<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1999
REGISTRATION NO. 333-71397
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
MARATHON POWER TECHNOLOGIES COMPANY
(Exact name of each of the co-registrants as specified in its respective
charter)
<TABLE>
<S> <C> <C>
DELAWARE 3728 13-3733378
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification
Code Number)
</TABLE>
8233 IMPERIAL DRIVE
WACO, TEXAS 76712
(254) 776-0650
(Address, including zip code, and telephone number, including area code, of
each of the co-registrants' principal executive offices)
------------------------------
PETER B. RADEKEVICH
CHIEF FINANCIAL OFFICER
TRANSDIGM HOLDING COMPANY
8233 IMPERIAL DRIVE
WACO, TEXAS 76712
(254) 776-0650
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPY TO:
KIRK A. DAVENPORT, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 906-1200
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NEW NOTES OFFERING PRICE(1) FEE(1)(2)
<S> <C> <C> <C> <C>
10 3/8% Senior Subordinated Notes due 2008(3)..... $125,000,000 100% $125,000,000 $34,750
Guarantees of the 10 3/8 Senior Subordinated Notes
due 2008(4)..................................... N/A N/A N/A N/A
</TABLE>
(1) The registration fee has been calculated pursuant to Rule 457(a), Rule
457(f)(2) and Rule 457(n) under the Securities Act of 1933, as amended. The
Proposed Maximum Aggregate Offering Price is estimated solely for the
purpose of calculating the registration fee.
(2) Paid with the initial filing of the Registration Statement.
(3) The 10 3/8% Senior Subordinated Notes due 2008 will be the obligations of
TransDigm Inc.
(4) Each of TransDigm Holding Company and Marathon Power Technologies Company
will guarantee on an unconditional basis the obligations of TransDigm Inc.
under the 10 3/8% Senior Subordinated Note due 2008. Pursuant to Rule
457(n), no additional registration fee is being paid in respect of the
guarantees. The guarantees are not traded separately.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 24, 1999
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($125,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
TRANSDIGM INC.
We are offering to exchange all of our outstanding 10 3/8% senior
subordinated notes ("Old Notes") for our registered 10 3/8% senior subordinated
notes ("New Notes" and, together with the Old Notes, the "Notes"). The terms of
the New Notes are identical to the terms of the Old Notes except that the New
Notes are registered under the Securities Act of 1933 and, therefore, are freely
transferable.
*PLEASE CONSIDER THE FOLLOWING:
- - You should carefully review the Risk Factors beginning on page 11 of this
Prospectus.
- - Our offer to exchange Old Notes for New Notes will be open until 5:00 p.m.,
New York City time, on , 1999, unless we extend the offer.
- - You should also carefully review the procedures for tendering the Old Notes
beginning on page 21 of this Prospectus.
- - If you fail to tender your Old Notes, you will continue to hold unregistered
securities and your ability to transfer them could be adversely affected.
- - No public market currently exists for the Notes. We do not intend to list the
New Notes on any securities exchange and, therefore, no active public market
is anticipated.
INFORMATION ABOUT THE NOTES:
- - The Notes will mature on December 1, 2008.
- - We will pay interest on the Notes semi-annually on June 1 and April 1 of each
year beginning June 1, 1999 at the rate of 10 3/8% per annum.
- - We may redeem the Notes on or after December 1, 2003 at the rates set forth on
page 71 of this Prospectus.
- - We also have the option until December 1, 2001, to redeem up to 35% of the
original aggregate principal amount of the Notes with the net proceeds of
certain types of equity offerings.
- - The Notes are unsecured obligations and are subordinated to our existing and
future senior debt.
- - The Notes are fully and unconditionally guaranteed on an unsecured senior
subordinated basis by our domestic subsidiary and our parent holding company.
- - If we undergo a change of control or sell some of our assets, we may be
required to offer to purchase Notes from you.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
TABLE OF CONTENTS
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PAGE
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WHERE YOU CAN FIND MORE INFORMATION........................................................................ ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................................................. ii
PROSPECTUS SUMMARY......................................................................................... 1
RISK FACTORS............................................................................................... 11
TRANSACTIONS............................................................................................... 20
THE EXCHANGE OFFER......................................................................................... 21
USE OF PROCEEDS............................................................................................ 28
CAPITALIZATION............................................................................................. 29
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION..................................................... 30
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA.............................................. 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 39
BUSINESS................................................................................................... 49
MANAGEMENT................................................................................................. 59
PRINCIPAL STOCKHOLDERS..................................................................................... 65
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 67
DESCRIPTION OF OTHER INDEBTEDNESS.......................................................................... 68
DESCRIPTION OF THE NEW NOTES............................................................................... 70
REGISTRATION RIGHTS........................................................................................ 107
BOOK-ENTRY; DELIVERY AND FORM.............................................................................. 109
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................................... 111
PLAN OF DISTRIBUTION....................................................................................... 112
EXPERTS.................................................................................................... 112
LEGAL MATTERS.............................................................................................. 112
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the Registration Statement of which this Prospectus is
a part, we will file annual and quarterly and other information with the
Securities and Exchange Commission (the "Commission"). You may read and copy any
reports, statements and other information we file at the Commission's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call 1-800-SEC-0330 for further information on the public reference
rooms. Our filings will also be available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
We, together with our domestic subsidiary and our parent holding company
(the "Guarantors"), have filed a Registration Statement on Form S-4 to register
with the Commission the New Notes to be issued in exchange for the Old Notes.
This Prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this Prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS
ABOUT THESE MATTERS THAT IS NOT DISCUSSED, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS
NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO DOES NOT MEAN
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS DATE.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements about our
financial condition, results of operations and business. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," or similar expressions used in this Prospectus or
incorporated herein.
This Prospectus includes forward looking statements including, in
particular, the statements about our plans, strategies and prospects under the
headings "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested by
such forward-looking statements are reasonable, we can give no assurance that
such plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the forward looking
statements we make in this Prospectus are set forth below under the caption
"Risk Factors" and elsewhere in this Prospectus. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by those cautionary statements.
You are cautioned not to place undue reliance on such statements, which
speak only as of the date of this Prospectus or, in the case of documents
incorporated by reference, the date of such document.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this Prospectus. Additionally, we don't undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements contained or incorporated by reference to this
Prospectus.
ii
<PAGE>
PROSPECTUS SUMMARY
IN THIS PROSPECTUS, "TRANSDIGM" REFERS TO TRANSDIGM INC., THE ISSUER OF THE
NOTES, AND ITS SUBSIDIARIES. THE TERM "HOLDINGS" REFERS TO THE PARENT HOLDING
COMPANY OF TRANSDIGM, WHICH HAS NO ASSETS OTHER THAN TRANSDIGM CAPITAL STOCK.
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT TRANSDIGM AND THIS
EXCHANGE OFFER. IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO
YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, WE ENCOURAGE YOU
TO READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO.
TRANSDIGM INC.
8233 Imperial Drive
Waco, Texas 76712
(254) 776-0650
We are a leading supplier of highly engineered aircraft components for use
on nearly all commercial and military aircraft. We sell our products to
commercial airlines, such as United Airlines and Continental Airlines, large
commercial transport and regional and business aircraft original equipment
manufacturers, such as Boeing, Bombardier and Cessna, and various agencies of
the United States government. We compete in niche individual aircraft component
markets that we estimate range in size from $10 million to $100 million in
annual revenues. For fiscal 1998, the Company generated net sales, operating
income and EBITDA, As Defined, of $110.9 million, $36.8 million and $43.5
million, respectively. For the thirteen weeks ended January 1, 1999, the Company
generated net sales, operating loss and EBITDA, As Defined, of $28.2 million,
$30.1 million and $11.1 million, respectively.
Our business is comprised of three business units: (1) AdelWiggins Group,
(2) AeroControlex Group, and (3) Marathon Power Technologies Company, each of
which has a long history in the aircraft components industry. AdelWiggins
manufactures an extensive line of fuel and hydraulic system connectors and
specialized clamps, heaters and refueling systems. AeroControlex manufactures
customized fuel pumps, compressors, valves, couplings and mechanical and
electromechanical controls. Marathon manufactures nickel cadmium batteries and
static inverters. TransDigm Inc. was formed in 1993 through a management-led
buyout of the Aerospace Components Group of IMO Industries Inc. In addition,
Marathon was acquired in August 1997 as a strategic complement to the
Adelwiggins and AeroControlex businesses.
BUSINESS STRATEGY
Key elements of our strategy are:
- - PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. We will continue to focus on
marketing and manufacturing highly engineered products to customers that
place a premium on our capabilities.
- - GENERATE NEW BUSINESS INITIATIVES. We intend to continue to aggressively
pursue growth opportunities through our new business initiatives,
particularly in the aftermarket.
- - REALIZE PRODUCTIVITY SAVINGS. We will continue to focus on improving our
operating margins through manufacturing improvements and increases in
employee productivity.
- - PURSUE STRATEGIC ACQUISITIONS. We intend to aggressively pursue acquisitions
that we believe will allow us to enhance value, reduce costs and develop new
business.
1
<PAGE>
RECENT DEVELOPMENTS
At the same time as the offering of the Old Notes by TransDigm, Holdings
consummated a recapitalization. The former equity holders of Holdings received a
payment in the recapitalization of $330.0 million of which $279.7 million was
paid in cash, $20.0 million was paid in the form of Holdings' pay-in-kind notes
and Holdings' common stock and approximately $30.3 million was retained by such
equity holders in the form of equity interest in Holdings.
As part of the recapitalization, Odyssey Investment Partners Fund, LLC and
its co-investors invested $100.2 million of cash equity in Holdings. As a result
of the recapitalization, Odyssey and its co-investors own approximately 73.7%,
and certain continuing equity holders of Holdings own approximately 26.3%, in
each case, of the outstanding shares of Holdings common stock on a fully diluted
basis.
ODYSSEY INVESTMENT PARTNERS FUND, LLC
As a result of the recapitalization, TransDigm is controlled by Odyssey, a
private equity fund engaged in making investments in established, middle market
companies. Although Odyssey was formed in 1997, its principals collectively have
over 70 years of private equity experience and have been responsible for a
number of very successful transactions.
2
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
<TABLE>
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The Exchange Offer.................. $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of Old Notes. As of the
date hereof, Old Notes representing $125.0 million
aggregate principal amount are outstanding.
Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued
to certain third parties unrelated to us, we,
together with Holdings and Marathon (together with
Holdings, the "Guarantors"), believe that New Notes
issued pursuant to the exchange offer in exchange for
Old Notes may be offered for resale, resold or
otherwise transferred by you without compliance with
the registration and prospectus delivery requirements
of the Securities Act, unless you:
- are an "affiliate" of ours or the Guarantors within
the meaning of Rule 405 under the Securities Act;
- are a broker-dealer who purchased Old Notes
directly from us for resale under Rule 144A or any
other available exemption under the Securities Act;
- acquired the New Notes other than in the ordinary
course of your business; or
- have an arrangement with any person to engage in
the distribution of New Notes.
However, the Commission has not considered the
exchange offer in the context of a no-action letter
and we cannot be sure that the staff of the
Commission would make a similar determination with
respect to the exchange offer as in such other
circumstances. Furthermore, you must make the
appropriate representations in the letter of
transmittal that we are sending you with this
Prospectus.
Registration Rights Agreement....... We sold the Old Notes on December 3, 1998, in a
private placement in reliance on Section 4(2) of the
Securities Act. The Old Notes were immediately resold
by the initial purchasers in reliance on Rule 144A
and Regulation S under the Securities Act. At the
same time, we, together with the Guarantors, entered
into a registration rights agreement with the initial
purchasers requiring us to make the exchange offer.
The registration rights agreement also requires us
and the Guarantors to:
- cause the registration statement filed with respect
to the exchange offer to be declared effective by May
2, 1999; and
- consummate the exchange offer by June 6, 1999.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
See "The Exchange Offer--Purpose and Effect." If we
do not do so, the interest rate on the Old Notes will
increase initially by 0.50%.
Expiration Date..................... The exchange offer will expire at 5:00 p.m., New York
City time, , 1999 or a later date and time if
we extend it (the "Expiration Date").
Withdrawal.......................... The tender of the Old Notes pursuant to the exchange
offer may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned without
expense as soon as practicable after the expiration
or termination of the exchange offer.
Interest on the New Notes and the
Old Notes......................... Interest on the New Notes will accrue from the date
of the original issuance of the Old Notes or from the
date of the last payment of interest on the Old
Notes, whichever is later. No additional interest
will be paid on the Old Notes tendered and accepted
for exchange.
Conditions to the Exchange Offer.... The exchange offer is subject to customary
conditions, some of which may be waived by us. See
"The Exchange Offer-- Conditions to Exchange Offer."
Procedures for Tendering Old
Notes............................. If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal, or
a copy of the letter of transmittal, in accordance
with the instructions contained in this Prospectus
and in the letter of transmittal, and mail or
otherwise deliver the letter of transmittal, or the
copy, together with the Old Notes and any other
required documentation, to the exchange agent at the
address set forth in this Prospectus. If you are a
person holding the Old Notes through the Depository
Trust Company ("DTC") and wish to accept the exchange
offer, you must do so through DTC's Automated Tender
Offer Program, by which you will agree to be bound by
the letter of transmittal. By executing or agreeing
to be bound by the letter of transmittal, you will be
required to make the representations to us set forth
under "The Exchange Offer--Purpose and Effect."
Under certain circumstances specified in the
registration rights agreement, we may be required to
file a "shelf" registration statement for the Old
Notes for a continuous offering under Rule 415 under
the Securities Act. See "Registration Rights."
We will accept for exchange any and all Old Notes
which are properly tendered in the exchange offer
prior to the Expiration Date. The New Notes issued in
the exchange offer will be delivered promptly
following the Expiration
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Date. See "The Exchange Offer--Terms of the Exchange
Offer."
Exchange Agent...................... State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the exchange offer.
Federal Income Tax Considerations... We believe the exchange of Old Notes for New Notes in
the exchange offer will not constitute a sale or an
exchange for federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Effect of Not Tendering............. Old Notes that are not tendered or that are tendered
but not accepted will, following the completion of
the exchange offer, continue to be subject to their
existing transfer restrictions. We will have no
further obligation to provide for registration under
the Securities Act of such Old Notes.
</TABLE>
5
<PAGE>
SUMMARY OF THE TERMS OF THE NEW NOTES
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Securities Offered........................... $125,000,000 in aggregate principal amount of
senior subordinated notes.
Guarantees................................... Holdings, the parent holding company of
TransDigm, will fully and unconditionally
guarantee the New Notes. However, you should
not rely upon the guarantee by Holdings
because Holdings has no assets other than its
equity interest in TransDigm. In addition,
our domestic subsidiary will fully and
unconditionally guarantee the New Notes on a
joint and several basis with Holdings.
If we create or acquire a new domestic
subsidiary, it will guarantee the New Notes
unless we designate the subsidiary as an
"unrestricted subsidiary" under the indenture
or the subsidiary does not have significant
assets.
Ranking...................................... The New Notes will be our unsecured senior
subordinated obligations and will rank junior
to our existing and future senior debt. The
guarantees by Holdings and our subsidiaries
will be subordinated to existing and future
senior debt of Holdings and our subsidiaries,
respectively. As of January 1, 1999, we and
our subsidiaries had $91.0 million of senior
debt, excluding approximately $29.0 million
that we had available to borrow under our New
Credit Facility, and Holdings had $111.0
million of senior debt at face value.
Optional Redemption.......................... We cannot redeem the New Notes until December
1, 2003. Thereafter we may redeem some or all
of the New Notes at the redemption prices
listed in the "Description of the New Notes"
section under the heading "Optional
Redemption," plus accrued interest.
Optional Redemption after Public Equity At any time and from time to time before
Offerings.................................. December 1, 2001, we can choose to buy back
up to 35% of the outstanding Notes with money
that we raise in certain types of equity
offerings, as long as:
- we pay 110.375% of the face amount of the
Notes, plus accrued interest;
- we buy the Notes back within 120 days of
completing such equity offering; and
- at least 65% of the aggregate principal
amount of Notes issued remains outstanding
afterwards.
Change of Control Offer...................... If a change in control of TransDigm or
Holdings occurs, we may be required to give
holders of the New Notes the opportunity to
sell us their New Notes at 101% of their face
amount, plus accrued interest.
</TABLE>
6
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<TABLE>
<S> <C>
We might not be able to pay you the required
price for New Notes you present to us at the
time of a change of control, because:
- we might not have enough funds at that
time; or
- the terms of our senior debt may prevent
us from paying.
Asset Sale Proceeds.......................... If we engage in asset sales, we generally
must either invest the net cash proceeds from
such sales in our business within a period of
time, repay senior debt or make an offer to
purchase a principal amount of the New Notes
equal to the excess net cash proceeds. The
purchase price of the New Notes will be 100%
of their principal amount, plus accrued
interest.
Certain Indenture Provisions................. The indenture governing the New Notes will
contain covenants limiting our and most or
all of our subsidiaries' ability to:
- incur additional debt or enter into sale
and leaseback transactions;
- pay dividends or distributions on capital
stock or repurchase capital stock;
- issue stock of subsidiaries;
- make certain investments;
- create liens on our assets to secure debt;
- enter into transactions with affiliates;
- merge or consolidate with another company;
and
- transfer and sell assets.
These covenants are subject to a number of
important limitations and exceptions.
Risk Factors................................. See "Risk Factors" beginning on page 11 for a
description of certain of the risks you
should consider.
</TABLE>
7
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and pro forma consolidated
financial information of Holdings and TransDigm. The summary historical
consolidated financial data for the fiscal years ended September 30, 1998, 1997,
and 1996 have been derived from Holdings' consolidated financial statements,
which have been audited by Deloitte & Touche LLP, independent auditors. The
summary historical consolidated financial data as of and for the thirteen weeks
ended January 1, 1999 and December 26, 1997 has been derived from Holdings'
unaudited consolidated financial statements for those periods, which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations, financial position, and cash flows. The results for the thirteen
weeks ended January 1, 1999 are not necessarily indicative of results that may
be expected for the entire year. Separate financial information for TransDigm is
not presented since the New Notes will be guaranteed by Holdings and all direct
and indirect subsidiaries of TransDigm, and since Holdings has no operations or
assets separate from its investment in TransDigm.
The pro forma financial information set forth below gives effect to the
offering of the Old Notes, the recapitalization of Holdings, Odyssey's equity
investment in Holdings, the issuance of Holdings' pay-in-kind notes and the
related borrowings under the credit facility as if they had occurred at the
beginning of the period. The pro forma financial information is not necessarily
indicative of either future results of operations or the results that might have
occurred if the foregoing transactions had been consummated on such date. There
can be no assurance that assumptions used in the preparation of the pro forma
financial data will prove to be correct.
The Marathon Acquisition was completed on August 8, 1997. The acquisition
was accounted for as a purchase. The results of operations of Marathon are
included in Holdings' consolidated financial statements from the date of such
acquisition.
You should read the following table together with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and the Consolidated Historical Financial Statements and the notes
thereto included elsewhere in this Prospectus.
