determining such net income (or loss)
on account of (w) depreciation and amortization, (x) interest
expense (net of interest income), (y) all taxes on income and (z)
any management or acquisition fee charged to the Company by the
Principal Stockholder.
(k) "EFFECTIVE DATE" shall have the meaning set forth in the recitals
hereto.
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "EXECUTIVE" shall have the meaning set forth in the preamble hereto.
(n) "EXERCISABLE OPTIONS" as of any date of determination, shall mean
those Options (or portions thereof) held by the Executive that are
then exercisable Options.
(o) "FAIR MARKET VALUE" shall have the meaning ascribed to such term
under the Management Stockholders' Agreement.
(p) "GOOD REASON" shall mean the occurrence of any of the following: (i)
a material diminution in the Executive's title, duties or
responsibilities, without his prior written consent, (ii) a
reduction of the Executive's aggregate cash compensation (including
bonus opportunities), benefits or perquisites, without his prior
written consent, (iii) the occurrence of a Change in Control or (iv)
W. Nicholas Howley's termination of employment with the Company for
"Good Reason" as defined in subsections (i), (ii) and (iii) of this
subsection.
(q) "MANAGEMENT STOCKHOLDERS' AGREEMENT" shall mean that certain
Management Stockholders' Agreement dated as of December 3, 1998
among the Company, Odyssey Investment Partners Fund, LP, the
Executive and the other stockholders party thereto, as amended from
time to time.
(r) "NOTICE OF TERMINATION" shall have the meaning set forth in Section
5(b).
(s) "NON-EXECUTIVE TERM" shall have the meaning set forth in Section
3(b).
ii
<PAGE> 3
(t) "Option Agreements" shall mean the written agreements between the
Company and the Executive pursuant to which the Executive holds or
is granted options to purchase Common Stock, including, without
limitation, agreements evidencing options granted under the Option
Plan and agreements governing the terms of "Roll-Over Options" (as
defined in the Management Stockholders' Agreement).
(u) "Option Plan" shall mean the 1998 Stock Option Plan of TransDigm
Holding Company, as amended from time to time.
(v) "Options" as of any date of determination shall mean options held by
the Executive as of such date to purchase Common Stock of the
Company.
(w) "Payment Period" shall have the meaning set forth in Section
6(b)(i).
(x) "Principal Stockholder" shall mean Odyssey Investment Partners Fund,
LP and any of its Permitted Assignees (as such term is defined in
the Management Stockholders' Agreement).
(y) "Retirement" shall mean the termination of the Executive's services
with the Company as a result of his retirement from active service
as the Chief Executive Officer of the Company upon or after the
third anniversary of the Effective Date; provided, however, that as
set forth in Section 4(l)(i), for purposes of the Management
Stockholders' Agreement, the Executive shall not be deemed to have
incurred a "Retirement" upon the commencement of or during the
Non-Executive Term, if any, but on his termination of service as
Chairman of the Board on or after attaining age 65.
(z) "Term" shall have the meaning set forth in Section 2(a).
2. EMPLOYMENT.
(a) The Company shall continue to employ the Executive and the Executive
shall remain in the employ of the Company, for the period set forth
in this Section 2, in the positions set forth in Section 3 and upon
the other terms and conditions herein provided. The term of
employment under this Agreement (the "Term") shall be for the period
beginning on the Effective Date and ending on the fifth anniversary
thereof unless earlier terminated as provided in Section 5;
provided, however, that unless so earlier terminated or unless the
Executive or the Company shall give written notice to the other of
his or its intention not to renew this Agreement no less than sixty
days prior to the scheduled expiration thereof, upon the fifth
anniversary of the Effective Date, this Agreement shall
automatically be renewed for an additional two year period.
(b) On or after the third anniversary of the Effective Date, the
Executive may elect to resign as the Chief Executive Officer of the
Company but continue to provide services to the Company as a
non-executive Chairman, in which case the Executive shall be
entitled to compensation for his services commensurate with his
duties and responsibilities to the Company, as mutually agreed to by
the Company and the Executive at such time.
iii
<PAGE> 4
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as the Chairman of the
Board and Chief Executive Officer of each of the Company and its
subsidiary, TransDigm Inc. ("TransDigm") with such customary
responsibilities, duties and authority as may from time to time be
assigned to the Executive by the Board. During the period of the
Executive's active employment as Chief Executive Officer, the
Executive shall devote substantially all his working time and
efforts to the business and affairs of the Company and TransDigm;
PROVIDED, that it shall not be considered a violation of the
foregoing for the Executive to (i) continue to serve as a member of
the Board of Directors of Microporous, LLP, (ii) with the prior
consent of the Board (which consent shall not unreasonably be
withheld), serve on corporate, industry, civic or charitable boards
or committees, and (iii) manage his personal investments, so long as
none of such activities significantly interferes with the
Executive's duties hereunder.
(b) The Executive shall continue to serve as the Chairman of the Board
during the Term, and thereafter, during the period commencing on the
date the Executive elects to serve as the non-executive Chairman of
the Board pursuant to Sections 2(b) and 5(a)(vii) and ending on the
earliest of (i) the date the Executive resigns from such position,
(ii) the date the Executive dies and (iii) the date the Executive is
removed from the Board for Cause (the "Non-Executive Term"). During
the Term and any such Non-Executive Term, the Board shall propose
the Executive for re-election to the Board and the Principal
Stockholders shall vote all of their shares of Common Stock in favor
of such re-election. If elected or appointed thereto, and only for
the duration of such elected term or appointment, the Executive
shall also serve as a director of any of the Company's subsidiaries
and/or in one or more executive offices of any entities owned by the
Company.
4. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. During the Term, the Executive shall receive a
base salary at a rate that is no less than $330,000 per annum (the
"Annual Base Salary"), payable in accordance with the Company's
normal payroll practices. The rate of the Annual Base Salary shall
be reviewed by the Compensation Committee on or prior to each
anniversary of the Effective Date during the Term and may be
increased, but not decreased, upon such review.
(b) BONUS. For each fiscal year during the Term, the Executive shall be
eligible to participate in the Company's annual cash bonus plan in
accordance with terms and provisions which shall be consistent with
the Company's executive bonus policy in effect as of the Effective
Date.
(c) NON-QUALIFIED DEFERRED COMPENSATION. During the Term, the Executive
shall be eligible to continue to participate in the Company's
Non-Qualified Deferred Compensation Plan and Rabbi Trust in a manner
that is consistent with that in effect as of the Effective Date. The
Company shall continue to fund the Rabbi Trust throughout the Term
in a manner consistent with its funding practices in effect as of
the Effective Date.
(d) LONG TERM INCENTIVE COMPENSATION. During the Term, the Executive
shall be entitled to participate in the Option Plan or any successor
plan thereto.
(e) BENEFITS. During the Term, the Executive shall be entitled to
participate in the other employee benefit plans, programs and
arrangements of the Company now (or, to the extent determined by the
Board or Compensation Committee, hereafter) in effect which are
applicable to the senior officers of the Company generally, subject
to and on a basis consistent with the terms, conditions and overall
administration thereof; provided, however, that such plans, programs
and arrangements shall be consistent in all material respects with
those in effect as of the Effective Date.
iv
<PAGE> 5
(f) EXPENSES. Pursuant to the Company's customary policies in force at
the time of payment, the Executive shall be reimbursed for all
expenses properly incurred by the Executive on the Company's behalf
in the performance of the Executive's duties hereunder.
(g) VACATION. The Executive shall be entitled to an amount of annual
vacation days, and to compensation in respect of earned but unused
vacation days in accordance with the Company's vacation policy as in
effect as of the Effective Date. The Executive shall also be
entitled to paid holidays in accordance with the Company's practices
with respect to same as in effect as of the Effective Date.