8
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<TABLE>
<CAPTION>
THIRTEEN
FISCAL YEAR ENDED SEPTEMBER 30, WEEKS ENDED UNAUDITED
UNAUDITED -------------------------- PRO FORMA
------------------------------- PRO FORMA DECEMBER 26, JANUARY 1, JANUARY 1,
1996 1997 1998 1998 1997 1999 1999
--------- --------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net Sales................................. $ 62,897 $ 78,159 $ 110,868 $ 110,868 $ 26,104 $ 28,194 $ 28,194
Gross Profit.............................. 21,023 28,856 51,473 51,473 11,397 13,257 13,257
Selling and administrative................ 6,459 7,561 10,473 10,373 2,669 2,685 2,665
Amortization of intangibles............... 3,838 2,089 2,438 2,438 635 645 645
Research and development.................. 836 1,116 1,724 1,724 339 448 448
Merger expenses........................... -- -- -- -- -- 39,593 --
--------- --------- --------- ----------- ------------- ----------- -----------
Operating income (loss) (1)............... 9,890 18,090 36,838 36,938 7,754 (30,114) 9,499
Interest expense, net (2)................. 4,510 3,463 3,175 25,419 1,046 2,276 5,980
Warrant put value adjustment.............. 2,160 4,800 6,540 -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
Pre-tax income (loss)..................... 3,220 9,827 27,123 11,519 6,708 (32,390) 3,519
Provision (benefit) for income taxes...... 2,045 5,193 12,986 4,350 2,590 (7,566) 1,406
--------- --------- --------- ----------- ------------- ----------- -----------
Income (loss) before extraordinary item... 1,175 4,634 14,137 7,169 4,118 (24,824) 2,113
Extraordinary item........................ -- (1,462) -- -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
Net income (loss)......................... $ 1,175 $ 3,172 $ 14,137 $ 7,169 $ 4,118 $ (24,824) $ 2,113
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities.................... $ 18,695 $ 17,468 $ 23,455 $ 12,734 $ 6,485 $ (32,735) $ 3,084
Investing activities.................... (2,494) (43,160) (4,295) (4,295) 138 (712) (712)
Financing activities.................... (13,475) 28,153 (5,071) (6,198) (20) 16,064 16,064
EBITDA (3)................................ 17,213 23,856 43,305 43,405 9,409 (28,515) 11,098
EBITDA, As Defined (4).................... 17,213 24,522 43,547 43,647 9,651 11,078 11,098
EBITDA, As Defined, margin................ 27.4% 31.4% 39.3% 39.4% 37.0% 39.3% 39.4%
Depreciation and amortization............. $ 7,323 $ 5,766 $ 6,467 $ 6,467 $ 1,655 $ 1,599 $ 1,599
Capital expenditures...................... 2,494 2,285 5,061 5,061 628 712 712
Ratio of earnings to fixed charges (5).... 1.7x 3.7x 9.0x 1.5x 7.1x -- 1.6x
Ratio of EBITDA, As Defined, to interest
expense (2)............................. 3.8x 7.1x 13.7x 1.7x 9.2x 4.9x 1.9x
Ratio of total debt to EBITDA, As
Defined................................. 1.1x 2.0x 1.0x 5.4x 5.2x 21.3x 21.3x
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital........................... $ 16,300 $ 16,520 $ 16,654 $ 21,231 $ 26,754
Total assets.............................. 57,666 101,969 115,785 105,474 118,161
Long-term debt, including current
portion................................. 19,124 50,000 45,000 50,000 236,200
Total stockholders' equity (deficiency)... 19,670 22,613 36,427 26,432 (136,165)
</TABLE>
9
<PAGE>
(1) Operating income (loss) includes the effect of a non-cash charge of $666 in
fiscal 1997 and $242 in fiscal 1998 due to, in each case, a purchase
accounting adjustment to inventory associated with the acquisition of
Marathon.
(2) The interest expense reported for fiscal 1996 through 1998 represents
interest expense of TransDigm. Holdings had no interest expense prior to the
Recapitalization. After the Recapitalization, Holdings has incurred interest
expense relating to the Holdings PIK Notes and Holdings has no other
interest expense. TransDigm is not an obligor or a guarantor under the
Holdings PIK Notes. Pro forma interest expense and historical interest
expense for the Holdings PIK Notes for the thirteen weeks ended January 1,
1999 were $600 and $200, respectively. Pro forma EBITDA, As Defined to
interest expense of TransDigm, which excludes the Holdings PIK Notes, for
fiscal 1998 and the thirteen weeks ended January 1, 1999 was 1.9x and 2.1x,
respectively.
(3) EBITDA represents earnings before interest, taxes, depreciation,
amortization, warrant put value adjustments and extraordinary items. EBITDA
is presented because management believes it is frequently used by securities
analysts, investors and other interested parties in the evaluation of
companies in Holdings' industry. However, other companies in Holdings'
industry may calculate EBITDA differently than Holdings does. EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities, as a measure of liquidity or an alternative to net
income as indicators of Holdings' operating performance or any other
measures of performance derived in accordance with generally accepted
accounting principles. See Holdings' Consolidated Statements of Cash Flows
included in Holdings consolidated financial statements.
(4) EBITDA, As Defined, is calculated as follows:
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
--------------------------
DECEMBER 26, JANUARY 1,
1996 1997 1998 1997 1999
--------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
EBITDA............................................................ $ 17,213 $ 23,856 $ 43,305 $ 9,409 $ (28,515)
Adjustments:
Merger expenses............................................... -- -- -- -- 39,593
Inventory purchase accounting adjustments..................... -- 666 242 242 --
--------- --------- --------- ------------- -----------
EBITDA, As Defined................................................ $ 17,213 $ 24,522 $ 43,547 $ 9,651 $ 11,078
</TABLE>
EBITDA, As Defined, is presented herein to provide additional information
with respect to the ability of Holdings to satisfy its debt service,
capital expenditure and working capital requirements and because certain
types of covenants in TransDigm's and Holdings' borrowing arrangements are
tied to similar measures. While EBITDA-based measures are frequently used
as measures of operations and the ability to meet debt service
requirements, they are not necessarily comparable to other similarly titled
captions of other companies due to differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and the portion
(approximately 33%) of rental expense that management believes is
representative of the interest component of rental expense. Earnings were
insufficient to cover fixed charges by $32,390 for the thirteen weeks ended
January 1, 1999.
10
<PAGE>
RISK FACTORS
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, IN
PARTICULAR, THE STATEMENTS ABOUT OUR PLANS, STRATEGIES, AND PROSPECTS UNDER THE
HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS." ALTHOUGH WE
BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT
SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO TRANSDIGM, HOLDINGS
OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
FOLLOWING CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT
OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NEW NOTES.
We have a significant amount of indebtedness. The following chart shows some
of our important credit statistics and is presented as at January 1, 1999 on a
historical basis and for the thirteen weeks then ended and for the year ended
September 30, 1998, in each case, on a pro forma basis assuming we had completed
the offering of the Old Notes, the recapitalization of Holdings, Odyssey's
equity investment in Holdings, the issuance of Holdings' pay-in-kind notes and
the related borrowings under the credit facility as of the date or at the
beginning of the period specified below:
<TABLE>
<CAPTION>
TRANSDIGM
AT JANUARY 1, 1999
------------------
<S> <C>
(DOLLARS IN
MILLIONS)
Total indebtedness............................................................................ $ 216.0
Stockholders' equity (deficit)................................................................ $ (115.2)
</TABLE>
<TABLE>
<CAPTION>
HOLDINGS HOLDINGS
PRO FORMA PRO FORMA
FOR THE YEAR ENDED FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 30, 1998 JANUARY 1, 1999
--------------------- -------------------------------
<S> <C> <C>
Ratio of earnings to fixed charges............................. 1.5x 1.6x
</TABLE>
In addition, Holdings has an additional $20.0 million of indebtedness
represented by the face value of the Holdings PIK Notes, all of which will be
senior to Holdings' guarantee of these New Notes. As at January 1, 1999,
Holdings had a stockholders' deficit of approximately $136.2 million. See
"Unaudited Pro Forma Consolidated Financial Information."
Our substantial indebtedness could have important consequences to you. For
example, it could:
- - make it more difficult for us to satisfy our obligations with respect to the
New Notes;
- - increase our vulnerability to general adverse economic and industry
conditions;
- - limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
- - require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, research and development
efforts and other general corporate purposes;
- - limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
- - place us at a competitive disadvantage compared to our competitors that have
less debt; and
11
<PAGE>
- - limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds. And,
failing to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on us.
See "Description of the New Notes" and "Description of Other Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE--DESPITE OUR CURRENT INDEBTEDNESS LEVELS, WE
AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS
COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. As at January 1, 1999, our New Credit
Facility permitted additional borrowings of up to $29.0 million and all of those
borrowings would be senior to the New Notes and the guarantees of the New Notes.
If new debt is added to our and the guarantors' current debt levels, the related
risks that we and they now face could intensify.
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of the New Notes" and "Description of Other Indebtedness."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including
the New Notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This is subject not only to our performance within our industry, but also to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
revenue growth, we believe our cash flow from operations, available cash and
available borrowings under our New Credit Facility, will be adequate to meet our
future liquidity needs for at least the next several years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and revenue
growth will be realized on schedule or at all or that future borrowings will be
available to us under our New Credit Facility in amounts sufficient to enable us
to pay our indebtedness, including the New Notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
the New Notes, on or before maturity. We cannot assure you that we will be able
to refinance any of our indebtedness, including our New Credit Facility and the
New Notes, on commercially reasonable terms or at all.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS JUNIOR TO
OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER,
THE GUARANTEES OF THE NEW NOTES WILL BE JUNIOR TO ALL THE GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
The New Notes and the guarantees rank behind all of our and the guarantors'
existing indebtedness, other than trade payables, and all of our and all the
guarantors' future borrowings, other than trade payables, except any future
indebtedness that expressly provides that it ranks equal with, or junior in
right of payment to, the New Notes and the guarantees. As a result, upon any
distribution to our creditors or the creditors of the guarantors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the guarantors or our or their property, the holders of our senior debt and
the senior debt of the guarantors will be entitled to be paid in full in cash
before any payment may be made with respect to the New Notes or the guarantees.
12
<PAGE>
In addition, all payments on the New Notes and the guarantees will be
blocked in the event of a payment default on senior debt and may be blocked for
up to 179 of 360 consecutive days in the event of certain non-payment defaults
on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the New Notes will
participate with trade creditors and all other holders of our subordinated
indebtedness and the subordinated indebtedness of the guarantors in the assets
remaining after we and the guarantors have paid all of the senior debt. However,
because the indenture requires that amounts otherwise payable to holders of the
New Notes in a bankruptcy or similar proceeding be paid to holders of senior
debt instead, holders of the New Notes may receive less, ratably than holders of
trade payables in any such proceeding. In any of these cases, we and the
guarantors may not have sufficient funds to pay all of our creditors and holders
of New Notes may receive less, ratably than the holders of senior debt.
Assuming we had completed the exchange offer on January 1, 1999, the New
Notes and the guarantees by our domestic subsidiary would have been subordinated
to $91.0 million of senior debt under our New Credit Facility. In addition, the
New Credit Facility provided for up to approximately $29.0 million of additional
borrowings. Holdings' guarantee of the New Notes would have been subordinated to
$111.0 million of senior debt consisting of the guarantee of the New Credit
Facility and the face value of the Holdings PIK Notes. We are permitted to
borrow substantial additional indebtedness, including senior debt, in the future
under the terms of the indenture.
LIMITED VALUE OF HOLDINGS GUARANTEE--YOU SHOULD NOT RELY ON THE GUARANTEE BY
HOLDINGS IN THE EVENT WE CANNOT MAKE PAYMENTS UPON THE NEW NOTES.
The New Notes will be guaranteed by Holdings, our parent holding company, on
a senior subordinated basis. You should not rely on this guarantee because
Holdings has no assets other than our capital stock. If we cannot make payments
under the New Notes, Holdings probably cannot make payments either. In addition,
this guarantee will be subordinated to all senior debt of Holdings, which
consists of Holdings' guarantee of the $91.0 million of borrowings under the New
Credit Facility and the $20.0 million of borrowings consisting of the face value
of the Holdings PIK Notes as of January 1, 1999 and whose holders would be paid
before you in the event of a liquidation.
DEPENDENCE ON MAJOR CUSTOMERS--WE RELY HEAVILY ON CERTAIN CUSTOMERS FOR MUCH
OF OUR SALES.
Our three largest customers for the fiscal year ended September 30, 1998
were Aviall, a distributor of aftermarket parts to airlines throughout the
world, Boeing, which includes McDonnell Douglas and various agencies of the
United States government. These customers accounted for approximately 20%, 14%
and 9%, respectively, of our consolidated net sales in fiscal 1998.
Our top ten customers accounted for approximately 61% of our consolidated
net sales for fiscal 1998.
The loss of any one or more of these key customers could have a material
adverse effect on our business. See "Business--Customers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMER CONTRACTS--WE GENERALLY DO NOT HAVE GUARANTEED FUTURE SALES OF OUR
PRODUCTS. FURTHER, WE ARE OBLIGATED UNDER FIXED PRICE CONTRACTS WITH SOME OF OUR
CUSTOMERS, SO WE TAKE THE RISK FOR COST OVERRUNS.
Since we do not have long-term contracts with most of our customers, future
sales of our products are not guaranteed. Even in those cases where we do, such
as with Boeing and the United States government, our customers may terminate
these contracts on short notice.
13
<PAGE>
We also have entered into fixed-price contracts with some of our customers,
where we agree to perform the work for a fixed price and, accordingly, realize
all the benefit or detriment resulting from any decreased or increased costs for
making these products. Sometimes we accept a fixed-price contract for a product
which we have not yet produced, which increases the risks of delays or cost
overruns.
We also have some contracts with customers which establish prices for
certain of our components based upon the volume the customer purchases. A number
of these contracts do not permit us to recover for increases in input prices,
taxes or labor costs. Any such increases without increases in our prices are
likely to have an adverse effect on our business and may affect our ability to
make payments to you under the New Notes.
AIRCRAFT COMPONENTS INDUSTRY RISKS--OUR BUSINESS IS SENSITIVE TO THE NUMBER
OF FLIGHT HOURS THAT OUR CUSTOMERS' PLANES SPEND ALOFT AND TO OUR CUSTOMERS'
PROFITABILITY. THESE ITEMS ARE, IN TURN, AFFECTED BY GENERAL ECONOMIC
CONDITIONS. IN ADDITION, OUR SALES TO MANUFACTURERS OF NEW LARGE AIRCRAFT ARE
CYCLICAL.
We compete in the aircraft component segment of the aerospace industry. This
segment is sensitive to changes in the number of miles flown by paying customers
of commercial airlines ("revenue passenger miles") and, to a lesser extent, to
changes in the profitability of the commercial airline industry and the size and
age of the worldwide aircraft fleet.
Revenue passenger miles and airline profitability have historically been
correlated with the general economic environment, although international events
can also play a key role. For example, in 1991 revenue passenger miles declined
as a result of increased security concerns among airline customers following the
Gulf War. Although 1991 was the only year in the last ten years in which revenue
passenger miles declined, any future reduction would reduce the use of
commercial aircraft and, consequently, the need for spare parts and new
aircraft. During periods of reduced airline profitability, some airlines may
elect to delay purchases of spare parts, preferring instead to deplete existing
inventories.
If demand for new aircraft and spare parts decreases, there may be a
decrease in demand for certain of our products. Therefore, any future decline in
revenue passenger miles, airline profitability or the size of the worldwide
aircraft fleet, for any reason, could have a material adverse effect on our
business. See "Business--Industry Overview."
In addition, sales to manufacturers of large commercial aircraft, which
accounted for less than 20% of our annual net sales in fiscal 1998, have
historically experienced periodic downturns. In the past, these sales have been
affected by airline profitability, which is impacted by fuel and labor costs and
price competition, and other things. Due in part to these factors, the number of
large commercial aircraft delivered dropped from a peak of approximately 756
aircraft in 1991 to approximately 370 aircraft in 1995, according to a trade
report.
We believe that by concentrating on products with strong aftermarket demand
and on smaller regional planes, we have reduced our exposure to downturns in
this sector. Prior downturns have adversely effected our net sales, gross margin
and net income. These and certain other factors may cause a downturn in sales to
manufacturers of large commercial aircraft in the future which may have a
material adverse effect on our business.
REDUCTION IN DEFENSE SPENDING--A DECLINE IN THE U.S. DEFENSE BUDGET MAY
ADVERSELY AFFECT OUR SALES OF PARTS USED IN MILITARY AIRCRAFT.
In fiscal 1998, approximately 27.0% of our sales were related to products
used in military aircraft, in each case, over half of which were spare parts
provided to various governmental agencies.
14
<PAGE>
In general, the United States' defense budget has been declining or stable
in recent years, resulting in reduced or stable demand for new aircraft and, to
a lessor extent, spare parts. The United States' defense budget may continue to
decline and sales of defense related items to foreign governments may decrease.
If there is a decline which reduces demand for our components, our business may
be adversely affected.
GOVERNMENT REGULATION--OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE LOST
OUR GOVERNMENT PERMITS OR IF FUTURE, MORE ONEROUS GOVERNMENT REGULATIONS WERE
ENACTED.
In order to sell our components, our Company and the components we
manufacture must be certified by the FAA, the United States Department of
Defense and similar agencies in foreign countries and by individual
manufacturers.
If material authorizations or approvals were revoked or suspended, our
business would be adversely affected. In the future, if new and more stringent
government regulations are adopted or if industry oversight increases, our
business may be adversely affected. See "Business--Governmental Regulation."
RISKS ASSOCIATED WITH OUR WORKFORCE--WE ARE DEPENDENT ON OUR HIGHLY TRAINED
EMPLOYEES AND ANY WORK STOPPAGE OR DIFFICULTY HIRING SIMILAR EMPLOYEES WOULD
ADVERSELY AFFECT OUR BUSINESS.
Because our products are complicated and very detailed, we are highly
dependent on an educated and trained workforce. There is substantial competition
for these kinds of personnel in the aircraft component industry. We may not be
able to (1) retain our existing senior management or engineering staff, (2) fill
new positions or vacancies created by expansion or turnover, or (3) attract
additional qualified personnel. Although we have entered into employment
agreements with certain executive officers, these agreements may not be renewed.
See "Management--Employment Agreements."
At September 30, 1998, approximately 30% of our employees were unionized.
Our collective bargaining agreements expire in April 1999 and November 2000.
Although we believe that our relations with our employees are good, we cannot
assure you that we will be able to negotiate a satisfactory renewal of these
collective bargaining agreements or that our employee relations will remain
stable.
Because we maintain a relatively small inventory of finished goods and
operate on relatively short lead times for our products, any work shortage or
shortage in skilled employees could have a material adverse effect on our
business. "See Business--Employees."
RISKS ASSOCIATED WITH SUPPLIERS--OUR BUSINESS IS DEPENDENT ON THE
AVAILABILITY OF CERTAIN COMPONENTS AND RAW MATERIALS THAT WE BUY FROM SUPPLIERS.