(h) AUTOMOBILE. During the Term, the Company shall provide the Executive
with an annual automobile allowance at a rate not less than that in
effect as of the Effective Date.
(i) CLUB MEMBERSHIP. During the Term, the Company shall pay on behalf of
the Executive, or reimburse the Executive for, annual membership
fees payable in connection with the Executive's membership in one
country club of the Executive's choice.
(j) TAX AND FINANCIAL PLANNING ASSISTANCE. During the Term, the Company
shall, upon submission of proper documentation, pay on behalf of the
Executive, or reimburse the Executive for, reasonable expenses
incurred for professional assistance in planning and preparing his
tax returns and managing his financial affairs, provided that such
expenses do not exceed $25,000 per annum.
(k) LOAN TO PURCHASE SHARES OF COMMON STOCK. In the event that during
the Term or the Non-Executive Term, the Executive elects to
purchase shares of Common Stock pursuant to Section 5.2 of the
Management Stockholders' Agreement, the Company shall, or shall
cause one of its affiliates to, lend to the Executive up to $1.5
million in the aggregate (or such greater amount as determined by
the Compensation Committee in its discretion) as payment for such
shares pursuant to the terms of a recourse promissory note or notes
bearing interest of the lowest rate specified pursuant to Section
1274 of the Internal Revenue Code so as to avoid imputed interest,
and security agreement(s) under which the Executive shall pledge
such shares to the Company (or affiliate thereof, as applicable) as
security for repayment of such loan(s). Any interest due on such
loan shall be converted into principal and shall not be payable
currently as it is accrued, but rather shall be payable when the
underlying shares are sold. Any such note and security agreement
shall have terms consistent with the forgoing and shall be in a form
acceptable to the Company's (or its affiliate's) lenders under the
terms of the Financing Documents (as such term is defined in the
Management Stockholders' Agreement).
(l) RIGHT OF THE EXECUTIVE TO SELL COMMON STOCK TO HOLDINGS.
(i) For purposes of the Management Stockholders' Agreement, (A) if
the Executive elects to resign as Chief Executive Officer but
continues to provide services to the Company as non-executive
Chairman pursuant to Sections 2(b) and 5(b)(vii) of this
Agreement at any time, such resignation shall not constitute a
resignation, "Retirement" or other termination of employment
thereunder, and (B) the date on which the Executive ceases to
serve as non-executive Chairman shall be deemed to be the date
of his termination of employment for purposes of the
Management Stockholders' Agreement and the reason for his
termination of such service (I.E., death, Disability, for
Cause, Retirement) shall be deemed to be the reason for his
termination of employment for purposes of the Management
Stockholders' Agreement.
v
<PAGE> 6
(ii) Subject to Section 7 of the Management Stockholders'
Agreement, during the Non-Executive Term, if any, and during
the period, if any, during which the Executive continues
active service as Chief Executive Officer after the third
anniversary of the Effective Date (each, the "Put Period"),
the Executive shall have the right to sell to Holdings, and
Holdings shall have the obligation to purchase from the
Executive, at their Fair Market Value, that number of shares
of Common Stock not to exceed in the aggregate 80% of the sum
of(A) the number of shares of Common Stock held by the
Executive at the commencement of the Non-Executive Term or at
the third anniversary of the Effective Date, as applicable,
and (B) the number of shares of Common Stock that could be
acquired by the Executive at the commencement of the
Non-Executive Term (or third anniversary of the Effective
Date, as applicable) upon the exercise of Options that at such
time are Exercisable Options (the "Aggregate Stock"), in
accordance with the provisions of this Section 4(l)(ii) (the
"Additional Put"). The Executive shall have the right to
exercise the Additional Put at any time during the Put Period
as of which (1) EBITDA for the fiscal year ending September
30, 2001 or for any four consecutive fiscal quarters
thereafter equals or exceeds $65 million, AND (2) the
Executive is then serving as either Chairman and Chief
Executive Officer or non-executive Chairman; PROVIDED,
HOWEVER, that (x) the Executive may not exercise the
Additional Put within six months following a prior exercise of
the Additional Put; (y) the Additional Put may not be
exercised for less than 10% of the Aggregate Stock and (z) the
Additional Put may only be exercised with respect to shares
which the Executive has held for at least six months. If the
Executive desires to exercise the Additional Put pursuant to
this Section 4(l)(ii), he shall notify the Company in writing,
specifying the number of shares to be sold pursuant to the
exercise of the Additional Put hereunder. Subject to Section 7
of the Management Stockholders' Agreement, payment for shares
of Common Stock sold by the Executive pursuant to this Section
4(l)(ii) shall be made on or prior to the date 60 days (or the
first business day thereafter if the 60th day is not a
business day) following the date of the receipt by the Company
of the Executive's notice described herein; PROVIDED, HOWEVER,
that if such payment is being made on or after the first day
of the seventh month of any fiscal year, then such payment
shall be made on or prior to the date that is 60 days (or the
first business day thereafter if the 60th day is not a
business day) following the date of the determination of Fair
Market Value in a manner consistent with the provisions of
Section 6.2(c) of the Management Stockholders' Agreement.
(iii) If the Executive holds Exercisable Options as of the date he
notifies the Company of the exercise of the Additional Put
pursuant to Section 4(l)(ii) and together with such notice,
notifies the Company that he desires to exercise a specified
portion of such Exercisable Options (the "Specified Options"),
the Company shall, or shall cause an affiliate of the Company
to, lend to the Executive within 30 days after Holdings'
receipt of such notice from the Executive an amount equal to
the aggregate exercise price payable with respect to the
Specified Options and the aggregate federal, state and local
income tax liability, including any alternative minimum tax
obligations, that will actually be incurred by the Executive
as a result of his exercise of the Specified Options in
accordance with such notice. Any such loan pursuant to this
Section 4(l)(iii) shall be pursuant to the terms of a recourse
promissory note or notes which (i) shall be payable in full no
later than the date on which the Executive receives payment
from the Company for the repurchase of the shares acquired
upon exercise of the Specified Options, (ii) shall bear
interest at the applicable federal mid-term rate determined
pursuant to Section 1274(d) of the Internal Revenue Code of
1986, as amended, (iii) shall provide that any interest due on
such loan shall be converted into principal and shall not be
payable currently as it is accrued, but rather shall be
payable when the underlying shares are repurchased by the
Company and (iv) shall be in a form acceptable to the
Company's (or its affiliate's) lenders under the terms of the
Financing Documents. The parties hereto agree that to the
extent any of the foregoing provisions of this Section
4(l)(iii) result in adverse accounting consequences to the
Company, such provisions shall be modified in a manner
mutually acceptable to the parties hereto.
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<PAGE> 7
5. TERMINATION.
(a) The Executive's employment hereunder may be terminated by the
Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances and in accordance
with subsection (b):
(i) DEATH. The Executive's employment hereunder shall terminate
upon his death.
(ii) DISABILITY. If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive writen notice of its intention to terminate the
Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive,
provided that within such 30 day period the Executive shall
not have returned to full-time performance of his duties. The
Executive shall continue to receive his Annual Base Salary
until the 90th day following the date of the Notice of
Termination.
(iii) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause.
(iv) RESIGNATION FOR GOOD REASON. The Executive may terminate his
employment hereunder for Good Reason.
(v) TERMINATION WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause.
(vi) RESIGNATION WITHOUT GOOD REASON. The Executive may resign his
employment hereunder without Good Reason.
(vii) ELECTION TO CONTINUE AS NON-EXECUTIVE CHAIRMAN. The Executive
may elect at any time on or after the third anniversary of the
Effective Date to resign as Chief Executive Officer but to
continue to provide services to the Company as non-executive
Chairman of the Board.