Our business is affected by the price and availability of the raw materials
and unique component parts that we use to manufacture our components. Because we
maintain a relatively small inventory of raw materials and component parts, our
business could be adversely affected by factors affecting our suppliers, or by
increased costs of such raw materials or components if we are unable to pass
along such price increases to our customers. See "Business--Raw Materials and
Patents."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES--WE MAY BE LIABLE FOR
PENALTIES UNDER A VARIETY OF ENVIRONMENTAL LAWS, EVEN IF WE DID NOT CAUSE ANY
ENVIRONMENTAL PROBLEMS. CHANGES IN ENVIRONMENTAL LAWS OR UNEXPECTED
INVESTIGATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our business and our facilities are subject to a number of federal, state
and local laws and regulations, which govern, among other things, the discharge
of hazardous materials into the air and water as well as the handling, storage
and disposal of such materials.
15
<PAGE>
Pursuant to certain environmental laws, a current or previous owner or
operator of land or persons who arrange (as defined under these statutes) for
the disposal or treatment of hazardous materials may be liable for the costs of
investigation, removal or remediation of hazardous materials at such property.
These laws typically impose liability whether or not the owner or operator knew
of, or was responsible for, the presence of any hazardous materials. See
"Business--Environmental Matters."
Because we own and operate a number of facilities, and because we arrange
for the disposal of hazardous materials at many disposal sites, we may incur
costs for investigation, removal and remediation, as well as capital costs
associated with compliance with these laws. Although such environmental costs
have not been material in the past and are not expected to be material in the
future, changes in environmental laws or unexpected investigations and clean-up
costs could have a material adverse effect on our business.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND ASIAN FINANCIAL
MARKETS--OUR INTERNATIONAL BUSINESS EXPOSES US TO RISKS RELATING TO INCREASED
REGULATION AND POLITICAL OR ECONOMIC INSTABILITY, GLOBALLY OR WITHIN CERTAIN
FOREIGN COUNTRIES.
Approximately 16%, 20% and 20% of our sales in fiscal 1998, fiscal 1997 and
fiscal 1996, respectively, were made directly to foreign end-users. In addition,
a portion of the products we sell to domestic distributors are resold to foreign
end-users. These sales are subject to numerous additional risks, including the
impact of foreign government regulations, currency fluctuations, political
uncertainties and differences in business practices.
Foreign governments could adopt regulations or take other actions that would
have an adverse impact on our business or market opportunities abroad.
Furthermore, the political, cultural and economic climate outside the United
States may not be favorable to our business and growth strategy.
The Asian markets are important markets for airlines and the large
commercial aircraft manufacturers. For example, Boeing has developed a large
backlog of aircraft sales to customers in Asia, and the current crisis in the
Asian financial markets has resulted in some deferrals and cancellations of
deliveries. This may result in significant cancellation of orders or additional
deferral of deliveries for new aircraft or negatively impact these
manufacturers. The resulting decreased demand in the aftermarket could adversely
affect our business.
RISKS RELATED TO POTENTIAL FUTURE ACQUISITIONS--WE INTEND TO PURSUE FUTURE
ACQUISITIONS AND ARE CONSIDERING A SPECIFIC ACQUISITION WHICH, IF CONSUMMATED,
WOULD SUBSTANTIALLY INCREASE THE LEVEL OF OUR INDEBTEDNESS AND MAY ADVERSELY
AFFECT OUR BUSINESS IF WE CANNOT EFFECTIVELY INTEGRATE THESE NEW OPERATIONS.
We intend to pursue acquisitions that we believe will present opportunities
to realize significant synergies, operating expense reductions or overhead cost
savings and increase our market position. This acquisition strategy may require
substantial capital, and we may not be able to raise the necessary funds on
satisfactory terms or at all.
Although we currently have no binding agreements with respect to any future
acquisitions and we cannot assure you that we will be able to reach agreement
with respect to any future acquisition, such acquisitions would likely result in
the incurrence of debt and contingent liabilities and an increase in interest
expense and amortization expenses related to goodwill and other intangible
assets, which could have a material adverse effect upon our business.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. For all of these reasons, if any such acquisitions occur, our
business could be adversely affected.
16
<PAGE>
COMPETITION--WE MAY BE UNABLE TO REPAY THE NEW NOTES IF WE DO NOT
SUCCESSFULLY COMPETE WITHIN OUR INDUSTRY.
We compete against a number of companies, including divisions of larger
companies, some of which have significantly greater financial, technological and
marketing resources than us. We also compete for a limited number of customers.
We believe that our ability to compete depends on product performance, short
lead-time and timely delivery, competitive pricing, responsiveness to our
customers and continued certification under customer quality requirements and
assurance programs. If we do not retain an advantage vis a vis our competitors
in these areas, our business may be adversely affected. See
"Business--Competition."
CONTROL BY ODYSSEY--WE ARE CONTROLLED BY ODYSSEY, WHOSE INTERESTS MAY NOT BE
ALIGNED WITH YOURS.
Odyssey and its co-investors indirectly own approximately 73.7% of the
equity interests in our parent company, Holdings, on a fully diluted basis and,
therefore, have the power, subject to certain exceptions, to control Holdings.
They also control the appointment of management and the entering into of
mergers, sales of substantially all assets and other extraordinary transactions.
The interests of Odyssey may not in all cases be aligned with yours. See "The
Transactions" and "Certain Relationships and Related Transactions."
IMPACT OF YEAR 2000 ISSUE--THE YEAR 2000 PROBLEM MAY RESULT IN DECREASED
SALES FOR US IF CERTIFICATIONS WE RECEIVED FROM OUR VENDORS ARE INACCURATE OR IF
OUR CUSTOMERS AND SUPPLIERS DO NOT ADEQUATELY ADDRESS THEIR YEAR 2000 CONCERNS.
We are completing a review of our information technology systems and
embedded systems in order to assess our exposure to Year 2000 issues. For
details of this review see "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Impact of Year 2000 Issue."
In the event that Year 2000 problems arise for us, or that our significant
suppliers or customers, including various agencies of the United States
government, do not successfully and timely achieve Year 2000 compliance, we may
have to bear Year 2000 costs and expenses which could have a material adverse
effect on our business.
PRODUCT LIABILITY; CLAIMS EXPOSURE--WE COULD BE ADVERSELY AFFECTED AS A
RESULT OF A LAWSUIT IF ONE OF OUR COMPONENTS CAUSES AN AIRCRAFT TO CRASH AND WE
ARE NOT COVERED BY OUR INSURANCE POLICIES.
Our operations expose us to potential liabilities for personal injury or
death as a result of the failure of an aircraft component that has been
designed, manufactured or serviced by us. While management believes that our
liability insurance is adequate to protect us from future products liability
claims, if claims were to arise, such insurance coverage may not be adequate.
Additionally insurance coverage may not be able to be maintained in the
future at an acceptable cost. Any such liability not covered by insurance or for
which third party indemnification is not available could have a material adverse
effect on our business.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding Notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of Notes or that restrictions in our New
Credit Facility will not allow such repurchases. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
indenture. See "Description of the New Notes-Change of Control."
17
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FAILURE TO EXCHANGE OLD NOTES--IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES,
YOU WILL CONTINUE TO HOLD UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER
OLD NOTES WILL BE ADVERSELY AFFECTED.
We will only issue New Notes in exchange for Old Notes that are timely
received by the Exchange Agent together with all required documents, including a
properly completed and signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the Exchange Agent are required to tell you of any defects or irregularities
with respect to your tender of the Old Notes. If you do not tender your Old
Notes or if we do not accept your Old Notes because you did not tender your Old
Notes properly, then, after we consummate the exchange offer, you may continue
to hold Old Notes that are subject to the existing transfer restrictions. In
addition, if you tender your Old Notes for the purpose of participating in a
distribution of the New Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes. If you are a broker-dealer that
receives New Notes for your own account in exchange for Old Notes that you
acquired as a result of market-making activities or any other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale of such New Notes. After the exchange
offer is consummated, if you continue to hold any Old Notes, you may have
difficulty selling them because there will be less Old Notes outstanding. In
addition, if a large amount of Old Notes are not tendered or are tendered
improperly, the limited amount of New Notes that would be issued and outstanding
after we consummate the exchange offer could lower the market price of such New
Notes.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS,
UNDER SPECIFIC CIRCUMSTANCES, TO VOID THE NEW NOTES AND THE GUARANTEES AND
REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR THE GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the New Notes and the guarantees could be voided, or
claims in respect of the New Notes or the guarantees could be subordinated to
all of our other debts or debts of any guarantor if, among other things, we or
that guarantor, at the time it incurred the indebtedness evidenced by the New
Notes or its guarantee:
- - received less than reasonably equivalent value or fair consideration for the
incurrence of such indebtedness; or
- - was insolvent or rendered insolvent by reason of such incurrence; or
- - was engaged in a business or transaction for which our or that guarantor's
remaining assets constituted unreasonably small capital; or
- - intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they mature.
In addition, any payment by us or that guarantor pursuant to the New Notes
or a guarantee could be voided and required to be returned to us or that
guarantor, or to a fund for the benefit of the creditors of us or that
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, we or a guarantor would
be considered insolvent if:
- - the sum of its debts, including contingent liabilities, were greater than the
fair saleable value of all of its assets,
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- - if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature, or
- - it could not pay its debts as they become due.
Based upon information currently available to us, we believe that the New
Notes and the guarantees are being incurred for proper purposes and in good
faith and that we, and each of the guarantors:
- - are solvent and will continue to be solvent after giving effect to the
issuance of the New Notes and the guarantees, as the case may be;
- - will have enough capital for carrying on our business and the business of each
of the guarantors after the issuance of the New Notes and the guarantees, as
the case may be; and
- - will be able to pay our debts.
NO PRIOR MARKET FOR THE NEW NOTES--YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE NEW NOTES.
The New Notes are a new issue of securities with no established trading
market and will not be listed on any securities exchange. The liquidity of the
trading market in the New Notes, and the market price quoted for the New Notes,
may be adversely affected by changes in the overall market for high yield
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, you cannot be
sure that an active trading market will develop for the New Notes.
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TRANSACTIONS
Together with the completion of the offering of the Old Notes by TransDigm,
Holdings consummated a recapitalization of Holdings (the "Recapitalization")
under the terms of an agreement and plan of merger, dated August 3, 1998, as
amended, between Phase II Acquisition Corp. and Holdings (the "Merger
Agreement"). Concurrently with the offering of the Old Notes, TransDigm entered
into a credit agreement (the "New Credit Facility") providing for a six-year
$30.0 million revolving credit facility (the "Revolving Credit Facility"), $2.6
million of which was funded to consummate the Recapitalization, and a 6-year
$45.0 million Tranche A Term Loan Facility (the "Tranche A Facility") and a
7 1/2-year $45.0 million Tranche B Term Loan Facility (the "Tranche B
Facility"), each of which was fully funded to consummate the Recapitalization.
Additional borrowings under the Revolving Credit Facility are available for
certain permitted acquisitions and for general corporate purposes, including
working capital requirements. See "Description of Other Indebtedness-- The
Company--The New Credit Facility."
As part of the Recapitalization, Odyssey and its co-investors invested
approximately $100.2 million of cash equity in Holdings (the "Odyssey
Investment"). The equity holders of Holdings received a payment in the
Recapitalization of $330.0 million of which $279.7 million was paid in cash,
$20.0 million was paid in the form of Holdings' pay-in-kind notes due 2009 of
Holdings (the "Holdings PIK Notes") and Holdings' common stock and $30.3 million
was paid in the form of common stock and options of Holdings that was retained
by the shareholders of Holdings (the "Rollover Investment"). As a result of the
consummation of the Transactions, Odyssey and its co-investors own approximately
73.7%, and certain continuing equity holders of Holdings own approximately
26.3%, in each case, of the outstanding shares of Holdings common stock on a
fully diluted basis.
The offering of the Old Notes, the Recapitalization, the Odyssey Investment,
the issuance of the Holdings PIK Notes and the related borrowings under the New
Credit Facility are collectively referred to herein as the "Transactions."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
Together with the sale by TransDigm of the Old Notes on December 3, 1998,
TransDigm and the Guarantors entered into a registration rights agreement (the
"Registration Rights Agreement"), dated December 3, 1998, with the initial
purchasers, which requires that TransDigm and the Guarantors file a registration
statement under the Securities Act with respect to the New Notes (the
"Registration Statement") and, upon the effectiveness of that Registration
Statement, offer to the holders of the Old Notes the opportunity to exchange
their Old Notes for a like principal amount of New Notes. The New Notes will be
issued without a restrictive legend and generally may be reoffered and resold by
the holder without registration under the Securities Act. The Registration
Rights Agreement further provides that TransDigm must cause the Registration
Statement with respect to the exchange offer to be declared effective by May 2,
1999 and consummate the exchange offer by June 6, 1999.
Except for exceptions listed below, upon the completion of the exchange
offer, TransDigm's obligations with respect to the registration of the Old Notes
and the New Notes will terminate. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement, of which this
Prospectus is a part, and this summary of the material provisions of the
Registration Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the complete Registration Rights Agreement. As a
result of the timely filing and the effectiveness of the Registration Statement,
TransDigm will not have to pay certain additional interest on the Old Notes
provided in the Registration Rights Agreement. Following the completion of the
exchange offer, holders of Old Notes not tendered will not have any further
registration rights other than as set forth in the paragraphs below, and those
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected upon consummation of the exchange offer.
In order to participate in the exchange offer, a holder must represent to
TransDigm, among other things, that:
- the New Notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the holder;
- the holder is not engaging in and does not intend to engage in a
distribution of the New Notes;
- the holder does not have an arrangement or understanding with any
person to participate in the distribution of the New Notes; and
- the holder is not an "affiliate," as defined under Rule 405 under the
Securities Act, of TransDigm or the Guarantors.
Under certain circumstances specified in the Registration Rights Agreement,
TransDigm may be required to file a "shelf" registration statement for a
continuous offering pursuant to Rule 415 under the Securities Act in respect of
the Old Notes. See "Registration Rights.". See "--Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to TransDigm, TransDigm believes that,
with the exceptions set forth below, New Notes issued in the exchange offer may
be offered for resale, resold and otherwise transferred by the holder of New
Note without compliance with the registration and prospectus delivery
requirements of the Securities Act, unless the holder:
- is an "affiliate" of TransDigm or the Guarantors within the meaning of
Rule 405 under the Securities Act;
- is a broker-dealer who purchased Old Notes directly from TransDigm for
resale under Rule 144A or any other available exemption under the
Securities Act;
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- acquired the New Notes other than in the ordinary course of the
holder's business; or
- the holder has an arrangement with any person to engage in the
distribution of New Notes.
Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the New Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." Broker-dealers
who acquired Old Notes directly from us and not as a result of market-making
activities or other trading activities may not rely on the staff's
interpretations discussed above or participate in the exchange offer and must
comply with the prospectus delivery requirements of the Securities Act in order
to sell the Old Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the letter of transmittal, TransDigm will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1999, or such date and time to which we extend the offer. TransDigm
will issue $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of outstanding Old Notes accepted in the exchange offer.
Holders may tender some or all of their Old Notes pursuant to the exchange
offer. However, Old Notes may be tendered only in integral multiples of $1,000
in principal amount.
The New Notes will evidence the same debt as the Old Notes and will be
issued under the terms of, and entitled to the benefits of, the Indenture
relating to the Old Notes.
As of the date of this Prospectus, Old Notes representing $125.0 million
aggregate principal amount were outstanding and there was one registered holder,
a nominee of DTC. This Prospectus, together with the letter of transmittal, is
being sent to such registered holder and to others believed to have beneficial
interests in the Old Notes. TransDigm intends to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission promulgated under the Exchange Act.
TransDigm shall be deemed to have accepted validly tendered Old Notes when,
as, and if TransDigm has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the New Notes from TransDigm. If any tendered Old Notes are
not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth under the heading "--Conditions to the Exchange
Offer" or otherwise, certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder of those Old Notes as
promptly as practicable after , 1999, unless the exchange offer is
extended.
Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of Old Notes in the
exchange offer. TransDigm will pay all charges and expenses, other than certain
applicable taxes, applicable to the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be 5:00 p.m., New York City time, on ,
1999, unless TransDigm, in its sole discretion, extends the exchange offer, in
which case the expiration date shall mean the latest date and time to which the
exchange offer is extended. In order to extend the exchange offer, TransDigm
will notify the Exchange Agent and each registered holder of any extension by
oral or
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written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. TransDigm reserves the right, in
its sole discretion, (A) to delay accepting any Old Notes, to extend the
exchange offer or, if any of the conditions set forth under "--Conditions to
Exchange Offer" shall not have been satisfied, to terminate the exchange offer,
by giving oral or written notice of that delay, extension or termination to the
Exchange Agent, or (B) to amend the terms of the exchange offer in any manner.
In the event that TransDigm makes a material or fundamental change to the terms
of the exchange offer, TransDigm will file a post-effective amendment to the
Registration Statement.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the exchange offer.
Except as set forth under "--Book Entry Transfer," to tender in the exchange
offer a holder must complete, sign, and date the letter of transmittal, or a
copy of the letter of transmittal, have the signatures on the letter of
transmittal guaranteed if required by the letter of transmittal, and mail or
otherwise deliver the letter of transmittal or copy to the Exchange Agent prior
to the expiration date. In addition:
- certificates for the Old Notes must be received by the Exchange Agent
along with the letter of transmittal prior to the expiration date;
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the Old Notes, if that procedure is available, into
the Exchange Agent's account at DTC (the "Book-Entry Transfer
Facility") following the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the expiration
date; or
- you must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the Exchange Agent at the address set forth under
"--Exchange Agent" prior to the expiration date.
Your tender, if not withdrawn before the expiration date will constitute an
agreement between you and TransDigm in accordance with the terms and subject to
the conditions set forth herein and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO TRANSDIGM. YOU MAY REQUEST YOUR
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR YOU.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the registered
holder to tender on the beneficial owner's behalf. If the beneficial owner
wishes to tender on the owner's own behalf, the owner must, prior to completing
and executing the letter of transmittal and delivering the owner's Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
the beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless Old Notes tendered pursuant thereto are tendered (A) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the letter of transmittal or (B) for the
account of an Eligible Institution. If signatures on a letter of transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member
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of or participant in the Securities Transfer Agents Medallion Program, the New
York Stock Exchange Medallion Signature Program or an Eligible Institution.
If the letter of transmittal is signed by a person other than the registered
holder of any Old Notes listed in the letter of transmittal, the Old Notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to TransDigm
of their authority to so act must be submitted with the letter of transmittal
unless waived by TransDigm.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance, and withdrawal of tendered Old Notes will be determined by
TransDigm in its sole discretion, which determination will be final and binding.
TransDigm reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes TransDigm's acceptance of which would, in the
opinion of counsel for TransDigm, be unlawful. TransDigm also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
Old Notes. TransDigm's interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes must be cured within such time as
TransDigm shall determine. Although TransDigm intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither
TransDigm, the Exchange Agent, nor any other person shall incur any liability
for failure to give that notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the letter of transmittal, as soon as practicable
following , 1999, unless the exchange offer is extended.
In addition, TransDigm reserves the right in its sole discretion to purchase
or make offers for any Old Notes that remain outstanding after the expiration
date or, as set forth under "--Conditions to the exchange offer," to terminate
the exchange offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions, or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
By tendering, you will represent to TransDigm that, among other things:
- the New Notes acquired in the exchange offer are being obtained in the
ordinary course of business of the person receiving such New Notes,
whether or not such person is the registered holder;
- you are not engaging in and do not intend to engage in a distribution
of the New Notes;
- you do not have an arrangement or understanding with any person to
participate in the distribution of such New Notes; and
- you are not an "affiliate," as defined under Rule 405 of the
Securities Act, of TransDigm or any of the Guarantors.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed letter of
transmittal or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the letter of transmittal, and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms
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and conditions of the exchange offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering holder
or, in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility according to the book-entry
transfer procedures described below, those nonexchanged Old Notes will be
credited to an account maintained with that Book-Entry Transfer Facility, in
each case, as promptly as practicable after the expiration or termination of the
exchange offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where those Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of those New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
that Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the letter of transmittal or copy of the letter of
transmittal, with any required signature guarantees and any other required
documents, must, in any case other than as set forth in the following paragraph,
be transmitted to and received by the Exchange Agent at the address set forth
under "--Exchange Agent" on or prior to the expiration date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system instead of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the letter of transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender Old Notes and the
Old Notes are not immediately available, or time will not permit that holder's
Old Notes or other required documents to reach the Exchange Agent before the
expiration date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if:
- the tender is made through an Eligible Institution;
- prior to the expiration date, the Exchange Agent receives from that
Eligible Institution a properly completed and duly executed letter of
transmittal or a facsimile of duly executed letter of transmittal and
notice of guaranteed delivery, substantially in the form provided by
TransDigm, by telegram, telex, fax transmission, mail or hand
delivery, setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered and stating that the tender
is being made by guaranteed delivery and guaranteeing that within
three New York Stock Exchange, Inc. ("NYSE") trading days after the
date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, will be
deposited by the Eligible Institution with the Exchange Agent; and
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- the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, are
received by the Exchange Agent within three NYSE trading days after
the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal of a tender of Old Notes to be effective, a written or, for
DTC participants, electronic ATOP transmission notice of withdrawal, must be
received by the Exchange Agent at its address set forth under "--Exchange Agent"
prior to 5:00 p.m., New York City time, on the expiration date. Any such notice
of withdrawal must:
- specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor");
- identify the Old Notes to be withdrawn, including the certificate
number or numbers and principal amount of such Old Notes;
- be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such Old Notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the Trustee register the
transfer of such Old Notes into the name of the person withdrawing the
tender; and
- specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form, eligibility and time of receipt of
such notices will be determined by TransDigm, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. Any
Old Notes which have been tendered for exchange but which are not exchanged for
any reason will be returned to the holder of those Old Notes without cost to
that holder as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures under "--Procedures for Tendering"
at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, TransDigm shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the exchange offer if at any time
before the acceptance of those Old Notes for exchange or the exchange of the New
Notes for those Old Notes, TransDigm determines that the exchange offer violates
applicable law, any applicable interpretation of the staff of the Commission or
any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of TransDigm and may be
asserted by TransDigm regardless of the circumstances giving rise to any such
condition or may be waived by TransDigm in whole or in part at any time and from
time to time in its sole discretion. The failure by TransDigm at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any of
those rights and each of those rights shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, TransDigm will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for those Old Notes, if at such time
any stop order shall be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Indenture under the Trust Indenture Act of 1939. In any of those events
TransDigm
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is required to use every reasonable effort to obtain the withdrawal of any stop
order at the earliest possible time.
EXCHANGE AGENT
All executed letters of transmittal should be directed to the Exchange
Agent. State Street Bank and Trust Company has been appointed as Exchange Agent
for the exchange offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the letter of transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department, Fourth Floor
Attn: Kellie Mullen Attn: Kellie Mullen
P.O. Box 778 Two International Place
Boston, MA 02102-0078 Boston, MA 02110
</TABLE>
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(617) 664-5290
FOR INFORMATION OR CONFIRMATION BY TELEPHONE:
Kellie Mullen
(617) 664-5587
Originals of all documents sent by facsimile should be sent promptly
by registered or certified mail, by hand or by overnight delivery service.
FEES AND EXPENSES
TransDigm will not make any payments to brokers, dealers or others
soliciting acceptances of the exchange offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of TransDigm. The estimated cash expenses
to be incurred in connection with the exchange offer will be paid by TransDigm
and will include fees and expenses of the Exchange Agent, accounting, legal,
printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection with that tender or exchange, except that
holders who instruct TransDigm to register New Notes in the name of, or request
that Old Notes not tendered or not accepted in the exchange offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax on those Old Notes.
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USE OF PROCEEDS
TransDigm will not receive any cash proceeds from the issuance of the New
Notes. In consideration for issuing the New Notes as contemplated in this
Prospectus, TransDigm will receive in exchange Old Notes in like principal
amount, which will be canceled and as such will not result in any increase in
our indebtedness.
TransDigm used the net proceeds of the offering of the Old Notes, together
with borrowings under the New Credit Facility, (A) to finance, in part, the
Recapitalization, (B) to repay indebtedness, and (C) to pay related fees and
expenses. The following table sets forth the sources and uses of funds for the
Transactions:
<TABLE>
<CAPTION>
AMOUNT
-------------------
<S> <C>
(DOLLARS IN
MILLIONS)
SOURCES:
Cash...................................................................... $ 20.0
New Credit Facility(1).................................................... 92.6
Old Notes................................................................. 125.0
Holdings PIK Notes and Common Stock(2).................................... 20.0
Odyssey Investment........................................................ 100.2
Rollover Investment(3).................................................... 30.3
------
Total Sources......................................................... $ 388.1
------
------
USES:
Payment of consideration in Recapitalization(4)........................... $ 299.7
Rollover Investment(3).................................................... 30.3
Repayment of indebtedness and accrued interest(5)......................... 45.1
Fees and expenses(6)...................................................... 13.0
------
Total uses............................................................ $ 388.1
------
------
</TABLE>
- ------------------------
(1) The New Credit Facility provides for aggregate borrowings of up to $120.0
million, consisting of a $45.0 million Tranche A Facility, a $45.0 million
Tranche B Facility and a $30.0 million revolving credit facility, of which,
as of January 1, 1999, approximately $29.0 million was undrawn and available
for certain permitted acquisitions and for general corporate purposes,
including working capital requirements. See "Description of Other
Indebtedness--The Company--The New Credit Facility."
(2) Represents $20.0 million in the form of Holdings PIK Notes and common stock
of Holdings that were issued to certain shareholders of Holdings in the
Recapitalization.
(3) Represents approximately $30.3 million in the form of shares of common stock
and options retained by certain continuing equity holders of Holdings.
(4) Includes (A) payments after expenses to certain equity holders of Holdings
of $283.3 million of which $263.3 million was paid in cash and $20.0 million
was paid in the form of Holdings PIK Notes and common stock of Holdings and
(B) payment of certain management bonuses and certain of TransDigm's
expenses totalling approximately $16.4 million. See "Certain Relationships
and Related Transactions."
(5) Represents refinancing of long-term debt consisting of $45.0 million of
borrowings with a maturity of 2003 and bearing an interest rate, as of
December 3, 1998, of 6.9% under TransDigm's prior credit agreement and
accrued interest on that indebtedness of $0.1 million.
(6) Includes a $3.5 million fee paid to Odyssey as part of the Recapitalization.
See "Certain Relationships and Related Transactions."
28
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of TransDigm
and Holdings as of January 1, 1999, on a historical basis. This table should be
read in conjunction with the information contained in "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as the Consolidated Historical Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 1, 1999
------------------------
TRANSDIGM HOLDINGS
------------ ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents............................................................... $ 2,103 $ 2,103
------------ ----------
------------ ----------
Total debt (including current maturities):
Term debt............................................................................. $ -- $ --
New Credit Facility (1)............................................................... 91,000 91,000
Old Notes............................................................................. 125,000 125,000
Holdings PIK Notes.................................................................... -- 20,200
------------ ----------
Total debt.......................................................................... 216,000 236,200
------------ ----------
Redeemable common stock (2)............................................................. -- 800(2)
Stockholders' equity (deficit):
Common stock $0.01 par value and paid-in capital...................................... 24,281 100,624
Other stockholders' equity (deficit).................................................. (139,446) (236,789)
------------ ----------
Total stockholders' equity (deficit)................................................ (115,165) (136,165)
------------ ----------
Total capitalization................................................................ $ 100,835 $ 100,835
------------ ----------
------------ ----------
</TABLE>
- ------------------------
(1) The New Credit Facility consists of: (A) the Revolving Credit Facility which
provides for borrowings of up to $30.0 million, of which approximately $1.0
was drawn as of January 1, 1999 with the remainder undrawn and available for
certain permitted acquisitions and for general corporate purposes, including
working capital requirements; (B) the Tranche A Facility, which provides for
term debt of $45.0 million; and (C) the Tranche B Facility which provides
for term debt of $45.0 million. See "Description of Other Indebtedness--The
Company--The New Credit Facility."
(2) The redeemable common stock represents the estimated value of Common Stock
held by management stockholders which have the put rights described under
the heading "Management-- Management Stockholders Agreement."
29
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial information of TransDigm and
Holdings has been derived by the application of pro forma adjustments to
Holdings' historical consolidated financial statements for the year ended
September 30, 1998 and the thirteen weeks ended January 1, 1999. The pro forma
consolidated statements of operations give effect to the Recapitalization and
related transactions as if such transactions had been consummated at the
beginning of each respective period. The adjustments necessary to fairly present
this pro forma consolidated financial information have been made based on
available information and in the opinion of management are reasonable and are
described in the accompanying notes. The pro forma consolidated financial
information should not be considered indicative of actual results that would
have been achieved had the Recapitalization and related transactions been
consummated on the respective dates indicated and do not purport to indicate
results of operations for any future period. You should read the pro forma
consolidated financial statements together with the "Use of Proceeds," the "The
Transactions" and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections and the Consolidated Historical
Financial Statements and the notes thereto, and other financial information
included elsewhere in this Prospectus.
As a result of the consummation of the Transactions, Odyssey and its
co-investors acquired 73.7% of Holdings common stock on a fully diluted basis
and certain continuing equity holders of Holdings retained approximately 26.3%
of the common stock. Accordingly, the Transactions were accounted for as a
recapitalization and had no impact on the historical basis of TransDigm's and
Holdings' assets and liabilities. The pro forma adjustments were applied to the
respective historical consolidated financial statements to reflect and account
for the Transactions as a recapitalization.
A one-time merger charge of approximately $39.6 million ($28.8 million after
tax), incurred in connection with, or due to, the Recapitalization, was recorded
in the first quarter of fiscal 1999, as follows:
<TABLE>
<CAPTION>
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..................................................................... 6,673
Write-off deferred financing costs................................................................. 552
Other.............................................................................................. 631
-------------
Total.......................................................................................... $ 39,593
-------------
-------------
</TABLE>
The unaudited pro forma consolidated statements of operations for the year ended
September 30, 1998 and the thirteen weeks ended January 1, 1999 exclude those
non-recurring expenses.
30
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HOLDINGS PRO FORMA TRANSDIGM PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS(1) PRO FORMA ADJUSTMENTS(2) PRO FORMA
----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ 110,868 -- $ 110,868 -- $ 110,868
Cost of sales................................ 59,395 -- 59,395 -- 59,395
----------- -------------- ----------- ------- -----------
Gross profit................................. 51,473 -- 51,473 -- 51,473
----------- -------------- ----------- ------- -----------
Operating expenses:
Selling and administrative................. 10,473 $ (100)(a) 10,373 -- 10,373
Amortization of intangibles................ 2,438 -- 2,438 -- 2,438
Research and development................... 1,724 -- 1,724 -- 1,724
----------- -------------- ----------- ------- -----------
Total operating expenses................. 14,635 (100) 14,535 -- 14,535
----------- -------------- ----------- ------- -----------
Income from operations....................... 36,838 100 36,938 -- 36,938
Interest expense--net........................ 3,175 19,614(b) 22,789 $ 2,630(a) 25,419
Warrant put value adjustment................. 6,540 (6,540)(c) -- -- --
----------- -------------- ----------- ------- -----------
Income before income taxes................... 27,123 (12,974) 14,149 (2,630) 11,519
Income tax provision......................... 12,986 (7,610)(d) 5,376 (1,026)(b) 4,350
----------- -------------- ----------- ------- -----------
Net income................................... $ 14,137 $ (5,364) $ 8,773 $ (1,604) $ 7,169
----------- -------------- ----------- ------- -----------
----------- -------------- ----------- ------- -----------
EBITDA, As Defined (3)....................... $ 43,547 $ 100 $ 43,647 -- $ 43,647
Cash flow provided by (used in):
Operating activities....................... 23,455 (10,721) 12,734 -- 12,734
Investing activities....................... (4,295) -- (4,295) -- (4,295)
Financing activities....................... (5,071) (1,127) (6,198) -- (6,198)
</TABLE>
31
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998
(1) The amounts in this column represent the adjustments necessary to
determine TransDigm's pro forma results of operations as follows:
(a) This adjustment represents the elimination of the annual advisory
fee payable to an affiliate of TransDigm's former largest stockholder.
(b) The adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
-----------------------
<S> <C>
Interest expense on existing indebtedness to be retired in
connection with the Transactions.......................... $ (3,358)
Interest income on cash and cash equivalents................ 450
Amortization of debt issuance costs on existing
indebtedness.............................................. (267)
-------
Net interest expense........................................ (3,175)
Interest expense on New Credit Facility (at a weighted
average rate of 9.0%)..................................... 8,370
Interest expense on the Notes............................... 12,969
Amortization of debt issuance costs......................... 1,450
-------
Total adjustment............................................ $ 19,614
-------
-------
</TABLE>
A 0.250% increase or decrease in the weighted average interest rate
applicable to TransDigm's indebtedness outstanding under the New Credit
Facility would change the pro forma interest expense and net income by
$232,000 and $142,000, respectively, for the year ended September 30, 1998
and $58,000 and $36,000 for the thirteen weeks ended January 1, 1999. Each
$1.0 million increase or decrease in the revolving credit facility under the
New Credit Facility would change the pro forma interest expense by $90,000
and $22,500, respectively, for the year ended September 30, 1998 and the
thirteen weeks ended January 1, 1999, respectively.
(c) This adjustment represents the elimination of the warrant put value
adjustment. The warrants were retired in connection with the
Recapitalization.
(d) The tax effect of pro forma adjustments to income before income
taxes is based on the estimated applicable statutory tax rates. No tax
effect is recorded for the elimination of the warrant put value adjustment.
(2) The amounts in this column represent the adjustments necessary to
determine Holdings' pro forma consolidated statement of operations as follows:
(a) This adjustment represents interest expense on the Holdings PIK
Notes, including amortization of debt issuance costs.
(b) This adjustment represents the tax effect of pro forma adjustments
to income before income taxes and is based on the estimated applicable
statutory tax rates.
32
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (CONTINUED)
(3) EBITDA, As Defined, represents earnings before interest, taxes,
depreciation and amortization, the warrant put value adjustment and the Marathon
inventory purchase accounting adjustment as follows:
<TABLE>
<CAPTION>
HOLDINGS TRANSDIGM HOLDINGS
HISTORICAL PRO FORMA PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Net income......................................................... $ 14,137 $ 8,773 $ 7,169
Adjustments:
Income tax provision............................................. 12,986 5,376 4,350
Interest expense................................................. 3,175 22,789 25,419
Depreciation and amortization.................................... 6,467 6,467 6,467
Warrant put value adjustment..................................... 6,540 -- --
----------- ----------- -----------
EBITDA............................................................. 43,305 43,405 43,405
Marathon inventory purchase accounting adjustment................ 242 242 242
----------- ----------- -----------
EBITDA, As Defined................................................. $ 43,547 $ 43,647 $ 43,647
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
33
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HOLDINGS PRO FORMA TRANSDIGM PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS (1) PRO FORMA ADJUSTMENTS (2) PRO FORMA
----------- --------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 28,194 $ -- $ 28,194 $ -- $ 28,194
Cost of sales............................. 14,937 -- 14,937 -- 14,937
----------- --------------- ----------- ----- -----------
Gross profit.............................. 13,257 -- 13,257 -- 13,257
----------- --------------- ----------- ----- -----------
Operating expenses:
Selling and administrative.............. 2,685 (20)(a) 2,665 -- 2,665
Amortization of intangibles............. 645 -- 645 -- 645
Research and development................ 448 -- 448 -- 448
Merger expenses......................... 39,593 (39,593)(b) -- -- --
----------- --------------- ----------- ----- -----------
Total operating expenses.............. 43,371 (39,613) 3,758 -- 3,758
----------- --------------- ----------- ----- -----------
Income (loss) from operations............. (30,114) 39,613 9,499 -- 9,499
Interest expense--net..................... 2,276 3,096(c) 5,372 608(a) 5,980
----------- --------------- ----------- ----- -----------
Income (loss) before income taxes......... (32,390) 36,517 4,217 (608) 3,519
Income tax provision (benefit)............ (7,566) 9,209(d) 1,643 (237)(b) 1,406
----------- --------------- ----------- ----- -----------
Net income (loss)......................... $ (24,824) $ 27,308 $ 2,484 $ (371) $ 2,113
----------- --------------- ----------- ----- -----------
----------- --------------- ----------- ----- -----------
EBITDA, As defined (3).................... $ 11,078 $ 20 $ 11,098 -- $ 11,098
Cash flow provided by (used in):
Operating activities.................... (32,735) 35,819 3,084 -- 3,084
Investing activities.................... (712) -- (712) -- (712)
Financing activities.................... 16,064 -- 16,064 -- 16,064
</TABLE>
34
<PAGE>
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999
(1) The amounts in this column represent the adjustments necessary to determine
TransDigm's pro forma results of operations.
(a) This adjustment represents the elimination of the advisory fee payable
to an affiliate of TransDigm's former largest stockholder.
(b) This adjustment eliminates the non-recurring merger expenses incurred in
connection with the Recapitalization.
(c) The adjustment to interest expense reflects the following:
<TABLE>
<S> <C>
Interest expense on indebtedness retired in connection with
the Transactions.......................................... $ (600)
Interest income on cash and cash equivalents................ 131
Amortization of debt issuance costs on existing
indebtedness.............................................. (36)
Interest expense on Holdings PIK Notes...................... (200)
---------
(705)
Additional interest on New Credit Facility (at a weighted
average rate of 9%)....................................... 1,395
Additional interest expense on the Notes.................... 2,161
Additional amortization of debt issuance costs.............. 245
---------
Total adjustment............................................ $ 3,096
---------
---------
</TABLE>
(d) The tax effect of pro forma adjustments to income before income taxes is
based on the estimated applicable statutory tax rates and includes the
tax effect of the non-recurring merger expenses described previously.
(2) The amounts in this column represent the adjustments necessary to determine
Holdings pro forma consolidated statement of operations as follows:
(a) This adjustment represents interest expense on the Holdings PIK Notes,
including amortization of debt issuance costs.
(b) The tax effect of pro forma adjustments to income before income taxes is
based on the estimated applicable statutory tax rates.