(viii) RETIREMENT. The Executive may elect to terminate his
employment hereunder upon his Retirement as defined in Section
1(y).
(b) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive under this Section 5
(other than termination pursuant to subsection (a)(i)) shall be
communicated by a written notice from the Board or the Executive to
the other indicating the specific termination provision in this
Agreement relied upon, setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and
specifying a Date of Termination which, except in the case of
Termination by reason of Disability or Termination for Cause
pursuant to Section 5(a)(ii) or 5(a)(iii), respectively, shall be at
least 90 days following the date of such notice (a "Notice of
Termination"). The Executive shall continue to receive his Annual
Base Salary, annual bonus and all other compensation and perquisites
referenced in Section 4 through the Date of Termination.
6. SEVERANCE PAYMENTS.
(a) TERMINATION FOR ANY REASON. In the event the Executive's employment
with the Company is terminated for any reason, the Company shall pay
the Executive (or his beneficiary in the event of his death) any
unpaid Annual Base Salary that has accrued as of the Date of
Termination, any unreimbursed expenses due to the Executive and an
amount for accrued but unused sick days and vacation days. The
Executive shall also be entitled to accrued, vested benefits under
the Company's benefit plans and programs as provided therein. The
Executive shall be entitled to the additional payments and benefits
described below only as set forth herein.
vii
<PAGE> 8
(b) TERMINATION WITHOUT CAUSE, RESIGNATION FOR GOOD REASON OR
TERMINATION BY REASON OF DEATH OR DISABILITY. In the event of the
Executive's Termination without Cause (pursuant to Section 5(a)(v)),
Resignation for Good Reason (pursuant to Section 5(a)(iv)) or
termination by reason of Death or Disability (pursuant to Section
5(a)(i) or (ii), respectively), the Company shall pay to the
Executive the amounts described in subsection (a), and:
(i) pay to the Executive, in accordance with its regular payroll
practice, an amount equal to the Annual Base Salary and annual
bonus provided herein that the Executive would have been
entitled to receive had he continued his employment hereunder
for the period (the "Payment Period") beginning on the Date of
Termination and ending on the date that is eighteen months
thereafter; provided, however, that in the event of the
Executive's Termination of Employment under this Section 6(b)
prior to the third anniversary of the date hereof, the
"Payment Period" shall end on the later of the third
anniversary of the Effective Date or the date that is eighteen
months after the Date of Termination;
(ii) pay or provide to the Executive for the Payment Period the
perquisites to which the Executive is entitled under Sections
4(h), 4(i) and 4(j); and
(iii) continue for the Payment Period the Executive's and his then
eligible dependents' coverage under the Company's medical
benefit plans.
(c) CONTINUED MEDICAL COVERAGE. In the event the Executive's employment
with the Company is terminated at any time by reason of his death or
Disability, or on or after the third anniversary of the Effective
Date for any reason other than for Cause pursuant to Section
5(a)(iii), in addition to the amounts described in subsection (a)
and/or subsection (b) that may be payable to the Executive in
accordance with the terms thereof, the Company shall continue to
provide medical benefit coverage for the Executive and his spouse
for their respective lives, on terms substantially consistent with
those in effect as of the Date of Termination.
7. OTHER TERMINATION PROVISIONS.
Notwithstanding any provision of this Agreement or the Management
Stockholders' Agreement to the contrary, in the event that as a
consequence of a termination of the Executive's employment for any reason,
the Executive is compelled to exercise any Options in order to prevent
such Options from expiring in accordance with their terms and the Company
is unable to repurchase the Executive's stock at such time, the Company
shall either (i) provide the Executive with an interest-free recourse loan
equal to the actual aggregate federal, state and local income tax
liability (including alternative minimum tax obligations) incurred as a
consequence of the Option exercise, which loan shall (A) be secured by a
pledge of the shares acquired upon exercise of such Options, (B) be
payable in full, with respect to each Option (or portion) so exercised,
upon the earliest of (I) the tenth anniversary of the date of grant of
such Option, (II) five days after the date in which the Executive sells,
transfers or otherwise disposes or conveys for consideration the shares
acquired upon exercise of such Option, and (iii) the date specified in
Section 10 of the Management Stockholders' Agreement for the expiration of
certain provisions thereof, (ii) permit the Executive to extend the
post-termination exercise period of such Options (but not beyond the tenth
anniversary of the date of Option grant) until the time that the Company
is able to repurchase the underlying shares of Common Stock, or (iii)
devise such other method that is acceptable to the Executive so as to
prevent the Executive from incurring tax liability upon Option exercise at
a time when he is not able to receive payment from the Company (or a third
party) for the shares acquired upon such exercise.
viii
<PAGE> 9
8. COMPETITION.
(a) The Executive shall not, at any time during the Term and during the
Non-Executive Term and prior to the last day of the Payment Period,
if any, without the prior written consent of the Board, directly or
indirectly engage in, or have any interest in, or manage or operate
any person, firm, corporation, partnership or business (whether as
director, officer, employee, agent, representative, partner,
security holder, consultant or otherwise) that engages in any
business (other than a business that constitutes less than 5% of the
relevant entity's net revenue and a proportionate share of its
operating income) which competes with any business of the Company or
any entity owned by it anywhere in the world; PROVIDED, HOWEVER,
that the Executive shall be permitted to acquire a stock interest in
such a corporation PROVIDED such stock is publicly traded and the
stock so acquired does not represent more than one percent of the
outstanding shares of such corporation.
(b) In the event the agreement in this Section 8 shall be determined by
any court of competent jurisdiction to be unenforceable by reason of
its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the
maximum period of time for which it may be enforceable, and/or over
the maximum geographical area as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.
9. NONDISCLOSURE OF PROPRIETARY INFORMATION.
(a) Except as required in the faithful performance of the Executive's
duties hereunder or pursuant to subsection (c), the Executive shall,
in perpetuity, maintain in confidence and shall not directly,
indirectly or otherwise, use, disseminate, disclose or publish, or
use for his benefit or the benefit of any person, firm, corporation
or other entity any confidential or proprietary information or trade
secrets of or relating to the Company, including, without
limitation, information with respect to the Company's operations,
processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers,
marketing methods, costs, prices, contractual relationships,
regulatory status, compensation paid to employees or other terms of
employment, except for such information which is or becomes publicly
available other than as a result of a breach by the Executive of
this Section 9, or deliver to any person, firm, corporation or other
entity any document, record, notebook, computer program or similar
repository of or containing any such confidential or proprietary
information or trade secrets. The parties hereby stipulate and agree
that as between them the foregoing matters are important, material
and confidential proprietary information and trade secrets and
affect the successful conduct of the businesses of the Company (and
any successor or assignee of the Company). Notwithstanding any of
the foregoing to the contrary, the parties hereto hereby expressly
acknowledge that the Executive may, from time to time, deliver
lectures and/or teach courses on entrepreneurial business at
educational institutions and that the principles to be discussed in
the course of conducting such activities shall not constitute a
breach of this covenant.
(b) Upon termination of the Executive's employment with the Company for
any reason, the Executive shall promptly deliver to the Company all
correspondence, drawings, manuals, letters, notes, notebooks,
reports, programs, plans, proposals, financial documents, or any
other documents concerning the Company's customers, business plans,
marketing strategies, products or processes and/or which contain
proprietary information or trade secrets.
(c) The Executive may respond to a lawful and valid subpoena or other
legal process but shall give the Company the earliest possible
notice thereof, shall, as much in advance of the return date as
possible, make available to the Company and its counsel the
documents and other information sought and shall assist such counsel
in resisting or otherwise responding to such process.
ix
<PAGE> 10
10. INJUNCTIVE RELIEF.
It is recognized and acknowledged by the Executive that a breach of the
covenants contained in Sections 8 and 9 will cause irreparable damage to
the Company and its goodwill, the exact amount of which will be difficult
or impossible to ascertain, and that the remedies at law for any such
breach will be inadequate. Accordingly, the Executive agrees that in the
event of a breach of any of the covenants contained in Sections 8 and 9,
in addition to any other remedy which may be available at law or in
equity, the Company shall be entitled to specific performance and
injunctive relief.
11. SURVIVAL.
The expiration or termination of the Term shall not impair the rights or
obligations of any party hereto which shall have accrued hereunder prior
to such expiration.
12. BINDING ON SUCCESSORS.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Executive and their respective successors, assigns, personnel
and legal representatives, executors, administrators, heirs, distributees,
devisees, and legatees, as applicable.
13. GOVERNING LAW.
This Agreement shall be governed, construed, interpreted and enforced in
accordance with the substantive laws of the State of New York.
14. VALIDITY.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. NOTICES.
Any notice, request, claim, demand, document or other communication
hereunder to any party shall be effective upon receipt (or refusal of
receipt) and shall be in writing and delivered personally or sent by
telex, telecopy, or certified or registered mail, postage prepaid, as
follows:
(a) If to the Company, to:
TransDigm Holding Company
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Corporate Secretary
with copies to:
Odyssey Investment Partners Fund, LP
280 Park Avenue
West Tower, 38th Floor
New York, New York 10017
Attention: William Hopkins
and
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Maureen A. Riley, Esq.
x
<PAGE> 11
(b) If to the Executive, to him at the address set forth below under his
signature, with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Doreen E. Lilienfeld, Esq.
or at any other address as any party shall have specified by notice
in writing to the other parry in accordance with this Section 15.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together shall
constitute one and the same Agreement.
17. ENTIRE AGREEMENT.
The terms of this Agreement, together with the Management Stockholders'
Agreement, the Option Plan and the Option Agreements, are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further
intend that this Agreement, and the aforementioned contemporaneous
documents, shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding to vary the terms of
this Agreement. Notwithstanding any of the foregoing to the contrary, in
the event of a conflict between the terms of this Agreement and the
Management Stockholders' Agreement, the terms of this Agreement shall
govern.
18. AMENDMENTS; WAIVERS.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Executive and the Chairman of the
Compensation Committee. By an instrument in writing similarly executed,
the Executive or the Company may waive compliance by the other party or
parties with any provision of this Agreement that such other party was or
is obligated to comply with or perform; PROVIDED, HOWEVER, that such
waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in
exercising any right, remedy or power hereunder shall preclude any other
or further exercise of any other right, remedy or power provided herein or
by law or in equity.
19. NO INCONSISTENT ACTIONS.
The parties hereto shall not voluntarily undertake or fail to undertake
any action or course of action inconsistent with the provisions or
essential intent of this Agreement. Furthermore, it is the intent of the
parties hereto to act in a fair and reasonable manner with respect to the
interpretation and application of the provisions of this Agreement.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators in New York, New York, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction;
PROVIDED, HOWEVER, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Section 8
or 9 of this Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of
the Company's posting any bond; and PROVIDED FURTHER, that the Executive
shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. Each of
the parties hereto shall bear its share of the fees and expenses of any
arbitration hereunder.
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<PAGE> 12
21. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES.
(a) During the Term and so long as the Executive has not breached any of
his obligations set forth in Sections 8 and 9, the Company shall
indemnify the Executive to the fullest extent permitted by the laws
of the State of Delaware, as in effect at the time of the subject
act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred
(subject to an undertaking from the Executive to repay such advances
if it shall be finally determined by a judicial decision which is
not subject to further appeal that the Executive was not entitled to
the reimbursement of such fees and expenses) and he shall be
entitled to the protection of any insurance policies the Company
shall elect to maintain generally for the benefit of its directors
and officers ("Directors and Officers Insurance") against all costs,
charges and expenses incurred or sustained by him in connection with
any action, suit or proceeding to which he may be made a party by
reason of his being or having been a director, officer or employee
of the Company or any of its subsidiaries or his serving or having
served any other enterprise as a director, officer or employee at
the request of the Company (other than any dispute, claim or
controversy arising under or relating to this Agreement). The
Company covenants to maintain during the Term for the benefit of the
Executive (in his capacity as an officer and director of the
Company) Directors and Officers Insurance providing customary
benefits to the Executive.
(b) The Company shall pay the Executive's reasonable fees and costs
incurred in connection with the preparation and negotiation of this
Agreement, the Option Plan, the Option Agreement that pertains to
Options granted under the Option Plan and the Management
Stockholders' Agreement.
[signature page follows]
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written:
TRANSDIGM HOLDING COMPANY
By:
------------------------------------------
Stephen Berger:
Title: Chairman of the Compensation Committee
EXECUTIVE
- ------------------------------------------------
Douglas W. Peacock
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
Address
Accepted and agreed to for purposes of Section 3(b)
ODYSSEY INVESTMENT PARTNERS FUND, LP
By: ODYSSEY CAPITAL PARTNERS, LLC,
its general partner
By:
------------------------------------------------
Name:
Title:
xiii
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of May 19, 1999 and effective as of December 3, 1998,
as described herein, is made by and between TransDigm Holding Company, a
Delaware corporation (the "Company"), and W. Nicholas Howley (the "Executive").
RECITALS:
WHEREAS, the Executive has prior to the Effective Date (as defined below) been
employed by the Company as President and Chief Operating Officer; and
WHEREAS, in connection with a contemplated merger and recapitalization of the
Company, it is the desire of the Company to assure itself of the continuity of
the management services of the Executive following the consummation of such
transactions; and
WHEREAS, the Company and the Executive intend this Agreement to be effective as
of the consummation of the aforementioned contemplated merger and
recapitalization, which occurred on December 3, 1998 (the "Effective Date");
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. Certain Definitions.
(a) "ANNUAL BASE SALARY" shall have the meaning set forth in
Section 4(a).
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CAUSE" shall mean either of the following: (i) the continued
failure by the Executive, after written notice from the Board,
substantially to perform his duties and responsibilities as an
officer or employee or director of the Company or any of its
subsidiaries (other than any such failure resulting from incapacity
due to reasonably documented physical or mental illness), or (ii)
the engagement by the Executive in serious misconduct which is
material to the performance by the Executive of his duties and
obligations for the Company or any of its subsidiaries, including,
without limitation, the disclosure of material secret or
confidential information of the Company or any of its subsidiaries.
(d) "CHANGE IN CONTROL" shall mean a change in ownership or control of
the Company effected through a transaction or series of transactions
(other than an offering of Common Stock to the general public
through a registration statement filed with the Securities and
Exchange Commission whereby any "person" or related "group"
of"persons" (as such terms are used in Sections 13(d) and 14(d)(2)
of the Exchange Act) (other than the Company, any of its
subsidiaries, an employee benefit plan maintained by the Company or
any of its subsidiaries, a Principal Stockholder or a "person" that,
prior to such transaction, directly or indirectly controls, is
controlled by, or is under common control with, the Company or a
Principal Stockholder) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of securities of the Company possessing more than fifty percent
(50%) of the total combined voting power of the Company's securities
outstanding immediately after such acquisition.
(e) "COMMON STOCK" shall mean the common stock of the Company, $0.01 par
value per share.
(f) "COMPANY" shall have the meaning set forth in the preamble hereto.
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<PAGE> 2
(g) "COMPENSATION COMMITTEE" shall mean the Compensation Committee of
the Board whose members shall be appointed by the Board from time to
time and shall initially include Stephen Berger, as Chairman,
Muzzafar Mirza and William Hopkins.
(h) "DATE OF TERMINATION" shall mean (i) if the Executive's employment
is terminated by reason of his death, the date of his death, and
(ii) if the Executive's employment is terminated pursuant to
Sections 5(a)(ii) - (vii), the date specified in the Notice of
Termination.