(3) EBITDA, As Defined, represents earnings before interest, taxes, depreciation
and amortization and non-recurring merger expenses as follows:
<TABLE>
<CAPTION>
HOLDINGS TRANSDIGM HOLDINGS
HISTORICAL PRO FORMA PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Net income............................................... $ (24,824) $ 2,484 $ 2,113
Adjustments:
Income tax provision................................... (7,566) 1,643 1,406
Interest expense....................................... 2,276 5,372 5,980
Depreciation and amortization.......................... 1,599 1,599 1,599
----------- ----------- -----------
EBITDA................................................... (28,515) 11,098 11,098
Merger expenses........................................ 39,593 -- --
----------- ----------- -----------
EBITDA, As Defined....................................... $ 11,078 $ 11,098 $ 11,098
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
35
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information of Holdings and TransDigm. The selected historical consolidated
financial data for the fiscal years ended September 30, 1998, 1997, and 1996
have been derived from Holdings' consolidated financial statements, which have
been audited by Deloitte & Touche LLP, independent auditors. The selected
historical consolidated audited financial data for the fiscal years ended
September 30, 1995 and 1994, which have also been derived from Holdings'
consolidated financial statements, have been adjusted to give retroactive effect
to the change in accounting for put warrants as described in Note 17 to the
Consolidated Historical Financial Statements of Holdings included elsewhere in
this Prospectus. The selected historical consolidated financial data as of and
for the thirteen weeks ended January 1, 1999 and December 26, 1997 has been
derived from Holdings' unaudited consolidated financial statements for those
periods, which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations, financial position, and cash flows.
The results for the thirteen weeks ended January 1, 1999 are not necessarily
indicative of results that may be expected for the entire year. Separate
financial information for TransDigm is not presented since the New Notes will be
guaranteed by Holdings and all direct and indirect domestic subsidiaries of
TransDigm, and since Holdings has no operations or assets separate from its
investment in TransDigm.
The Marathon Acquisition was completed on August 8, 1997. The acquisition
was accounted for as a purchase. The results of operations of Marathon are
included in Holdings' consolidated financial statements from the date of such
acquisition.
You should read the following table together with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and the Consolidated Historical Financial Statements and the notes
thereto included elsewhere in this Prospectus.
36
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------
----------------------------------------------------- DECEMBER 26, JANUARY 1,
1994 1995 1996 1997 1998 1997 1999
--------- --------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 52,028 $ 57,095 $ 62,897 $ 78,159 $ 110,868 $ 26,104 $ 28,194
Gross profit..................................... 9,151 17,029 21,023 28,856 51,473 11,397 13,257
Selling and administrative....................... 6,244 6,167 6,459 7,561 10,473 2,669 2,685
Amortization of intangibles...................... 4,062 4,002 3,838 2,089 2,438 635 645
Research and development......................... 784 1,058 836 1,116 1,724 339 448
Merger expenses.................................. -- -- -- -- -- -- 39,593
--------- --------- --------- --------- --------- ------------ -----------
Operating income (loss) (1)...................... (1,939) 5,802 9,890 18,090 36,838 7,754 (30,114)
Interest expense, net (2)........................ 4,823 5,193 4,510 3,463 3,175 1,046 2,276
Warrant put value adjustment..................... 868 736 2,160 4,800 6,540 -- --
--------- --------- --------- --------- --------- ------------ -----------
Pre-tax income (loss)............................ (7,630) (127) 3,220 9,827 27,123 6,708 (32,390)
Provision (benefit) for income taxes............. (2,307) 134 2,045 5,193 12,986 2,590 (7,566)
--------- --------- --------- --------- --------- ------------ -----------
Income (loss) before extraordinary item.......... (5,323) (261) 1,175 4,634 14,137 4,118 (24,824)
Extraordinary item............................... -- -- -- (1,462) -- -- --
--------- --------- --------- --------- --------- ------------ -----------
Net income (loss)................................ $ (5,323) $ (261) $ 1,175 $ 3,172 $ 14,137 $ 4,118 $ (24,824)
--------- --------- --------- --------- --------- ------------ -----------
--------- --------- --------- --------- --------- ------------ -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities........................... $ 1,115 $ 3,972 $ 18,695 $ 17,468 $ 23,455 $ 6,485 $ (32,735)
Investing activities........................... (3,595) 702 (2,494) (43,160) (4,295) 138 (712)
Financing activities........................... 1,851 (4,560) (13,475) 28,153 (5,071) (20) 16,064
EBITDA (3)....................................... 5,402 13,168 17,213 23,856 43,305 9,409 (28,515)
EBITDA, As Defined (4)........................... 9,875 13,168 17,213 24,522 43,547 9,651 11,078
EBITDA, As Defined, margin....................... 19.0% 23.1% 27.4% 31.4% 39.3% 37.0% 39.3%
Depreciation and amortization.................... $ 7,341 $ 7,366 $ 7,323 $ 5,766 $ 6,467 $ 1,655 $ 1,599
Capital expenditures............................. 1,941 1,702 2,494 2,285 5,061 628 712
Ratio of earnings to fixed charges (5)........... -- -- 1.7x 3.7x 9.0x 7.1x --
Ratio of EBITDA, As Defined, to interest
expense........................................ 2.0x 2.5x 3.8x 7.1x 13.7x 9.2x 4.9x
Ratio of total debt to EBITDA, As Defined........ 3.7x 2.4x 1.1x 2.0x 1.0x 5.2x 21.3x
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital.................................. $ 12,592 $ 17,730 $ 16,300 $ 16,520 $ 16,654 $ 21,231 $ 26,754
Total assets..................................... 71,554 65,758 57,666 101,969 115,785 105,474 118,161
Long-term debt, including current portion........ 36,399 32,074 19,124 50,000 45,000 50,000 236,200
Total stockholders' equity (deficiency).......... 19,745 19,285 19,670 22,613 36,427 26,432 (136,165)
</TABLE>
37
<PAGE>
- ------------------------
(1) Operating income (loss) includes the effect of a non-cash charge of $4,473
in fiscal 1994 due to a purchase accounting adjustment to inventory
associated with the acquisition of the Aerospace Components Group of IMO and
a non-cash charge of $666 in fiscal 1997 and $242 in fiscal 1998 due to a
purchase accounting adjustment to inventory associated with the acquisition
of Marathon.
(2) All of the interest expense reported for fiscal 1994 through 1998 represents
interest expense of TransDigm. Holdings had no interest expense prior to the
Recapitalization. After the Recapitalization, Holdings has incurred interest
expense relating to the Holdings PIK Notes and Holdings has no other
interest expense. TransDigm is not an obligor or a guarantor under the
Holdings PIK Notes. Interest expense for the Holdings PIK Notes for the
thirteen weeks ended January 1, 1999 was $200.
(3) EBITDA represents earnings before interest, taxes, depreciation,
amortization, warrant put value adjustment and extraordinary items. EBITDA
is presented because management believes it is frequently used by securities
analysts, investors and other interested parties in the evaluation of
companies in Holdings' industry. However, other companies in Holdings'
industry may calculate EBITDA differently than Holdings does. EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities, as a measure of liquidity or an alternative to net
income as indicators of Holdings' operating performance or any other
measures of performance derived in accordance with generally accepted
accounting principles. See Holdings' consolidated Statements of Cash Flows
included in Holdings' consolidated financial statements.
(4) EBITDA, As Defined, is calculated as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
DECEMBER 26, JANUARY 1,
1994 1995 1996 1997 1998 1997 1999
--------- --------- --------- --------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA........................................ $ 5,402 $ 13,168 $ 17,213 $ 23,856 $ 43,305 $ 9,409 $ (28,515)
Adjustments:
Merger Expenses............................. -- -- -- -- -- -- 39,593
Inventory Purchase Accounting Adjustments... 4,473 -- -- 666 242 242 --
--------- --------- --------- --------- --------- ------ -----------
EBITDA, As Defined............................ $ 9,875 $ 13,168 $ 17,213 $ 24,522 $ 43,547 $ 9,651 $ 11,078
</TABLE>
EBITDA, As Defined, is presented herein to provide additional information
with respect to the ability of Holdings to satisfy its debt service, capital
expenditure and working capital requirements and because certain types of
covenants in TransDigm's and Holdings' borrowing arrangements are tied to
similar measures. While EBITDA-based measures are frequently used as
measures of operations and the ability to meet debt service requirements,
they are not necessarily comparable to other similarly titled captions of
other companies due to differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and the portion
(approximately 33%) of rental expense that management believes is
representative of the interest component of rental expense. Earnings were
insufficient to cover fixed charges by $7,630, $127 and $32,390 for fiscal
1994, fiscal 1995 and the thirteen weeks ended January 1, 1999,
respectively.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS IN THIS DISCUSSION REGARDING THE INDUSTRY OUTLOOK,
TRANSDIGM'S EXPECTATIONS REGARDING THE FUTURE PERFORMANCE OF ITS BUSINESSES, AND
THE OTHER NONHISTORICAL STATEMENTS IN THIS DISCUSSION ARE FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS RISKS AND
UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES
DESCRIBED IN THE "RISK FACTORS" SECTION. YOU SHOULD READ THE FOLLOWING
DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF TRANSDIGM
TOGETHER WITH THE SECTIONS ENTITLED "RISK FACTORS" AND "SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA" AND WITH THE CONSOLIDATED HISTORICAL FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. TRANSDIGM'S
FISCAL YEAR ENDS ON SEPTEMBER 30 OF THE YEARS INDICATED.
OVERVIEW
TransDigm is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. TransDigm sells its products
to commercial airlines and aircraft maintenance facilities in the aftermarket,
to most original equipment manufacturers ("OEMs") of aircraft and to various
agencies of the United States government. Sales of TransDigm's products are made
directly to these organizations as well as through U.S. and international
distributors who maintain inventories throughout the world of products purchased
from TransDigm and others. TransDigm generates most of its EBITDA, As Defined
from sales of replacement parts in the aftermarket, including to the airlines.
This is because most of TransDigm's OEM sales are on an exclusive sole source
basis; therefore, in most cases, TransDigm is the only certified provider of
these parts in the aftermarket. Because aftermarket parts sales are driven by
the size of the worldwide aircraft fleet, they are relatively stable and
generate recurring revenues over the life of an aircraft that are many times the
size of the original OEM purchases.
TransDigm provides its products to commercial airlines, such as United
Airlines and Continental Airlines, large commercial transport and regional and
business aircraft OEMs such as Boeing, Bombardier and Cessna and various
agencies of the United States government. While aftermarket and OEM sales have
historically each accounted for approximately half of TransDigm's net sales,
aftermarket sales typically carry a substantially higher gross margin than sales
to OEMs.
Management believes that the aircraft components industry has historically
been sensitive to changes in revenue passenger miles and, to a lesser extent, to
airline profitability, each of which has historically been correlated with
changes in general economic conditions, and the size and age of the worldwide
aircraft fleet. On a worldwide basis, revenue passenger miles have increased
from approximately 978 billion in 1985 to approximately 1,719 billion in 1996 at
a compound annual growth rate of approximately 6%. See "Business--Industry." In
addition, management believes less than 20% of TransDigm's net sales during
fiscal 1998 and the thirteen weeks ended January 1, 1999 were attributable to
sales to manufacturers of large commercial transports such as Boeing and Airbus.
As a result, increases and decreases in the manufacture of large commercial
transports only affect a portion of TransDigm's net sales.
Management has, since 1993, implemented a number of programs that have had a
positive impact on the profitability and strategic positioning of TransDigm. To
ensure a competitive cost structure, TransDigm consolidated the Adel Fasteners
and Wiggins Connectors divisions into AdelWiggins and the AeroProducts and
Controlex divisions into AeroControlex and, in fiscal 1994, consolidated
TransDigm's four manufacturing facilities into two locations. Beginning in
fiscal 1994, management reorganized the business along 11 major product lines in
order to streamline new business initiatives, increase accountability and
facilitate greater responsiveness to customer needs.
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<PAGE>
TransDigm's historical financial results are also affected by the
acquisition of Marathon on August 8, 1997. Marathon's operations were
consolidated with those of TransDigm as of the acquisition date.
The Transactions were recorded as a recapitalization for accounting
purposes. As a result of the Transactions, including the financing and the
application of the proceeds thereof, TransDigm incurred certain nonrecurring
costs and charges, consisting primarily of compensation costs for management
bonuses and stock options which were canceled in conjunction with the
Recapitalization, the cost of terminating a financial advisory services
agreement with an affiliate of one of TransDigm's stockholders, the write-off of
deferred financing costs, and professional, advisory and financing fees. A
one-time charge of approximately $39.6 million ($28.8 million after tax) was
recorded for the thirteen weeks ended January 1, 1999. Because the cash costs
included in this charge were funded principally through the proceeds of the
offering of the Old Notes and borrowings under the New Credit Facility, this
cost did not materially impact TransDigm's liquidity, ongoing operations or
market position. For a discussion of the consequences of the incurrence of
indebtedness as a result of the Transactions, see the heading "--Liquidity and
Capital Resources" in this section.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data of Holdings as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
THIRTEEN WEEKS ENDED
------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 26, JANUARY 1,
1996 1997 1998 1997 1999
--------- --------- --------- --------------- -----------
Net sales..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................................................. 33.4 36.9 46.4 43.7 47.0
Selling and administrative.................................... 10.3 9.7 9.4 10.2 9.5
Amortization of intangibles................................... 6.1 2.7 2.2 2.4 2.3
Research and development...................................... 1.3 1.4 1.6 1.3 1.6
Merger expenses............................................... 0.0 0.0 0.0 0.0 140.4
--------- --------- --------- ----- -----------
Operating income (loss)....................................... 15.7 23.1 33.2 29.7 (106.8)
Interest expense, net......................................... 7.2 4.4 2.9 4.0 8.1
Warrant put value adjustment (1).............................. 3.4 6.1 5.9 0.0 0.0
Provision (benefit) for income taxes.......................... 3.2 6.6 11.7 9.9 (26.8)
Extraordinary item............................................ 0.0 1.9 0.0 0.0 0.0
--------- --------- --------- ----- -----------
Net income (loss)............................................. 1.9% 4.1% 12.7% 15.8% (88.0)%
--------- --------- --------- ----- -----------
--------- --------- --------- ----- -----------
</TABLE>
- ------------------------
(1) Together with the formation of TransDigm on September 30, 1993, TransDigm
issued subordinated notes which included detachable warrants to purchase
approximately 16,000 shares of non-voting common stock of Holdings at a
price of $0.10 per share, exercisable upon certain change of control events,
including the Recapitalization. If no transaction constituting a triggering
event was consummated prior to July 31, 1999, warrant holders had the right
to exercise a put option requiring TransDigm to repurchase all of the
warrants at their then appraised fair market value. The warrant put value
adjustment for each period indicated reflects the increase in the estimated
put value of these warrants that occurred during that period.
40
<PAGE>
CHANGES IN RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 COMPARED WITH THIRTEEN WEEKS ENDED DECEMBER
26, 1997
- - NET SALES. Net sales increased by $2.1 million, or 8.0%, to $28.2 million for
the thirteen weeks ended January 1, 1999 from $26.1 million for the thirteen
weeks ended December 26, 1997. Substantially all of the increase was due to
higher aftermarket sales, principally for large commercial transport aircraft,
reflecting TransDigm's continued efforts to increase sales in this area
because of the larger gross margins that are generally realized from such
sales.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $1.9
million, or 16.7%, to $13.3 million for the thirteen weeks ended January 1,
1999 from $11.4 million for the thirteen weeks ended December 26, 1997. This
improvement in gross profits was principally the result of the higher
aftermarket sales discussed above and the larger gross margins that are
associated with such sales. Gross profit for the thirteen weeks ended December
26, 1997 includes the effect of a non-cash charge of $0.3 million due to a
purchase accounting adjustment to inventory associated with the acquisition of
Marathon. Gross profit also increased as a percentage of net sales from 43.7%
for the thirteen weeks ended December 26, 1997 to 47.0% for the thirteen weeks
ended January 1, 1999 due to the non-cash charge from the Marathon inventory
purchase accounting adjustment and the increase in aftermarket sales.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expense was unchanged
at $2.7 million for the thirteen weeks ended January 1, 1999 and December 26,
1997. Selling and administrative expenses as a percentage of net sales
decreased from 10.2% for the thirteen weeks ended December 26, 1997 to 9.5%
for the thirteen weeks ended January 1, 1999 due to the increase in sales
referred to above and continued programs to manage expenses.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles was unchanged at $0.6
million for the thirteen weeks ended January 1, 1999 and December 26, 1997.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased $.1
million, or 33.3%, to $.4 million for the quarter ended January 1, 1999 from
$.3 million for the comparable quarter last year. This increase was primarily
attributable to continued new product development at each of
AdelWiggins, AeroControlex and Marathon. Research and development expense as a
percentage of net sales remained relatively constant at 1.6% for the thirteen
weeks ended January 1, 1999 and 1.3% for the thirteen weeks ended December 26,
1997.
- - MERGER EXPENSES. Merger costs totaling $39.6 million were incurred during the
thirteen weeks ended January 1, 1999 in connection with the Merger and
Recapitalization. The nature of the merger-related charges is detailed below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Compensation expense on stock options......................................... $ 19,437
Management bonuses............................................................ 6,450
Termination of financial advisory service agreement........................... 5,850
Professional fees and expenses................................................ 6,673
Write-off of deferred financing costs......................................... 552
Other......................................................................... 631
-------
$ 39,593
-------
-------
</TABLE>
- - OPERATING INCOME (LOSS). Operating income decreased from $7.8 million for the
thirteen weeks ended December 26, 1997 to a loss of $30.1 million for the
thirteen weeks ended January 1, 1999 due to the merger expenses discussed
above. Operating income, excluding merger-related expenses, increased by $1.7
million, or 21.8%. As a percentage of net sales, operating income before
merger-related
41
<PAGE>
expenses increased to 33.6% for the thirteen weeks ended January 1, 1999 from
29.7% for the thirteen weeks ended December 26, 1997. This increase was
primarily attributable to the increase in sales volume and gross profits
referred to above.
- - INTEREST EXPENSE. Interest expense increased by $1.2 million, or 109%, to $2.3
million for the thirteen weeks ended January 1, 1999 from $1.1 million for the
thirteen weeks ended December 26, 1997 as a result of the increase in the
average level of outstanding borrowings in connection with the
Recapitalization.
- - INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss)
before income taxes was (23.3)% for the thirteen weeks ended January 1, 1999
compared to 38.6% thirteen weeks ended December 26, 1997. The tax benefit
recorded for the thirteen weeks ended January 1, 1999 was significantly
impacted by the non-deductible expenses incurred in connection with the
Recapitalization.