(i) "DISABILITY" shall mean the inability of the Executive to perform
his duties and responsibilities as an officer or employee of the
Company or any of its subsidiaries on a full-time basis for more
than six months within any 12-month period because of a physical,
mental or emotional incapacity resulting from injury, sickness or
disease.
(j) "EFFECTIVE DATE" shall have the meaning set forth in the recitals
hereto.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "EXECUTIVE" shall have the meaning set forth in the preamble hereto.
(m) "GOOD REASON" shall mean the occurrence of any of the following: (i)
a material diminution in the Executive's title, duties or
responsibilities, without his prior written consent, (ii) a
reduction of the Executive's aggregate cash compensation (including
bonus opportunities), benefits or perquisites, without his prior
written consent, (iii) the occurrence of a Change in Control, (iv)
Douglas W. Peacock's termination of employment with the Company for
"Good Reason" as defined in subsections (i), (ii) and (iii) of this
subsection or (v) the failure of the Company to appoint the
Executive as the Chief Executive Officer of the Company following
Douglas W. Peacock's removal or resignation for any reason from such
position.
(n) "MANAGEMENT STOCKHOLDERS' AGREEMENT" shall mean that certain
Management Stockholders' Agreement dated as of December 3, 1998
among the Company, Odyssey Investment Partners Fund, LP, the
Executive and the other stockholders party thereto, as amended from
time to time.
(o) "NOTICE OF TERMINATION" shall have the meaning set forth in
Section 5(b).
(p) "OPTION AGREEMENTS" shall mean the written agreements between the
Company and the Executive pursuant to which the Executive holds or
is granted options to purchase Common Stock, including, without
limitation, agreements evidencing options granted under the Option
Plan and agreements governing the terms of "Roll-Over Options" (as
defined in the Management Stockholders' Agreement):
(q) "OPTION PLAN" shall mean the 1998 Stock Option Plan of TransDigm
Holding Company, as amended from time to time.
(r) "OPTIONS" as of any date of determination shall mean options held by
the Executive as of such date to purchase Common Stock of the
Company.
(s) "PAYMENT PERIOD" shall have the meaning set forth in Section
6(b)(i).
(t) "PRINCIPAL STOCKHOLDER" shall mean Odyssey Investment Partners
Fund, LP and any of its Permitted Assignees (as such term is defined
in the Management Stockholders' Agreement).
(u) "TERM" shall have the meaning set forth in Section 2.
xv
<PAGE> 3
2. EMPLOYMENT.
The Company shall continue to employ the Executive and the Executive shall
remain in the employ of the Company, for the period set forth in this
Section 2, in the positions set forth in Section 3 and upon the other
terms and conditions herein provided. The term of employment under this
Agreement (the "Term") shall be for the period beginning on the Effective
Date and ending on the fifth anniversary thereof unless earlier terminated
as provided in Section 5; PROVIDED, HOWEVER, that unless so earlier
terminated or unless the Executive or the Company shall give written
notice to the other of his or its intention not to renew this Agreement no
less than sixty days prior to the scheduled expiration thereof, upon the
fifth anniversary of the Effective Date, this Agreement shall
automatically be renewed for an additional two year period.
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as the President and
Chief Operating Officer of each of the Company and its subsidiary,
TransDigm Inc. ("TransDigm") with such customary responsibilities,
duties and authority as may from time to time be assigned to the
Executive by the Board. During the Term, the Executive shall devote
substantially all his working time and efforts to the business and
affairs of the Company and TransDigm; PROVIDED, that it shall not be
considered a violation of the foregoing for the Executive to (i)
with the prior consent of the Board (which consent shall not
unreasonably be withheld), serve on corporate, industry, civic or
charitable boards or committees, and (ii) manage his personal
investments, so long as none of such activities significantly
interferes with the Executive's duties hereunder.
(b) The Executive shall continue to serve as a member of the Board
during the Term, and during the Term, the Board shall propose the
Executive for re-election to the Board and the Principal
Stockholders shall vote all of their shares of Common Stock in favor
of such re-election. If elected or appointed thereto, and only for
the duration of such elected term or appointment, the Executive
shall also serve as a director of any of the Company's subsidiaries
and/or in one or more executive offices of any entities owned by the
Company.
4. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. During the Term, the Executive shall receive a
base salary at a rate that is no less than $225,000 per annum (the
"Annual Base Salary"), payable in accordance with the Company's
normal payroll practices. The rate of the Annual Base Salary shall
be reviewed by the Compensation Committee on or prior to each
anniversary of the Effective Date during the Term and may be
increased, but not decreased, upon such review.
(b) BONUS. For each fiscal year during the Term, the Executive shall be
eligible to participate in the Company's annual cash bonus plan in
accordance with terms and provisions which shall be consistent with
the Company's executive bonus policy in effect as of the Effective
Date.
(c) NON-QUALIFIED DEFERRED COMPENSATION. During the Term, the Executive
shall be eligible to continue to participate in the Company's
Non-Qualified Deferred Compensation Plan and Rabbi Trust in a manner
that is consistent with that in effect as of the Effective Date. The
Company shall continue to fund the Rabbi Trust throughout the Term
in a manner consistent with its funding practices in effect as of
the Effective Date.
(d) LONG TERM INCENTIVE COMPENSATION. During the Term, the Executive
shall be entitled to participate in the Option Plan or any successor
plan thereto.
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<PAGE> 4
(e) BENEFITS. During the Term, the Executive shall be entitled to
participate in the other employee benefit plans, programs and
arrangements of the Company now (or, to the extent determined by the
Board or Compensation Committee, hereafter) in effect which are
applicable to the senior officers of the Company generally, subject
to and on a basis consistent with the terms, conditions and overall
administration thereof; PROVIDED, HOWEVER, that such plans, programs
and arrangements shall be consistent in all material respects with
those in effect as of the Effective Date.
(f) EXPENSES. Pursuant to the Company's customary policies in force at
the time of payment, the Executive shall be reimbursed for all
expenses properly incurred by the Executive on the Company's behalf
in the performance of the Executive's duties hereunder.
(g) VACATION. The Executive shall be entitled to an amount of annual
vacation days, and to compensation in respect of earned but unused
vacation days in accordance with the Company's vacation policy as in
effect as of the Effective Date. The Executive shall also be
entitled to paid holidays in accordance with the Company's practices
with respect to same as in effect as of the Effective Date.
(h) AUTOMOBILE. During the Term, the Company shall provide the Executive
with an annual automobile allowance at a rate not less than that in
effect as of the Effective Date.
(i) CLUB MEMBERSHIP. During the Term, the Company shall pay on behalf of
the Executive, or reimburse the Executive for, annual membership
fees payable in connection with the Executive's membership in one
country club of the Executive's choice.
(j) TAX AND FINANCIAL PLANNING ASSISTANCE. During the Term, the Company
shall, upon submission of proper documentation, pay on behalf of the
Executive, or reimburse the Executive for, reasonable expenses
incurred for professional assistance in planning and preparing his
tax returns and managing his financial affairs, provided that such
expenses do not exceed $25,000 per annum.