- - NET INCOME (LOSS). TransDigm incurred a net loss of $24.8 million for the
thirteen weeks ended January 1, 1999 compared to net income of $4.1 million
for the thirteen weeks ended December 26, 1997 primarily as a result of the
factors referred to above.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1997
- - NET SALES. Net sales increased by $32.8 million, or 42%, to $110.9 million for
fiscal 1998 from $78.1 million for fiscal 1997. Approximately $19.5 million of
this increase was attributable to the acquisition of Marathon on August 8,
1997. New business initiatives along with continued strength in airline
traffic and airline capital spending resulted in a $7.4 million increase in
aftermarket sales, principally for large commercial transport aircraft, and a
$5.9 million increase in sales to OEMs.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $22.6
million, or 78.2%, to $51.5 million for fiscal 1998 from $28.8 million for
fiscal 1997. Approximately $9.5 million of this increase was attributable to
the acquisition of Marathon, including a $0.4 million reduction in the charge
to Marathon's cost of sales resulting from the write-up of Marathon's
inventory in place at the time of the acquisition. In addition, the higher
sales discussed above resulted in $7.8 million of additional gross profit from
aftermarket sales, principally for large commercial transport aircraft, and
$5.3 million from sales to OEMs. Gross profit increased as a percentage of net
sales from 36.9% in the 1997 period to 46.4% in fiscal 1998. Approximately,
3.8% of this increase was attributable to the acquisition of Marathon and the
remainder due to the higher sales discussed above.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expense increased by
$2.9 million, or 38.2%, to $10.5 million for fiscal 1998 from $7.6 million for
fiscal 1997. This increase was primarily attributable to the Marathon
acquisition partially offset by reduction in bad debt and environmental
expenses of $0.3 million each. Selling and administrative expenses as a
percentage of net sales remained relatively constant at 9.7% in fiscal 1997
and 9.4% in fiscal 1998.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $0.3
million, or 14.3%, to $2.4 million for fiscal 1998 from $2.1 million for
fiscal 1997. The increase in the amortization of intangibles resulted from
$0.5 million of additional goodwill amortization relating to the acquisition
of Marathon offset by a $0.2 million reduction in the amortization of other
intangible assets which became fully amortized in fiscal 1997.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.6
million, or 54.5%, to $1.7 million for fiscal 1998 from $1.1 million for
fiscal 1997. This increase was primarily attributable to the acquisition of
Marathon. Research and development expense as a percentage of net sales
remained relatively constant at 1.4% in fiscal 1997 and 1.6% in fiscal 1998.
42
<PAGE>
- - OPERATING INCOME. Operating income increased by $18.7 million, or 103.3%, to
$36.8 million for fiscal 1998 from $18.1 million for fiscal 1997.
Approximately $4.6 million of this increase was attributable to the
acquisition of Marathon and the remainder to the other increases in gross
profit discussed above. As a percentage of revenues, operating income
increased to 33.2% in fiscal 1998 from 23.1% in fiscal 1997.
- - INTEREST EXPENSE. Interest expense for fiscal 1998 approximated the amount for
fiscal 1997 at $3.2 million and $3.5 million, respectively. The $2.1 increase
in interest expense resulting from the additional borrowings made in
connection with acquisition of Marathon was more than offset by a $2.4
decrease in interest expense caused by the refinancing of TransDigm's
subordinated notes and a general decline in interest rates.
- - INCOME TAXES. Income tax expense as a percentage of income before income taxes
and the non-deductible warrant put value adjustment increased to 38.6% in
fiscal 1998 from 35.5% in fiscal 1997. The increase in the effective rate
resulted from higher non-deductible expenses, including the amortization of
goodwill recognized in connection with the Marathon acquisition.
- - NET INCOME. Net income increased by $10.9 million, or 340.6%, to $14.1 million
for fiscal 1998 from $3.2 million for fiscal 1997 primarily as a result of the
factors referred to above and an extraordinary loss in 1997 of $1.5 million
partially offset by a $1.7 million increase in the warrant put value
adjustment during fiscal 1998.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1996
- - NET SALES. Net sales increased by $15.3 million, or 24.3%, to $78.2 million
for fiscal 1997 from $62.9 million for fiscal 1996. Approximately $3.0 million
of this increase was attributable to the acquisition of Marathon. New business
initiatives along with an industry-wide increase in demand resulted in a $7.2
million increase in aftermarket sales, principally for large commercial
transport aircraft, and a $5.1 million increase in sales to OEMs.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $7.9
million, or 37.6%, to $28.9 million for fiscal 1997 from $21.0 million for
fiscal 1996. Approximately $0.5 million of this increase was attributable to
the acquisition of Marathon. The higher sales discussed above resulted in $5.2
million of additional gross profit from aftermarket sales, principally for
large commercial transport aircraft, and $2.2 million from sales to OEMs.
Gross profit also increased as a percentage of net sales from 33.4% in the
1996 period to 36.9% in fiscal 1997. This increase was primarily attributable
to the higher sales discussed above offset by an approximate 1% decline in
gross margins due to higher cost of sales resulting from the write-up of
Marathon's inventory in place at the time of the acquisition.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expense increased by
$1.1 million, or 16.9%, to $7.6 million for fiscal 1997 from $6.5 million for
fiscal 1996. Approximately $0.4 million of this increase was due to the
acquisition of Marathon, $0.3 million resulted from the relocation of
TransDigm's corporate headquarters and the remainder was caused by the
increase in sales volume which generated larger commission expenses. Selling
and administrative expenses declined as a percentage of net sales from 10.3%
in fiscal 1996 to 9.7% in fiscal 1997 due to the increase in net sales
referred to above coupled with an effort to control expenses.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $1.7
million, or 44.7%, to $2.1 million for fiscal 1997 from $3.8 million for
fiscal 1996. Amortization of intangibles decreased by $2.0 million as a result
of the termination of an agreement not to compete at the end of fiscal 1996,
partially offset by higher amortization of goodwill relating to the
acquisition of Marathon.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.3
million, or 37.5%, to $1.1 million for fiscal 1997 from $0.8 million for
fiscal 1996. This increase was primarily
43
<PAGE>
attributable to continued new product development. Research and development
expense as a percentage of net sales remained relatively constant at 1.3% in
fiscal 1996 and 1.4% in fiscal 1997.
- - OPERATING INCOME. Operating income increased by $8.2 million, or 82.8%, to
$18.1 million for fiscal 1997 from $9.9 million for fiscal 1996. As a
percentage of revenues, operating income increased to 23.1% in fiscal 1997
from 15.7% in fiscal 1996. This increase was primarily attributable to the
increase in sales volume and gross profits referred to above.
- - INTEREST EXPENSE. Interest expense decreased by $1.0 million, or 22.2%, to
$3.5 million for fiscal 1997 from $4.5 million for fiscal 1996 as a result of
a decrease in the average level of outstanding borrowings during fiscal 1997.
- - INCOME TAXES. Income tax expense as a percentage of income before income taxes
and the non-deductible warrant put value adjustment decreased to 35.5% in
fiscal 1997 from 38.0% in fiscal 1996. Foreign sales corporation earnings in
fiscal 1997 decreased the effective rate by 2.7%; however, higher
non-deductible expenses, including the amortization of goodwill recognized in
connection with the Marathon acquisition, increased the effective rate by
0.2%.
- - NET INCOME. Net income increased by $2.0 million, or 166.7%, to $3.2 million
for fiscal 1997 from $1.2 million for fiscal 1996 primarily as a result of the
factors referred to above partially offset by a $2.6 million increase in the
warrant put value adjustment during fiscal 1997.
- - EXTRAORDINARY LOSS. The extraordinary loss in fiscal 1997 of $1.5 million
represents prepayment costs and the write-off of unamortized debt issuance
costs, net of income tax benefits, related to the redemption of the
subordinated notes which were refinanced with a new $70.0 million credit
facility in September 1997.
LIQUIDITY AND CAPITAL RESOURCES
TransDigm generated $23.5 million of cash from operating activities in
fiscal 1998 compared to $17.5 million in fiscal 1997 and $18.7 million in 1996.
Such increase in operating cash flows is due to improved operating results
partially offset by higher working capital. TransDigm used approximately $32.7
million of cash in operating activities during the thirteen weeks ended January
1, 1999 compared to approximately $6.5 million generated during the thirteen
weeks ended December 26, 1997. Such decrease in operating cash flows is due to
the one-time merger expenses of $39.6 million partially offset by improved
operating results.
Cash used in investing activities was approximately $4.3 million in fiscal
1998 compared with $43.2 million in fiscal 1997 and $2.5 million in fiscal 1996.
Cash used in investing activities in fiscal 1997 includes $40.9 million related
to the acquisition of Marathon, net of cash acquired of $0.7 million.
TransDigm's expenditures for property, plant and equipment were $2.5 million in
fiscal 1996, $2.3 million in fiscal 1997 and $5.1 million in fiscal 1998. Cash
used in investing activities was approximately $0.7 million during the thirteen
weeks ended January 1, 1999 compared to approximately $0.1 million generated
during the thirteen weeks ended December 26, 1997. The change in investing cash
flows is primarily due to post-closing purchase price adjustment of
approximately $0.7 million received during the thirteen weeks ended December 26,
1997 as a result of the Marathon acquisition.
Cash used in financing activities for fiscal 1998 was $5.1 million compared
to cash provided by financing activities of $28.2 million for fiscal 1997 and
cash used in financing activities of $13.5 million for fiscal 1996. During
fiscal 1997, the Company obtained a $70.0 million credit facility, the
outstanding balance under which has been repaid in connection with the
Transactions. Borrowings under this facility of $50.0 million in fiscal 1997
were used to help finance the Marathon acquisition and redeem the Company's
outstanding subordinated notes. Cash provided by financing activities during the
thirteen weeks ended January 1, 1999 was approximately $16.1 million compared to
approximately $20 thousand used during the thirteen weeks ended December 26,
1997. This change in financing cash flows was due
44
<PAGE>
to incurrence and refinancing of substantial indebtedness as a result of the
Recapitalization and Merger.
In connection with the Recapitalization, the Company incurred substantial
indebtedness and refinanced certain other indebtedness including all borrowings
under the prior credit facility. See the "Capitalization" section. As of January
1, 1999 Holdings had indebtedness consisting of $20.0 million in face value of
the Holdings PIK Notes and TransDigm had indebtedness consisting of (1) $125.0
million in principal amount of the Old Notes and (2) $91.0 million of borrowings
under the New Credit Facility, which consisted of $1.0 million under a $30.0
million Revolving Credit Facility, a $45.0 million term loan under the Tranche A
Facility and a $45.0 million term loan under the Tranche B Facility.
The interest rate for the New Credit Facility is, at TransDigm's option,
either (A) a floating rate equal to the Base Rate (as defined in this Prospectus
under the heading "Description of Other Indebtedness--The Company's New Credit
Facility") plus the Applicable Margin (as defined in this paragraph), or (B) the
Eurodollar Rate (as defined in this Prospectus under the heading "Description of
Other Indebtedness--The Company's New Credit Facility") for fixed periods of
one, two, three, or six months, plus the Applicable Margin. The "Applicable
Margin" means the percentage per year equal to (1) in the case of Tranche A
Facility and Revolving Credit Facility, subject to quarterly step-downs to be
determined based on specified levels of financial performance, (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% and (2) in the case of Tranche B
Facility (A) bearing an interest rate determined by the Base Rate, 3.00% and (B)
bearing an interest rate determined by the Eurodollar Rate, 4.00%. The New
Credit Facility is subject to mandatory prepayment with a defined percentage of
net proceeds from certain asset sales, insurance proceeds or other awards that
are payable in connection with the loss, destruction or condemnation of any
assets, certain new debt and equity offerings and 50% of excess cash flow (as
defined in the New Credit Facility) in excess of a predetermined amount under
the New Credit Facility.
The Old Notes bear, and the New Notes will bear, interest at 10 3/8%. The
New Notes and the Old Notes will not require principal payments prior to
maturity. The Revolving Credit Facility and the Tranche A Facility will each
mature on the six year anniversary of the initial borrowing date and the Tranche
B Facility will mature on the seven and a half year anniversary of the initial
borrowing date. The New Credit Facility requires TransDigm to amortize the
outstanding indebtedness under each of the Tranche A Facility and the Tranche B
Facility, commencing in year 1999, and contains restrictive covenants that will,
among other things, limit the incurrence of additional indebtedness, the payment
of dividends, transactions with affiliates, asset sales, acquisitions, mergers
and consolidations, liens and encumbrances, and prepayments of other
indebtedness. See the "Description of the New Notes" and "Description of Other
Indebtedness--The Company--The New Credit Facility" section.
TransDigm's primary cash needs will consist of capital expenditures and debt
service. TransDigm incurs capital expenditures for the purpose of maintaining
and replacing existing equipment and facilities and, from time to time, for
facility expansion. Capital expenditures totaled approximately $2.5 million,
$2.3 million, $5.1 million, $0.6 million and $0.7 million in fiscal 1996, fiscal
1997, fiscal 1998, the thirteen weeks ended December 26, 1997 and the thirteen
weeks ended January 1, 1999, respectively. TransDigm estimates that capital
expenditures will total approximately $5.6 million in fiscal 1999.
TransDigm intends to pursue additional acquisitions that present
opportunities to realize significant synergies, operating expense economies or
overhead cost savings or to increase TransDigm's market position. TransDigm
regularly engages in discussions with respect to potential acquisitions and
investments. However, there are no binding agreements with respect to any
material acquisitions at this time, and we cannot assure you that we will be
able to reach an agreement with respect to any future acquisition. TransDigm's
acquisition strategy may require substantial capital, and no assurance can be
given that TransDigm will be able to raise any necessary funds on terms
acceptable to TransDigm or at
45
<PAGE>
all. If TransDigm incurs additional debt to finance acquisitions, its total
interest expense will increase. See "Risk Factors--Risks Related to Potential
Future Acquisitions."
TransDigm's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, including the New Notes and
the Old Notes, or to fund planned capital expenditures and research and
development will depend on their future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond their control. Based upon the current level of
operations and anticipated cost savings and revenue growth, management believes
that cash flow from operations and available cash, together with available
borrowings under the New Credit Facility, will be adequate to meet TransDigm's
future liquidity needs for at least the next few years. TransDigm may, however,
need to refinance all or a portion of the principal of the New Notes and the Old
Notes on or prior to maturity. There can be no assurance that TransDigm's
business will generate sufficient cash flow from operations, that anticipated
revenue growth and operating improvements will be realized or that future
borrowings will be available under the New Credit Facility in an amount
sufficient to enable TransDigm to service its indebtedness, including the New
Notes and the Old Notes, or to fund its other liquidity needs. In addition,
there can be no assurance that TransDigm will be able to effect any such
refinancing on commercially reasonable terms or at all. See the "Risk Factors"
section.
BACKLOG
Management believes that sales order backlog (i.e. orders for products that
have not yet been shipped) is a useful indicator of sales to OEMs. As of January
1, 1999, TransDigm estimated its sales order backlog at $45.9 million compared
to an estimated $43.7 million as of December 26, 1997. The majority of the
purchase orders outstanding as of January 1, 1999 are scheduled for delivery
within the next twelve months. Purchase orders are generally subject to
cancellation by the customer prior to shipment. The level of unfilled purchase
orders at any given date during the year will be materially affected by the
timing of TransDigm's receipt of purchase orders and the speed with which those
orders are filled. Accordingly TransDigm's backlog as of January 1, 1999 is not
necessarily indicative of actual shipments or sales for any future period, and
period-to-period comparisons may not be meaningful.
FOREIGN OPERATIONS
TransDigm manufactures virtually all of its products in the United States.
However, a significant portion of TransDigm's current sales are conducted
abroad. Approximately 16%, 20%, and 20% of TransDigm's net sales in fiscal 1998,
fiscal 1997, and fiscal 1996, respectively, were made directly to foreign
end-users. These sales are subject to numerous additional risks, including the
impact of foreign government regulations, currency fluctuations, political
uncertainties and differences in business practices. There can be no assurance
that foreign governments will not adopt regulations or take other action that
would have a direct or indirect adverse impact on the business or market
opportunities of TransDigm within such governments' countries. Furthermore,
there can be no assurance that the political, cultural and economic climate
outside the United States will be favorable to TransDigm's operations and growth
strategy.
INFLATION
Many of TransDigm's raw materials and operating expenses are sensitive to
the effects of inflation, which could result in higher operating costs. The
effects of inflation on TransDigm's businesses during fiscal 1998, 1997 and 1996
were not significant.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
46
<PAGE>
equity section of a statement of financial position. TransDigm adopted this
standard during the first quarter of fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. TransDigm will adopt this standard for its fiscal 1999
year-end financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employer's Disclosures about Pensions and Other Postretirement Benefits."
The statement requires an enterprise to disclose certain information in its
year-end financial statements about its pension and postretirement benefits,
including a reconciliation of beginning and ending balances of the benefit
obligation, the funded status of the plans, and the amount of net periodic
benefit cost recognized. TransDigm will adopt this standard in fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. TransDigm will adopt this
standard during fiscal 2000.
While management has not completed its analysis of these new accounting
standards contained in SFAS No. 131, SFAS No. 132 and SFAS No. 133, the adoption
of these standards is not expected to have a material effect on TransDigm's
financial statements.
IMPACT OF YEAR 2000 ISSUE
TransDigm has completed a review of its information technology systems in
the Waco, Texas site and is completing a review of its information technology
systems in the Los Angeles, California site and the Cleveland, Ohio site.
TransDigm is also completing a review of its embedded systems at each of the
three sites, in order to assess its exposure to Year 2000 issues. These reviews,
including testing and verification, will be completed internally. Management
anticipates that these reviews, including testing and verification will be
completed by June 1999. Although management believes that any repairs necessary
to make their embedded systems Year 2000 compliant can be completed internally,
until TransDigm has completed its review, testing and verification of its
embedded systems, TransDigm will not be in a position to assess the extent of
repairs that will be required or the parts that will need to be replaced in
order to make its embedded systems Year 2000 compliant. TransDigm purchased all
of its computer software from third party vendors and is relying on those
vendors to make their software Year 2000 compliant. Except for the vendor of its
e-mail system, those vendors have provided TransDigm with third party
certifications that their systems are Year 2000 compliant.
TransDigm has distributed questionnaires to assess the Year 2000 compliance
of its suppliers and customers; including various agencies of the United States
government. However, TransDigm has not currently gathered sufficient data to
determine to what extent those suppliers and customers are Year 2000 compliant.
In the event that Year 2000 problems arise within TransDigm or that its
significant suppliers or customers, including various agencies of the United
States government, do not successfully and timely achieve Year 2000 compliance,
the result may be a delay in its receiving orders and collecting
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payments, leading to a temporary loss of revenue. TransDigm has incurred
$180,000 in costs associated with Year 2000 compliance and anticipates incurring
$150,000 of additional costs in the future. However, since the anticipated
additional cost reflects the cost of the review, testing, verification and
repair to be completed internally, TransDigm has not allocated such cost between
its embedded systems and its information technology systems. TransDigm may,
however, have to bear further Year 2000 costs and expenses which could have a
material adverse effect on its business.
TransDigm has no formal contingency plan in the event Year 2000 problems
arise with respect to its information technology systems; however, TransDigm's
accounting and business information systems are not complex and manual
procedures could be performed for a period of time to provide the information
necessary to continue to operate the business. In the event that Year 2000
problems arise within our embedded systems, TransDigm intends to employ their
existing subcontractor machinists to manufacture the affected components.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of TransDigm's outstanding indebtedness at September 30, 1998 was repaid
in connection with the Merger and Recapitalization. At January 1, 1999,
TransDigm is subject to interest rate risk with respect to borrowings under its
New Credit Facility as the interest rates on such borrowings vary with market
conditions and, thus, the amount of outstanding borrowings approximates the fair
value of the indebtedness. The weighted average interest rate on the $91.0
million of borrowings outstanding under the New Credit Facility at January 1,
1999 was 8.8%. Also outstanding at January 1, 1999 was $125.0 million of
TransDigm indebtedness in the form of the Old Notes and $20.0 million of
Holdings PIK Notes. The interest rates on both of these borrowings are fixed at
10 3/8% and 12% per year, respectively. Although management believes that the
fair value of these debt obligations approximates their outstanding balance at
January 1, 1999, the effect of a hypothetical one percentage point decrease in
interest rates would increase the estimated fair value of the borrowings by
$13.2 million and $2.4 million, respectively.