(k) LOAN TO PURCHASE SHARES OF COMMON STOCK. In the event that during
the Term, the Executive elects to purchase shares of Common Stock
pursuant to Section 5.2 of the Management Stockholders' Agreement,
the Company shall, or shall cause one of its affiliates to, lend to
the Executive up to $1 .5 million in the aggregate (or such greater
amount as determined by the Compensation Committee in its
discretion) as payment for such shares pursuant to the terms of a
recourse promissory note or notes bearing interest at the lowest
rate specified pursuant to Section 1274 of the Internal Revenue Code
so as to avoid imputed interest, and security agreement(s) under
which the Executive shall pledge such shares to the Company (or
affiliate thereof, as applicable) as security for repayment of such
loan(s). Any interest due on such loan shall be converted into
principal and shall not be payable currently as it is accrued, but
rather shall be payable when the underlying shares are sold. Any
such note and security agreement shall have terms consistent with
the forgoing and shall be in a form acceptable to the Company's (or
its affiliate's) lenders under the terms of the Financing Documents
(as such term is defined in the Management Stockholders' Agreement).
xvii
<PAGE> 5
5. TERMINATION.
(a) The Executive's employment hereunder may be terminated by the
Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances and in accordance
with subsection (b):
(i) DEATH. The Executive's employment hereunder shall terminate
upon his death.
(ii) DISABILITY. If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive,
provided that within such 30 day period the Executive shall
not have returned to full-time performance of his duties. The
Executive shall continue to receive his Annual Base Salary
until the 90th day following the date of the Notice of
Termination.
(iii) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause.
(iv) RESIGNATION FOR GOOD REASON. The Executive may terminate his
employment hereunder for Good Reason.
(v) TERMINATION WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause.
(vi) RESIGNATION WITHOUT GOOD REASON. The Executive may resign his
employment hereunder without Good Reason.
(vii) RETIREMENT. The Executive may terminate his employment
hereunder upon or after his attainment of age 65 (a
"Retirement").
(b) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive under this Section 5
(other than termination pursuant to subsection (a)(i)) shall be
communicated by a written notice from the Board or the Executive to
the other indicating the specific termination provision in this
Agreement relied upon, setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and
specifying a Date of Termination which, except in the case of
Termination by reason of Disability or Termination for Cause
pursuant to Section 5(a)(ii) or 5(a)(iii), respectively, shall be
at least 90 days following the date of such notice (a "Notice of
Termination"). The Executive shall continue to receive his Annual
Base Salary, annual bonus and all other compensation and
perquisites referenced in Section 4 through the Date of
Termination.
xviii
<PAGE> 6
6. SEVERANCE PAYMENTS.
(a) TERMINATION FOR ANY REASON. In the event the Executive's employment
with the Company is terminated for any reason, the Company shall pay
the Executive (or his beneficiary in the event of his death) any
unpaid Annual Base Salary that has accrued as of the Date of
Termination, any unreimbursed expenses due to the Executive and an
amount for accrued but unused sick days and vacation days. The
Executive shall also be entitled to accrued, vested benefits under
the Company's benefit plans and programs as provided therein. The
Executive shall be entitled to the additional payments and benefits
described below only as set forth herein.
(b) TERMINATION WITHOUT CAUSE, RESIGNATION FOR GOOD REASON OR
TERMINATION BY REASON OF DEATH OR DISABILITY. In the event of the
Executive's Termination without Cause (pursuant to Section 5(a)(v)),
Resignation for Good Reason (pursuant to Section 5(a)(iv)) or
termination by reason of Death or Disability (pursuant to Section
5(a)(i) or (ii), respectively), the Company shall pay to the
Executive the amounts described in subsection (a), and:
(i) pay to the Executive, in accordance with its regular payroll
practice, an amount equal to the Annual Base Salary and annual
bonus provided herein that the Executive would have been
entitled to receive had he continued his employment hereunder
for the period (the "Payment Period") beginning on the Date of
Termination and ending on the date that is fifteen months
thereafter;
(ii) pay or provide to the Executive for the Payment Period the
perquisites to which the Executive is entitled under Sections
4(h), 4(i) and 4(j); and
(iii) continue for the Payment Period the Executive's and his then
eligible dependents' coverage under the Company's medical
benefit plans.
7. OTHER TERMINATION PROVISIONS.
Notwithstanding any provision of this Agreement or the Management
Stockholders' Agreement to the contrary, in the event that as a
consequence of a termination of the Executive's employment for any reason,
the Executive is compelled to exercise any Options in order to prevent
such Options from expiring in accordance with their terms and the Company
is unable to repurchase the Executive's stock at such time, the Company
shall either (i) provide the Executive with an interest-free recourse loan
equal to the actual aggregate federal, state and local income tax
liability (including alternative minimum tax obligations) incurred as a
consequence of the Option exercise, which loan shall (A) be secured by a
pledge of the shares acquired upon exercise of such Options, (B) be
payable in full, with respect to each Option (or portion) so exercised,
upon the earliest of (I) the tenth anniversary of the date of grant of
such Option, (II) five days after the date in which the Executive sells,
transfers or otherwise disposes or conveys for consideration the shares
acquired upon exercise of such Option, and (III) the date specified in
Section 10 of the Management Stockholders' Agreement for the expiration of
certain provisions thereof, (ii) permit the Executive to extend the
post-termination exercise period of such Options (but not beyond the tenth
anniversary of the date of Option grant) until the time that the Company
is able to repurchase the underlying shares of Common Stock, or (iii)
devise such other method that is acceptable to the Executive so as to
prevent the Executive from incurring tax liability upon Option exercise at
a time when he is not able to receive payment from the Company (or a third
party) for the shares acquired upon such exercise.
xix
<PAGE> 7
8. COMPETITION.
(a) The Executive shall not, at any time during the Term and prior to
the last day of the Payment Period, if any, without the prior
written consent of the Board, directly or indirectly engage in, or
have any interest in, or manage or operate any person, firm,
corporation, partnership or business (whether as director, officer,
employee, agent, representative, partner, security holder,
consultant or otherwise) that engages in any business (other than a
business that constitutes less than 5% of the relevant entity's net
revenue and a proportionate share of its operating income) which
competes with any business of the Company or any entity owned by it
anywhere in the world; PROVIDED, HOWEVER, that the Executive shall
be permitted to acquire a stock interest in such a corporation
PROVIDED such stock is publicly traded and the stock so acquired
does not represent more than one percent of the outstanding shares
of such corporation.
(b) In the event the agreement in this Section 8 shall be determined by
any court of competent jurisdiction to be unenforceable by reason of
its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the
maximum period of time for which it may be enforceable, and/or over
the maximum geographical area as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.
9. Nondisclosure of Proprietary Information.
(a) Except as required in the faithful performance of the Executive's
duties hereunder or pursuant to subsection (c), the Executive shall,
in perpetuity, maintain in confidence and shall not directly,
indirectly or otherwise, use, disseminate, disclose or publish, or
use for his benefit or the benefit of any person, firm, corporation
or other entity any confidential or proprietary information or trade
secrets of or relating to the Company, including, without
limitation, information with respect to the Company's operations,
processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers,
marketing methods, costs, prices, contractual relationships,
regulatory status, compensation paid to employees or other terms of
employment, except for such information which is or becomes publicly
available other than as a result of a breach by the Executive of
this Section 9, or deliver to any person, firm, corporation or other
entity any document, record, notebook, computer program or similar
repository of or containing any such confidential or proprietary
information or trade secrets. The parties hereby stipulate and agree
that as between them the foregoing matters are important, material
and confidential proprietary information and trade secrets and
affect the successful conduct of the businesses of the Company (and
any successor or assignee of the Company).
(b) Upon termination of the Executive's employment with the Company for
any reason, the Executive shall promptly deliver to the Company all
correspondence, drawings, manuals, letters, notes, notebooks,
reports, programs, plans, proposals, financial documents, or any
other documents concerning the Company's customers, business plans,
marketing strategies, products or processes and/or which contain
proprietary information or trade secrets.