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BUSINESS
THE COMPANY
TransDigm is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. TransDigm sells its products
to commercial airlines, aircraft maintenance facilities, aircraft OEMs and to
various agencies of the United States government. TransDigm generates most of
its EBITDA, As Defined, from sales of replacement parts in the aftermarket
including sales to airlines. This is because most of TransDigm's OEM sales are
on an exclusive sole source basis; therefore, in most cases, TransDigm is the
only certified provider of these parts in the aftermarket. Because aftermarket
parts sales are driven by the size of the worldwide aircraft fleet, they are
relatively stable and generate recurring revenues over the life of an aircraft
that are many times the size of the original OEM purchases. In addition, because
TransDigm has over 40 years of experience in most of its product lines, it
benefits from a large and growing installed base of aircraft. For fiscal 1998,
TransDigm generated net sales, operating income and EBITDA, As Defined, of
$110.9 million, $36.8 million and $43.3 million, respectively. For the thirteen
weeks ended January 1, 1999, TransDigm generated net sales, operating loss and
EBITDA, As Defined, of $28.2 million, $30.1 million and $11.1 million,
respectively.
TransDigm differentiates itself based on its engineering and manufacturing
capabilities, and typically will not bid on non-proprietary "build to print"
business. TransDigm has developed strong product brand names within the airline
industry and a reputation for high quality, reliability and customer service.
TransDigm focuses on developing highly customized products to solve specific
problems of aircraft operators and manufacturers. Management estimates that over
80% of the TransDigm's products are of proprietary design. TransDigm provides
its products to commercial airlines, such as United Airlines and Continental
Airlines, large commercial transport and regional and business aircraft OEMs
such as Boeing, Bombardier and Cessna and various agencies of the United States
government. While aftermarket and OEM sales each typically account for
approximately half of Transdigm's revenues, aftermarket sales typically carry a
substantially higher gross margin than sales to OEMs.
TransDigm is comprised of three business units: (1) AdelWiggins, (2)
AeroControlex, and (3) Marathon, each of which has a long history in the
aircraft components industry. AdelWiggins manufactures an extensive line of fuel
and hydraulic system connectors and specialized clamps, heaters and refueling
systems. AeroControlex manufactures customized fuel pumps, compressors, valves,
couplings and mechanical and electromechanical controls. Marathon manufactures
nickel cadmium batteries and static inverters. Marathon was acquired in August
1997 as a strategic complement to the AdelWiggins and AeroControlex businesses.
TransDigm was formed in 1993 through a management-led buyout of IMO. Since
its formation, TransDigm has successfully established leadership positions in
well-defined, profitable niches of the aircraft components market that it
believes offer sustainable growth opportunities.
INDUSTRY OVERVIEW
The aircraft components industry is highly fragmented, consisting of a large
number of small, specialized companies and a limited number of well-capitalized
companies. TransDigm competes in niche individual aircraft component markets
that it estimates range in size from $10 million to $100 million in annual
revenues. TransDigm believes that the small size of its markets, combined with
the industry's stringent regulatory approvals and the need to make significant
investments in research and development reduces the risk of new entrants.
Management believes TransDigm's markets are too small to attract large aerospace
companies. In addition, management believes the financial resources and
technical expertise required to compete in these markets are beyond the reach of
most small
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companies. Finally all potential competitors must meet the certification
requirements and qualification approvals required by the FAA and aircraft OEMs.
AFTERMARKET
Aircraft components need to be serviced regularly to meet FAA standards and
aircraft reliability requirements. Demand for aftermarket parts depends on
revenue passenger miles and, to a lesser extent, on airline profitability, each
of which has historically been correlated with changes in general economic
conditions, and the size and age of the worldwide aircraft fleet. Since certain
modern aircraft can have useful lives of 30 years or more, spare parts and
repair and overhaul services can often generate more sales than the OEM program
at significantly higher margins. Management further believes that aftermarket
sales help to offset declines in OEM demand as historically airlines and air
cargo operators have increased repair and overhaul spending to prolong the life
of older aircraft when they delay purchasing new aircraft. Customers in the
aftermarket segment include airlines, air cargo operators, aircraft leasing
companies, corporate and individual owners of aircraft as well as maintenance,
repair and overhaul facilities and various agencies of the United States
government, including the military. Management believes that aftermarket sales
will continue to be an attractive market as a result of the following factors:
- - Air travel traffic continues to increase. In the United States, large
commercial transport revenue passenger miles have increased from approximately
431 billion in 1987 to approximately 604 billion in 1997, with 1991
representing the only year in the last ten years in which annual revenue
passenger miles decreased. On a worldwide basis, revenue passenger miles have
increased from approximately 978 billion in 1985 to 1,719 billion in 1996.
- - Total aircraft fleet size has continued to increase despite the volatility of
orders and deliveries. At the end of 1997 the large commercial aircraft fleet
consisted of approximately 11,900 aircraft, a 4.5% compound annual increase
from approximately 7,700 aircraft in 1987. Similarly, the regional aircraft
fleet, which consists of turbo-prop and jet aircraft, has increased from
approximately 4,900 units in 1987 to approximately 7,500 units in 1997 and the
business aircraft fleet has increased from approximately 6,100 units in 1987
to approximately 8,700 units in 1997.
- - Aircraft capacity utilization remains at high levels. Passenger load factors,
measured as the percentage of occupied seats per flight, for U.S. carriers
have increased from 62% in 1987 to 68% in 1996, a record for the industry.
During 1997, carriers achieved 69% load factors on a worldwide basis.
OEM
Demand for OEM components depends on new aircraft deliveries. Demand for new
aircraft is a function of (1) demand for air travel, (2) aircraft operator
profitability, (3) fleet age, (4) regulatory mandates such as noise reduction,
and (5) the lag time between order and delivery, which causes airlines to order
aircraft according to perceived future need.
- - In the early 1990's, many airlines significantly reduced spending on new
aircraft and extended the average age of their fleets due to weakened
financial performance. With the return of airline profitability, commercial
OEMs have experienced a surge in aircraft orders and deliveries which resulted
in large commercial transport deliveries growing from a low of 370 aircraft in
1995 to estimated 774 aircraft by the end of 1998.
- - The regional jet aircraft market has grown significantly in recent years as
turbo-jet powered aircraft have made substantial inroads in a market
traditionally served by the turboprop powered aircraft and some smaller
commercial transports. Regional jets have greater range, faster speed and
lower noise levels and are perceived as safer and more comfortable by
passengers. U.S. regional revenue
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passenger miles have increased from approximately 4.0 billion miles in 1987 to
approximately 7.7 billion miles in 1996. Regional aircraft deliveries have
increased significantly to 115 in 1997 since their introduction in 1988.
Industry forecasts by the U.S. Regional Airline Association concluded that
approximately 1,280 regional and commuter aircraft will be delivered between
1998 and 2008.
- - The business jet market is driven by, among other factors, the increasing
popularity of fractional ownership and the increasing demand for more
expedient and convenient travel. Deliveries of executive jets have increased
significantly since 1987.
- - The FAA has mandated that aircraft flying in U.S. airspace comply with Stage 3
noise standards by December 31, 1999. Other countries, particularly in Western
Europe, have instituted similar restrictions. As a result, it is expected that
there will be an increased demand for aircraft during the next several years
as the aircraft which are not retrofitted with "hush kits" are replaced.
- - While military spending for new aircraft has significantly declined with the
end of the cold war, military parts and repair spending has been relatively
stable for the last several years as existing platforms require parts to
remain operational.
COMPETITIVE STRENGTHS
TransDigm believes that its key competitive strengths are:
- - LARGE INSTALLED PRODUCT BASE AND RECURRING REVENUE STREAM. Management believes
that approximately 70% of TransDigm's sales are derived from parts for which
it has achieved sole source designation and approximately 80% of TransDigm's
products are of proprietary design. As a result, TransDigm has a large and
growing installed base of products on large commercial transport and regional,
business and military platforms. This installed base affords TransDigm the
opportunity to capture a long-term stream of highly profitable aftermarket
revenues. Over the life of an aircraft, sales of replacement parts can
generate revenues many times the size of the original OEM purchases.
Aftermarket sales generate most of TransDigm's EBITDA, As Defined, because
they typically carry gross margins that are significantly higher than those
generated from OEM sales.
- - PROVEN ABILITY TO DEVELOP NEW PRODUCTS. TransDigm has a successful record of
introducing solutions-oriented products. TransDigm works closely with aircraft
operators and OEMs to identify their unmet needs, such as a component that
fails to meet performance expectations or that requires excessive maintenance.
TransDigm then utilizes its engineering and design capabilities to develop a
prototype for a component that increases the value of the product to the
customer. After rigorous testing requirements have been fulfilled and
TransDigm has obtained necessary regulatory approvals, the product is made
available for sale in the aftermarket and to OEMs. Management believes that
its ability to successfully develop new products has contributed to its
significant growth.
- - DIVERSIFIED BUSINESS MIX. TransDigm's business is fairly evenly distributed
between sales in the aftermarket and sales to OEMs. Each of these segments are
further distributed among the large commercial transport and regional,
business and military aircraft markets. As a result, TransDigm is not overly
dependent on any one segment, with the large commercial transport OEM market
accounting for less than 20% of sales in fiscal 1998 and the thirteen weeks
ended January 1, 1999.
- - LEADING POSITIONS IN NICHE MARKETS. With over 40 years of experience in most
of its product lines, TransDigm has well-established and highly regarded
products and trade names, such as "Adel," "Wiggins," "Controlex," "Marathon"
and "SuperPower," and is a leader in many of its product lines. For example,
TransDigm believes that it is the leading supplier of tube connectors for use
in the flexible fluid systems found on most aircraft platforms.
- - EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. TransDigm's management team
collectively has over 125 years of industry experience and brings a
disciplined approach to the business. Management has
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a proven track record of consolidating operations, reducing overhead and
rationalizing costs. Since TransDigm was created in 1993, management has
successfully integrated four distinct operating divisions and formed
AdelWiggins and AeroControlex. Most recently management has successfully
integrated Marathon into TransDigm. The management team has dramatically
improved the operating performance and strategic position of TransDigm.
EBITDA, As Defined, margins have improved from 19.0% in fiscal 1994 to 39.3%
in fiscal 1998. In addition, management owns approximately 12.5% of the
capital stock of Holdings on a fully diluted basis, which amount is subject to
an increase to approximately 21.3% if certain performance targets are met.
BUSINESS STRATEGY
Key elements of TransDigm's strategy are:
- - PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. TransDigm will continue to focus on
marketing and manufacturing highly engineered products to customers that place
a premium on TransDigm capabilities. TransDigm has been effective in
communicating to aircraft operators the value of TransDigm's products in terms
of cost savings generated by their greater reliability and performance and
reduced maintenance requirements. TransDigm's reputation for quality and sole
supplier status for many parts has allowed it to achieve substantial gross
margins on its aftermarket products. TransDigm intends to continue to develop
and market high value added products that carry higher gross margins by
emphasizing their benefits to the customer.
- - GENERATE NEW BUSINESS INITIATIVES. TransDigm has been successful in
identifying and commercializing new business opportunities to drive revenue
growth. TransDigm has been particularly effective in creating aftermarket
opportunities by developing superior products to retrofit aircraft already in
service. New business has contributed significantly to TransDigm's 14%
compound annual net sales growth rate, excluding Marathon's net sales growth,
since fiscal 1994, which TransDigm believes is well in excess of the industry
average growth rate during the same period. TransDigm intends to continue to
aggressively pursue growth opportunities through its new business initiatives.
- - REALIZE PRODUCTIVITY SAVINGS. Management will continue to focus on improving
operating margins through manufacturing improvements and increases in employee
productivity. Management has achieved significant increases in productivity
since fiscal 1994. Manufacturing facilities have been rationalized and
manufacturing and other business practices have been redesigned to maximize
efficiency. For example, TransDigm encourages its employees through
performance incentives to learn to operate multiple manufacturing stations in
order to minimize overall labor costs. This initiative and others like it have
enabled TransDigm to significantly increase sales without material increases
in headcount.
- - PURSUE STRATEGIC ACQUISITIONS. TransDigm intends to aggressively pursue
acquisitions where it believes that it can enhance value, reduce costs and
develop new business. The aircraft component industry is highly fragmented,
with many of the companies in the industry being owned by small operators.
TransDigm believes the industry is experiencing consolidation due to customer
requirements, inherent economies of scale and technological advancements that
favor more sophisticated competitors. TransDigm completed the Marathon
acquisition in August 1997. TransDigm regularly engages in discussions with
respect to other acquisition and investment opportunities. See the section
"Risk Factors" under the heading "Risk Related to Potential Future
Acquisitions."
OPERATING GROUPS
TransDigm was formed in 1993 through a management-led buyout of IMO.
TransDigm operates three business units: Adelwiggins, AeroControlex and
Marathon. AdelWiggins, which is located in Los Angeles, CA and had 177 full time
employees at September 30, 1998, manufactures an extensive line of proprietary
fuel and hydraulic system connectors and specialized clamps, heaters and
refueling systems.
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AdelWiggins was formed in 1994 from the consolidation of the Adel Fasteners and
Wiggins Connectors divisions acquired from IMO. Founded in 1938 and 1925,
respectively, both Adel Fasteners and Wiggins Connectors have had a long history
in the aircraft components industry and enjoy strong brand name recognition.
AeroControlex, which is located in Cleveland, OH and had 183 full-time
employees at September 30, 1998, manufactures proprietary pumps, compressors,
valves, couplings and mechanical controls for commercial and military aircraft
and marine applications. AeroControlex was formed in 1994 from the consolidation
of the Aeroproducts and Controlex divisions acquired from IMO.
Marathon, which is located Waco, TX and had 178 full-time employees at
September 30, 1998, was acquired by TransDigm in August 1997 as a strategic
addition to its AdelWiggins and AeroControlex business lines. Marathon has been
a leading manufacturer of nickel-cadmium batteries and static inverters to the
aerospace industry since its founding in 1923. Management has successfully
integrated the Marathon business unit into the TransDigm culture and believes
that, over the next several years, Marathon offers upside potential similar to
that achieved with the integration of AdelWiggins and AeroControlex.
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 eleven major product lines, each of which is profitable and is operated as
a semiautonomous business unit.
Much of TransDigm's recent success has been due to its identification and
development of new products for sale in the commercial aftermarket. TransDigm
works closely with customers to identify their unmet needs, such as a component
that fails to meet performance expectations or that requires excessive
maintenance. TransDigm then utilizes its engineering and design capabilities to
develop a prototype for a component that increases value of the product to the
customer. After rigorous testing requirements have been fulfilled and TransDigm
has obtained necessary regulatory approvals, the product is made available for
sale in the aftermarket and to OEMs.
ADELWIGGINS. Adelwiggins manufactures over 8,000 SKUs, representing 40% of
TransDigm's sales for fiscal 1998, which constitute five of TransDigm's eleven
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 30% of its net sales in fiscal 1998. See
"Business--Customers."
AEROCONTROLEX. AeroControlex manufactures over 13,000 SKUs, representing
39% of TransDigm's sales for fiscal 1998, which constitute three of TransDigm's
eleven major product lines: (A) mechanical controls, (B) pumps and (C) valves
and quick disconnects. Mechanical controls include electromechanical control
systems, sliding and ball bearing control cables and gearboxes which are found
in the lavatory drain, throttle control, engine feedback, landing gear release
and in ejection seats and fuel and air systems. Pumps primarily include gear
pumps which are found in hydraulic and fuel systems applications. Valves and
quick disconnects include fuel and air system valves, compressors and quick
disconnects which are found in air conditioning packages and fuel, radar and
potable water systems.
AeroControlex designs, manufactures and sells pumps, compressors, valves,
couplings and mechanical controls primarily for the commercial and military
aircraft markets. AeroControlex has developed a reputation for providing
high-quality, reliable products consistently delivered on time. AeroControlex
works closely with customers to leverage its engineering expertise to create
technical solutions to customer-specific problems. About 95% of AeroControlex
products are proprietary and over 90% are sold on a sole-source basis, which is
advantageous to TransDigm because its creates significant switching costs
associated with the development and qualification of alternative engineered
solutions. This sole sourced status has contributed to AeroControlex achieving
aftermarket sales of 68% of its net sales in fiscal 1998. See
"Business--Customers."
MARATHON. Marathon manufacturers over 5,000 SKUs, representing 21% of
TransDigm's sales for fiscal 1998, which constitute three of TransDigm's eleven
major product lines: (A) vented cell nickel-cadmium batteries, (B) static
inverters and (C) sealed cell nickel-cadmium batteries. Vented cell nickel-
cadmium batteries and sealed cell batteries are used for engine starting and
emergency power aboard various aircraft while static inverters convert direct
current to alternating current for use in applications such as flight
instrumentation and communication. Marathon products are used for numerous
military applications, such as the F-16, F-18, Blackhawk, Apache and Cobra
programs. Approximately 50% of Marathon's products have achieved sole sourcing
status with its customers.
Marathon is one of the worlds leading manufacturers of vented cell
nickel-cadmium batteries, which require frequent maintenance, as individual
cells within a battery are replaced throughout the life of the battery.
Marathon, which manufactures and sells both entire batteries and individual
cells, realizes replacement revenue in the aftermarket throughout the life of
the battery as a result of its position as a sole source supplier of products
that accounted for over 50% of its sales. Over 95% of Marathon's sales are
proprietary, the status of which has contributed to Marathon achieving
aftermarket sales of 69% of its net sales in fiscal 1998. Vented cell batteries
are marketed under the Marathon-TM- and SuperPower-TM- brand names.
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SALES AND MARKETING
Consistent with TransDigm's overall strategy, TransDigm's sales and
marketing organization is structured to understand and anticipate the needs of
customers in order to continually develop a stream of technical solutions that
generate significant value. Particular focus is on the high-margin, repeatable
aftermarket segment.
TransDigm has structured its sales efforts along its 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 booking,
sales, new business and profitability for each product. Assisting the Product
Line Managers are Account Managers and Sales Engineers who are responsible for
covering both major OEM and airline accounts. They are expected to be familiar
with the personnel, organization and needs of specific customers, for achieving
total bookings and new business goals at each account, and, in conjunction with
the Product Line Managers, for determining when additional resources are
required at customer locations. All of TransDigm's sales personnel are
compensated in part on their bookings and sales and ability to identify and
convert new business opportunities.
Though the majority are employees, the Account Manager function may be
performed by independent representatives depending on the specific customer,
product and geographic location. TransDigm also uses a limited number of
distributors to provide logistical support as well as primary customer contact
with certain smaller accounts. TransDigm's largest distributor is Aviall, which
provides logistic services to the commercial airlines.