(c) The Executive may respond to a lawful and valid subpoena or other
legal process but shall give the Company the earliest possible
notice thereof, shall, as much in advance of the return date as
possible, make available to the Company and its counsel the
documents and other information sought and shall assist such counsel
in resisting or otherwise responding to such process.
xx
<PAGE> 8
10. INJUNCTIVE RELIEF.
It is recognized and acknowledged by the Executive that a breach of the
covenants contained in Sections 8 and 9 will cause irreparable damage to
the Company and its goodwill, the exact amount of which will be difficult
or impossible to ascertain, and that the remedies at law for any such
breach will be inadequate. Accordingly, the Executive agrees that in the
event of a breach of any of the covenants contained in Sections 8 and 9,
in addition to any other remedy which may be available at law or in
equity, the Company shall be entitled to specific performance and
injunctive relief.
11. SURVIVAL.
The expiration or termination of the Term shall not impair the rights or
obligations of any party hereto which shall have accrued hereunder prior
to such expiration.
12. BINDING ON SUCCESSORS.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Executive and their respective successors, assigns, personnel
and legal representatives, executors, administrators, heirs, distributees,
devisees, and legatees, as applicable.
13. GOVERNING LAW.
This Agreement shall be governed, construed, interpreted and enforced in
accordance with the substantive laws of the State of New York.
14. VALIDITY.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. NOTICES.
Any notice, request, claim, demand, document or other communication
hereunder to any party shall be effective upon receipt (or refusal of
receipt) and shall be in writing and delivered personally or sent by
telex, telecopy, or certified or registered mail, postage prepaid, as
follows:
(a) If to the Company, to:
TransDigm Holding Company
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Corporate Secretary
with copies to:
Odyssey Investment Partners Fund, LP
280 Park Avenue
West Tower, 38th Floor
New York, New York 10017
Attention: William Hopkins
and
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Maureen A. Riley, Esq.
xxi
<PAGE> 9
(b) If to the Executive, to him at the address set forth below under his
signature, with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Doreen E. Lilienfeld, Esq.
or at any other address as any party shall have specified by notice
in writing to the other party in accordance with this Section 15.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together shall
constitute one and the same Agreement.
17. ENTIRE AGREEMENT.
The terms of this Agreement, together with the Management Stockholders'
Agreement, the Option Plan and the Option Agreements, are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further
intend that this Agreement, and the aforementioned contemporaneous
documents, shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding to vary the terms of
this Agreement. Notwithstanding any of the foregoing to the contrary, in
the event of a conflict between the terms of this Agreement and the
Management Stockholders' Agreement, the terms of this Agreement shall
govern.
18. AMENDMENTS; WAIVERS.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Executive and the Chairman of the
Compensation Committee. By an instrument in writing similarly executed,
the Executive or the Company may waive compliance by the other party or
parties with any provision of this Agreement that such other party was or
is obligated to comply with or perform; PROVIDED, HOWEVER, that such
waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in
exercising any right, remedy or power hereunder shall preclude any other
or further exercise of any other right, remedy or power provided herein or
by law or in equity.
19. NO INCONSISTENT ACTIONS.
The parties hereto shall not voluntarily undertake or fail to undertake
any action or course of action inconsistent with the provisions or
essential intent of this Agreement. Furthermore, it is the intent of the
parties hereto to act in a fair and reasonable manner with respect to the
interpretation and application of the provisions of this Agreement.
xxii
<PAGE> 10
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators in New York, New York, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction;
PROVIDED, HOWEVER, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Section 8
or 9 of this Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of
the Company's posting any bond; and PROVIDED FURTHER, that the Executive
shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. Each of
the parties hereto shall bear its share of the fees and expenses of any
arbitration hereunder.
21. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES.
(a) During the Term and so long as the Executive has not breached any of
his obligations set forth in Sections 8 and 9, the Company shall
indemnify the Executive to the fullest extent permitted by the laws
of the State of Delaware, as in effect at the time of the subject
act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred
(subject to an undertaking from the Executive to repay such advances
if it shall be finally determined by a judicial decision which is
not subject to further appeal that the Executive was not entitled to
the reimbursement of such fees and expenses) and he shall be
entitled to the protection of any insurance policies the Company
shall elect to maintain generally for the benefit of its directors
and officers ("Directors and Officers Insurance") against all costs,
charges and expenses incurred or sustained by him in connection with
any action, suit or proceeding to which he may be made a party by
reason of his being or having been a director, officer or employee
of the Company or any of its subsidiaries or his serving or having
served any other enterprise as a director, officer or employee at
the request of the Company (other than any dispute, claim or
controversy arising under or relating to this Agreement). The
Company covenants to maintain during the Term for the benefit of the
Executive (in his capacity as an officer and director of the
Company) Directors and Officers Insurance providing customary
benefits to the Executive.
(b) The Company shall pay the Executive's reasonable fees and costs
incurred in connection with the preparation and negotiation of this
Agreement, the Option Plan, the Option Agreement that pertains to
Options granted under the Option Plan and the Management
Stockholders' Agreement.
[signature page follows]
xxiii
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
TRANSDIGM HOLDING COMPANY
By:
---------------------------------------
Stephen Berger
Title: Chairman of the Compensation Committee
EXECUTIVE
- --------------------------------------------
W. Nicholas Howley
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
Address
Accepted and agreed to for purposes of Section 3(b)
ODYSSEY INVESTMENT PARTNERS FUND, LP
By: ODYSSEY CAPITAL PARTNERS, LLC,
its general partner
By:
--------------------------------------------
Name:
Title:
xxiv
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Earnings:
Total earnings (loss) $ (261) $ 1,175 $ 3,172 $ 14,137 $(16,917)
Income tax provision (credit) 134 2,045 5,193 12,986 (2,772)
Extraordinary item 1,462
-------- -------- -------- -------- --------
Pre-tax earnings (loss) (127) 3,220 9,827 27,123 (19,689)
-------- -------- -------- -------- --------
Fixed charges:
Interest charges 5,193 4,510 3,463 3,175 22,722
Interest factor of operating rents 190 188 178 197 227
-------- -------- -------- -------- --------
Total fixed charges 5,383 4,698 3,641 3,372 22,949
-------- -------- -------- -------- --------
Earnings as adjusted $ 5,256 $ 7,918 $ 13,468 $ 30,495 $ 3,260
======== ======== ======== ======== ========
Ratio of earnings to fixed charges -- 1.7 3.7 9.0 --
======== ======== ======== ======== ========
</TABLE>
xxv
<PAGE> 1
EXHIBIT 12.2
COMPUTATION OF RATIO OF EBITDA (AS DEFINED) TO INTEREST EXPENSE
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
EBITDA (as defined) $ 13,168 $ 17,213 $ 24,522 $ 43,547 $ 50,562
Interest expense 5,193 4,510 3,463 3,175 22,722
-------- -------- -------- -------- --------
Ratio 2.5 3.8 7.1 13.7 2.2
======== ======== ======== ======== ========
</TABLE>
xxvi
<PAGE> 1
EXHIBIT 12.3
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF TOTAL DEBT TO EBITDA (AS DEFINED)
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Total debt $32,074 $ 19,124 $ 50,000 $ 45,000 $266,557
EBITDA (as defined) 13,168 17,213 24,522 43,547 50,562
------- -------- -------- -------- --------
Ratio 2.4 1.1 2.0 1.0 5.3
======= ======== ======== ======== ========
</TABLE>
xxvii
<PAGE> 1
EXHIBIT 24.1
DIRECTORS AND OFFICERS OF
TRANSDIGM HOLDING COMPANY
POWER OF ATTORNEY
The undersigned directors and officers of TransDigm Holding Company hereby
constitute and appoint Peter B. Radekevich with full power of substitution and
resubstitution as attorney-in-fact for each of the undersigned, and in the
name, place and stead of each of the undersigned, to execute on behalf of each
of the undersigned an Annual Report on Form 10-K for the fiscal year ended
September 30,1999 pursuant to Section 13 of the Securities and Exchange Act of
1934 and to execute any and all amendments to such report and to file the same,
with all exhibits thereto and other documents required to be filed in connection
therewith, granting to such attorney full power to act with or without the
others, and to have full power and authority to do and perform, in the name and
on behalf of each of the undersigned, every act whatsoever necessary, advisable
or appropriate to be done in the premises, hereby ratifying and approving the
act of said attorney and any such substitute.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original with respect to the person executing it.
EXECUTED as of December 23, 1999.
/s/ Douglas W. Peacock /s/ William Hopkins
- -------------------------------------- ----------------------------------
Douglas W. Peacock William Hopkins, Director
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ W. Nicholas Howley /s/ Muzzafar Mirza
- -------------------------------------- ----------------------------------
W. Nicholas Howley Muzzafar Mirza, Director
President and Chief Operating Officer
(Principal Operating Officer)
/s/ Stephen Berger /s/ John W. Paxton
- -------------------------------------- ----------------------------------
Stephen Berger, Director John W. Paxton, Director
/s/ Thomas R. Wall, IV
- --------------------------------------
Thomas R. Wall, IV, Director
xxviii
<PAGE> 1
EXHIBIT 24.2
DIRECTORS AND OFFICERS OF
TRANSDIGM INC.
POWER OF ATTORNEY
The undersigned directors and officers of TransDigm Holding Company hereby
constitute and appoint Peter B. Radekevich with full power of substitution and
resubstitution as attorney-in-fact for each of the undersigned, and in the
name, place and stead of each of the undersigned, to execute on behalf of each
of the undersigned an Annual Report on Form 10-K for the fiscal year ended
September 30,1999 pursuant to Section 13 of the Securities and Exchange Act of
1934 and to execute any and all amendments to such report and to file the same,
with all exhibits thereto and other documents required to be filed in connection
therewith, granting to such attorney full power to act with or without the
others, and to have full power and authority to do and perform, in the name and
on behalf of each of the undersigned, every act whatsoever necessary, advisable
or appropriate to be done in the premises, hereby ratifying and approving the
act of said attorney and any such substitute.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original with respect to the person executing it.
EXECUTED as of December 23, 1999.
/s/ Douglas W. Peacock /s/ William Hopkins
- -------------------------------------- ----------------------------------
Douglas W. Peacock William Hopkins, Director
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ W. Nicholas Howley /s/ Muzzafar Mirza
- -------------------------------------- ----------------------------------
W. Nicholas Howley Muzzafar Mirza, Director
President and Chief Operating Officer
(Principal Operating Officer)
/s/ Stephen Berger /s/ John W. Paxton
- -------------------------------------- ----------------------------------
Stephen Berger, Director John W. Paxton, Director
/s/ Thomas R. Wall, IV
- --------------------------------------
Thomas R. Wall, IV, Director
xxix
<PAGE> 1
EXHIBIT 24.3
DIRECTORS AND OFFICERS OF
MARATHON POWER TECHNOLOGIES COMPANY
POWER OF ATTORNEY
The undersigned directors and officers of TransDigm Holding Company hereby
constitute and appoint Peter B. Radekevich with full power of substitution and
resubstitution as attorney-in-fact for each of the undersigned, and in the
name, place and stead of each of the undersigned, to execute on behalf of each
of the undersigned an Annual Report on Form 10-K for the fiscal year ended
September 30, 1999 pursuant to Section 13 of the Securities and Exchange Act of
1934 and to execute any and all amendments to such report and to file the same,
with all exhibits thereto and other documents required to be filed in connection
therewith, granting to such attorney full power to act with or without the
others, and to have full power and authority to do and perform, in the name and
on behalf of each of the undersigned, every act whatsoever necessary, advisable
or appropriate to be done in the premises, hereby ratifying and approving the
act of said attorney and any such substitute.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original with respect to the person executing it.
EXECUTED as of December 23, 1999.
/s/ Douglas W. Peacock
- --------------------------------
Douglas W. Peacock
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Albert J. Rodriguez
- ---------------------------------
Albert J. Rodriguez
President
(Principal Operating Officer)
/s/ W. Nicholas Howley
- -----------------------------------
W. Nicholas Howley, Director
xxx
<PAGE> 1
EXHIBIT 24.4
DIRECTORS AND OFFICERS OF
ZMP, INC.
POWER OF ATTORNEY
The undersigned directors and officers of TransDigm Holding Company hereby
constitute and appoint Peter B. Radekevich with full power of substitution and
resubstitution as attorney-in-fact for each of the undersigned, and in the
name, place and stead of each of the undersigned, to execute on behalf of each
of the undersigned an Annual Report on Form 10-K for the fiscal year ended
September 30, 1999 pursuant to Section 13 of the Securities and Exchange Act of
1934 and to execute any and all amendments to such report and to file the same,
with all exhibits thereto and other documents required to be filed in connection
therewith, granting to such attorney full power to act with or without the
others, and to have full power and authority to do and perform, in the name and
on behalf of each of the undersigned, every act whatsoever necessary, advisable
or appropriate to be done in the premises, hereby ratifying and approving the
act of said attorney and any such substitute.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original with respect to the person executing it.
EXECUTED as of December 23, 1999.
/s/ Douglas W. Peacock
- --------------------------------------
Douglas W. Peacock
Chairman of the Board and
Executive Vice President
(Principal Executive Officer)
/s/ John F. Leary
- --------------------------------------
John F. Leary
President
(Principal Operating Officer)
/s/ W. Nicholas Howley
- --------------------------------------
W. Nicholas Howley
Executive Vice President and
Director
xxxi
<PAGE> 1
EXHIBIT 24.5
DIRECTORS AND OFFICERS OF
ADAMS RITE AEROSPACE, INC.
POWER OF ATTORNEY
The undersigned directors and officers of TransDigm Holding Company hereby
constitute and appoint Peter B. Radekevich with full power of substitution and
resubstitution as attorney-in-fact for each of the undersigned, and in the
name, place and stead of each of the undersigned, to execute on behalf of each
of the undersigned an Annual Report on Form 10-K for the fiscal year ended
September 30, 1999 pursuant to Section 13 of the Securities and Exchange Act of
1934 and to execute any and all amendments to such report and to file the same,
with all exhibits thereto and other documents required to be filed in connection
therewith, granting to such attorney full power to act with or without the
others, and to have full power and authority to do and perform, in the name and
on behalf of each of the undersigned, every act whatsoever necessary, advisable
or appropriate to be done in the premises, hereby ratifying and approving the
act of said attorney and any such substitute.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original with respect to the person executing it.
EXECUTED as of December 23, 1999.
/s/ Douglas W. Peacock
- --------------------------------------
Douglas W. Peacock
Chairman of the Board and
Executive Vice President
(Principal Executive Officer)
/s/ John F. Leary
- --------------------------------------
John F. Leary
President
(Principal Operating Officer)
/s/ W. Nicholas Howley
- --------------------------------------
W. Nicholas Howley
Executive Vice President and
Director
xxxii
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001077670
<NAME> TRANSDIGM INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 2,729
<SECURITIES> 0
<RECEIVABLES> 22,840
<ALLOWANCES> 441
<INVENTORY> 29,217
<CURRENT-ASSETS> 64,167
<PP&E> 46,802
<DEPRECIATION> 21,380
<TOTAL-ASSETS> 164,417
<CURRENT-LIABILITIES> 28,636
<BONDS> 258,962
1,323
0
<COMMON> 102,097
<OTHER-SE> (229,719)
<TOTAL-LIABILITY-AND-EQUITY> 164,417
<SALES> 130,818
<TOTAL-REVENUES> 130,818
<CGS> 69,951
<TOTAL-COSTS> 69,951
<OTHER-EXPENSES> 57,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,722
<INCOME-PRETAX> (19,689)
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