MANUFACTURING AND ENGINEERING
TransDigm maintains three 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 and Marathon facilities encompass
approximately 105,000, 44,000 and 150,000 square feet of manufacturing space in
Los Angeles, California, Cleveland, Ohio and Waco, Texas, respectively. In the
last several years, management has taken a number of steps to improve
productivity and reduce costs, including consolidating operations, developing
improved control systems that allow for accurate product line profit and loss
accounting, investing in equipment and tooling, installing modern information
systems and implementing a broad-based employee training program. Management
believes that TransDigm's manufacturing systems and equipment are critical
competitive factors that permit it to meet the rigorous tolerances and cost
sensitive price structure of aircraft customers. TransDigm concentrates in
manufacturing by product line, alternating its equipment among designs as demand
requires. TransDigm is in the process of applying its proven manufacturing
strategy to the Marathon facility, where its expects to be able to substantially
improve Marathon's performance.
Each of TransDigm's operating groups attempts to differentiate itself from
its competitors by producing highly engineered products at a low cost.
TransDigm's proprietary products are designed by its engineering staff and
intended to serve an unmet need in the aircraft component industry, particularly
through its new product initiatives. See "--Products." These proprietary designs
must withstand the extraordinary conditions and stresses that will be endured by
products during use and meet the rigorous demands of TransDigm's customers
tolerance and quality requirements.
TransDigm uses sophisticated equipment and procedures to ensure the quality
of its products and to comply with military specifications and FAA and OEM
certification requirements. TransDigm performs a variety of testing procedures,
including testing under different temperature, humidity and altitude levels,
shock and vibration testing and X-ray fluorescent measurement. These procedures,
together with other customer approved techniques for document, process and
quality control, are used throughout TransDigm's manufacturing facilities.
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CUSTOMERS
TransDigm's customers include (A) commercial airlines, including national
and regional airlines, particularly for aftermarket MRO components, (B) large
commercial transport and regional and business aircraft OEMs, (C) various
agencies of the United States' government, including the United States military,
and (D) various other industrial customers. TransDigm's three largest customers
for fiscal 1998, were Aviall, a distributor of aftermarket parts to airlines
throughout the world, Boeing which includes, McDonnell Douglas, and various
agencies of the United States' government, which accounted for approximately
20%, 14% and 9%, respectively, of TransDigm's net sales in fiscal 1998.
TransDigm's top ten customers accounted for approximately 61% of TransDigm's net
sales for fiscal 1998.
TransDigm has strong customer relationships with virtually all important
large commercial transport, general aviation and military OEMs. The demand for
TransDigm's aftermarket parts and services is related to TransDigm's extensive
installed base and to revenue passenger miles and, to a lesser extent, to
airline profitability and the size and age of the worldwide aircraft fleet. See
"Business--Industry Overview." Some of TransDigm's business is executed under
long-term agreements with customers which encompass many products under a common
agreement. See "Risk Factors-- Customer Contracts." TransDigm is also a leading
supplier of components used on United States' designed military aircraft.
TransDigm's products are used on a variety of fighter aircraft, and helicopters.
Military aircraft using TransDigm's products include the Lockheed F-15 and F-16,
the E2C (Hawkeye) and Blackhawk and Apache helicopters.
COMPETITION
TransDigm competes with a number of established companies, including
divisions of larger companies, that have significantly greater financial,
technological and marketing resources than TransDigm. The niche markets within
the aerospace industry served by TransDigm are relatively fragmented with
several competitors for each of the products and services provided by each of
AdelWiggins, AeroControlex and Marathon. Due to the global nature of the
commercial aircraft industry, competition in these categories comes from both
U.S. and foreign companies. However, TransDigm knows of no single competitor
that provides the same range of products and services as those provided by
TransDigm. Competitors in TransDigm's product lines range in size from divisions
of large corporations to small privately held entitles, with only one or two
components in their entire product line. Some of TransDigm's competitors have
significantly greater financial, technological and marketing resources than
TransDigm. TransDigm believes that its ability to compete depends on high
product performance, short lead-time and timely delivery, competitive price, and
superior customer service and support. There can be no assurance that TransDigm
will be able to compete successfully with respect to these or other factors. See
"Risk Factors--Competition."
GOVERNMENTAL REGULATION
The commercial aircraft component industry is highly regulated by both the
FAA in the United States and by the Joint Aviation Authorities in Europe, while
the military aircraft component industry is governed by military quality
specifications. TransDigm, and the components it manufacturers, are required to
be certified by one or more of these entities, and, in some cases, by individual
OEMs in order to engineer and service parts and components used in specific
aircraft models. If material authorizations or approvals were revoked or
suspended, the operations of TransDigm would be adversely affected. In the
future, new and more stringent government regulations may be adopted, or
industry oversight may be heightened, which may have an adverse impact on
TransDigm.
TransDigm must also satisfy the requirements of its customers, including
OEMs and airlines, that are subject to FAA regulations, and provide these
customers with products and services that comply
56
<PAGE>
with the government regulations applicable to commercial flight operations. In
addition, the FAA requires that various maintenance routines be performed on
aircraft components, and TransDigm currently satisfies or exceeds these
maintenance standards in its repair and overhaul services. Several of
TransDigm's operating divisions include FAA-approved repair stations.
TransDigm's operations are also subject to a variety of worker and community
safety laws. OSHA mandates general requirements for safe workplaces for all
employees. In addition, OSHA provides special procedures and measures for the
handling of certain hazardous and toxic substances. TransDigm believes that its
operations are in material compliance with OSHA's health and safety requirement.
RAW MATERIALS AND PATENTS
The components that TransDigm manufactures require the use of various raw
materials including titanium, aluminum, nickel powder, nickel screen, stainless
steel and cadmium, the availability and prices of which may fluctuate. The price
of raw materials and outside processing represented approximately 20% of the
sales price of the Company's products for fiscal 1998. Price increases in these
supplies may not be able to be recovered. TransDigm also purchases a variety of
manufactured component parts from various suppliers although TransDigm is
concentrating its orders among fewer suppliers to strengthen its supplier
relationships. Raw materials and component parts are generally available from
multiple suppliers at competitive prices. However, any delay in TransDigm's
ability to obtain necessary raw materials and component parts may affect its
ability to meet customer production needs.
TransDigm has various trade secrets, proprietary information, trademarks,
trade names, patents, copyrights and other intellectual property rights which
TransDigm believes, in the aggregate but not individually, are important to its
business.
ENVIRONMENTAL MATTERS
TransDigm's operations and current and/or former facilities are subject to
federal, state and local environmental laws and to regulation by government
agencies, including the Environmental Protection Agency. Among other matters,
these regulatory authorities impose requirements that regulate the emission,
discharge, generation, management, transportation and disposal of hazardous
materials and pollutants, govern response actions to hazardous materials which
may be or have been released to the environment, and require TransDigm to obtain
and maintain permits in connection with its operations. The extensive regulatory
framework imposes significant compliance burdens and risks on TransDigm.
Although management believes that TransDigm's operations and its facilities are
in compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations thereof or the nature of TransDigm's operations will not require
TransDigm to make significant additional expenditures to ensure compliance in
the future. According to some environmental laws, a current or previous owner or
operator of real property may be liable for the costs of investigations, removal
or remediation of hazardous materials at such property. Those laws typically
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous materials. Persons who arrange,
or are deemed to have arranged, for disposal or treatment of hazardous materials
also may be liable for the costs of investigation, removal or remediation of
those substances at the disposal or treatment site, regardless of whether the
affected site is owned or operated by that person. Because TransDigm owns and/or
operates a number of facilities, and because TransDigm arranges for the disposal
of hazardous materials at many disposal sites, TransDigm may incur costs for
investigation, removal and remediation, as well as, capital costs associated
with compliance. Although those environmental costs have not been material in
the past and are not expected to be material in the future, there can be
assurance that changes in environmental laws or unexpected investigations and
clean-up costs will not be material. See "Risk Factors--Potential Exposure to
Environmental Liabilities." TransDigm does not currently
57
<PAGE>
contemplate material capital expenditures for environmental compliance
remediation for fiscal 1999 or fiscal 2000.
The soil and groundwater beneath TransDigm's facility in Waco, Texas, have
been impacted by releases of hazardous materials. Because the majority of the
contaminants identified to date are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission, TransDigm does not believe
the condition of the soil and groundwater at the Waco facility will require
incurrence of material capital expenditures; however, there can be no assurance
that additional contamination will not be discovered or that the remediation
required by the Texas Natural Resources Conservation Commission will not be
material to the financial condition, results of operations or cash flows of
TransDigm.
PROPERTIES AND FACILITIES
TransDigm owns and operates a 130,000 square foot facility in Los Angeles,
California, a 63,000 square foot facility in Cleveland, Ohio and a 219,000
square foot facility in Waco, Texas which is also TransDigm's headquarters.
TransDigm also leases certain of its other facilities. Management believes that
its machinery, plants and offices are in satisfactory operating condition, and,
upon completion of its planned 10,000-20,000 square foot expansion of the
AeroControlex manufacturing facility, will have sufficient capacity to meet
foreseeable future needs without incurring significant additional capital
expenditures.
EMPLOYEES
As of September 30, 1998, TransDigm had approximately 540 full-time
employees and 45 temporary employees. Approximately 11% of TransDigm employees
were represented by the United Steelworkers Union, and approximately 19% were
represented by the United Automobile, Aerospace and Agricultural Implement
Workers of America. Collective bargaining agreements between TransDigm and these
labor unions expire on April 1999 and November 2000, respectively. TransDigm
considers its relationship with its employees generally to be satisfactory and
does not expect any difficulty in reaching new collective bargaining agreements.
LEGAL PROCEEDINGS
During the ordinary course of business, TransDigm is from time to time
threatened with, or may become a party to, legal actions and other proceedings.
While TransDigm is currently involved in some legal proceedings, management
believes the results of these proceedings will not have a material effect of the
results of operations of TransDigm, in part due to indemnification arrangements.
TransDigm believes that its potential exposure to those legal actions is
adequately covered by its aviation product and general liability insurance.
58
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The directors, executive officers, and other key employees of TransDigm and
its subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Douglas W. Peacock................................... 60 Chairman of the Board of Directors and Chief
Executive Officer
W. Nicholas Howley................................... 46 President, Chief Operating Officer and Director
John D. Peterson, Sr. ............................... 54 President, AdelWiggins Group
Raymond F. Laubenthal................................ 37 President, AeroControlex Group
Robert S. Henderson.................................. 42 President, Marathon Power Technologies Company
Peter B. Radekevich.................................. 47 Chief Financial Officer
Stephen Berger....................................... 58 Director
Muzzafar Mirza....................................... 40 Director
William Hopkins...................................... 35 Director
Thomas R. Wall, IV................................... 40 Director
John W. Paxton....................................... 62 Director
</TABLE>
MR. PEACOCK has been Chairman of the Board and Chief Executive Officer of
TransDigm since its inception in September 1993. He is also a director of
Microporous Products, L.P. Prior to joining TransDigm, Mr. Peacock spent six
years with IMO Industries Inc. as Executive Vice President of IMO's Instruments
and Aerocomponents Group from 1991-1993, Executive Vice President of Power
Systems from 1989-1991, and managed IMO's turbomachinery business from
1987-1989. Prior to joining IMO, Mr. Peacock spent 15 years in various
managerial positions at Westinghouse Electric Corp. Mr. Peacock received a B.S.
degree in chemical engineering from Washington State and a Ph.D. in physical
chemistry from the University of Illinois. Mr. Peacock holds an Airline
Transport Pilot Rating and routinely commands flights in TransDigm's corporate
aircraft.
MR. HOWLEY has been President, Chief Operating Officer and Director of
TransDigm since the consummation of the Recapitalization. Mr. Howley served as
Executive Vice President of TransDigm and President of AeroControlex Group from
TransDigm's inception in September 1993 to the date of the consummation of the
Recapitalization. Prior to joining TransDigm, Mr. Howley served as General
Manager of IMO Industries Inc. Aeroproducts division, and Director of Finance
for the 15 divisions of IMO's Turbomachinery, Aerospace, and Power Transmission
groups. Prior to joining IMO, he held various executive positions at Lansdowne
Steel/Lansco Corp., a manufacturer of defense and oil drilling products, and the
Engineering and Construction Group of Raytheon Co. Mr. Howley received his B.S.
in engineering from Drexel University and an MBA from the Harvard University
Graduate School of Business.
MR. PETERSON has been Vice President and President of AdelWiggins Group
since June 1996. From 1990 to June 1996, Mr. Peterson was President of the
Aerospace Fastener Division of Huck
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<PAGE>
International. Mr. Peterson received his B.S. in marketing from Western Illinois
University and an MBA from Northwestern University, Kellogg Graduate School of
Management.
MR. LAUBENTHAL has been President of AeroControlex Group since November
1998. From December 1996 until November 1998, Mr. Laubenthal served as Director
of Manufacturing and Engineering for the AeroControlex Group. From October 1993
to December 1996, Mr. Laubenthal served as Director of Manufacturing for the
AeroControlex group. Mr. Laubenthal received a B.S. degree in mechanical
engineering from Case Western Reserve University and an MBA from Northern
Illinois University.
MR. HENDERSON has been President of Marathon Power Technologies Company
since April 1997. From November 1994 until April 1997, he served as Manager of
Operations for the AdelWiggins Group. From 1991 until 1994 Mr. Henderson served
as Operations Manager at RainBird Sprinkler. Mr. Henderson received his B.A. in
mathematics from Brown University and attended the Harvard University Graduate
School of Business.
MR. RADEKEVICH has been Chief Financial Officer of TransDigm since
TransDigm's inception in September 1993. He served as Vice Chairman and Chief
Financial Officer of RDK Capital from 1990 to 1993. Prior to joining RDK
Capital, Mr. Radekevich spent 16 years with General Electric in various
executive and managerial positions in the field of operations, distribution and
finance. Mr. Radekevich holds a bachelor of administration degree from Case
Western Reserve University.
MR. BERGER has served as a Director of TransDigm since the consummation of
the Transactions. He is also currently serving as chairman of Odyssey Investment
Partners, LLC. Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was
a general partner of Odyssey Partners, LP. From 1990 to 1993, Mr. Berger served
as Chairman and CEO of FGIC, a wholly-owned subsidiary of GE Capital Corp. and
subsequently became Executive Vice President of GE Capital Corp. From 1985 to
1990, Mr. Berger was Executive Director of the Port Authority of New York and
New Jersey Mr. Berger presently serves as a member of the Board of Trustees of
Brandeis University.
MR. MIRZA has served as a Director of TransDigm since the consummation of
the Transactions. Mr. Mirza is also currently a member of Odyssey Investment
Partners, LLC and has been a principal in the private equity investing group of
Odyssey Partners, LP since 1993. From 1988 to 1993, Mr. Mirza was employed by
the merchant banking group of GE Capital Corp.
MR. HOPKINS has served as a Director of TransDigm since the consummation of
the Transactions. Mr. Hopkins is also currently a member of Odyssey Investment
Partners, LLC and has been a principal in the private equity investing group of
Odyssey Partners, LP since 1994. Prior to joining Odyssey Mr. Hopkins was a
member of the merchant banking group of GE Capital Corp.
MR. WALL joined Kelso & Company in 1983 and has served as a Managing
Director of Kelso & Company since 1990. Mr. Wall presently serves as a member of
the Board of Directors of AMF Bowling, Inc., Consolidated Vision Group, Inc.,
Cygnus Publishing, Inc., iXL Enterprises, Inc., Mitchell Supreme Fuel Company
Mosler Inc., Peebles, Inc., and 21st Century Newspapers, Inc.
MR. PAXTON has served as a Director of TransDigm since the consumation of
the Transactions. Mr. Paxton is also currently chairman of Odyssey Industrial
Technologies, LLC, which is a joint venture with Odyssey Investment Partners,
LLC and Chairman of the Board, President and Chief Executive Officer of Telxon
Corporation. Prior to joining TransDigm as a Director, Mr. Paxton was a member
of the Board of Directors of Paxar Corporation ('Paxar") and President of
Paxar's Printing Solution Group from October 1997 to the calendar year end 1998.
Mr. Paxton served as President and Chief Executive Officer of Monarch Marking
Systems from October 1995 to October 1997. Prior to joining Monarch Marking
Systems, Mr. Paxton joined Litton Industries ("Litton") as a Corporate Vice
President in 1991 when Litton acquired Intermec Corporation. During his years at
Litton, Mr. Paxton had responsibility
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<PAGE>
for the Industrial Automation Group. He became Corporate Executive Vice
President and Chief Operating Officer of the Industrial Automation Systems group
of Western Atlas, Inc. when Western Atlas, Inc. was spun off by Litton in March
1994. Mr. Paxton presently serves as a member of the Board of Directors of AIM,
National Association of Manufacturers, World Economic Forum and Telxon
Corporation.
BOARD COMMITTEES
Holdings' Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee, which is comprised of Messrs. Berger,
Mirza and Hopkins, establishes salaries, incentives and other forms of
compensation for executive officers and administers incentive compensation and
benefit plans provided for employees. The Audit Committee, which is comprised of
Messrs. Berger, Mirza and Hopkins, reviews Holdings' and TransDigm's audit
policies and oversees the engagement of the Holdings' and TransDigm's
independent auditors.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by
TransDigm for services rendered during fiscal 1998, 1997 and 1996 to the Chief
Executive Officer of TransDigm and each of the four other most highly paid
executive officers of TransDigm (collectively the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------- UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) SARS COMPENSATION
- --------------------------------------- ----------- ---------- ------------ ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Peacock..................... 1998 $ 305,000 $ 2,857,500 $ -- -- $ 23,518(3)
Chairman of the Board 1997 290,000 220,000 -- 3,097 20,400
and CEO 1996 275,000 140,000 -- -- 20,200
W. Nicholas Howley..................... 1998 185,000 2,080,000 -- -- 14,446(4)
President, Chief Operating 1997 175,000 125,000 -- 1,900 13,316
Officer and Director 1996 165,000 85,000 -- -- 12,360
John D. Peterson, Sr................... 1998 175,000 280,000 -- -- 12,392(5)
President of AdelWiggins 1997 166,400 80,000 -- 800 14,216
Group 1996 160,000 25,000 -- -- 4,315
Robert S. Henderson.................... 1998 125,000 450,000 -- -- 10,663(6)
President of Marathon Power 1997 109,000 45,900 -- 200 6,192
Technologies Company 1996 103,000 28,800 -- 800 5,942
Peter B. Radekevich.................... 1998 113,000 196,250 -- -- 8,326(7)
Chief Financial 1997 108,000 40,000 -- 200 7,434
Officer 1996 102,000 25,000 -- 1,200 7,185
</TABLE>
- ------------------------
(1) Bonus for fiscal year 1998 includes a one-time bonus paid by Holdings in
connection with the Recapitalization.
(2) Does not include perquisites and other personal benefits because the value
of these items did not exceed the lesser of $50,000 or 10% of reported
salary and bonus of any of the listed executives.
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<PAGE>
(3) Includes $17,200 in contribution by TransDigm, as projected to calendar year
end 1998, to a plan established under Section 401(k) of the Internal Revenue
Code (the "401(k) plan") and $6,318 in company-paid life insurance.
(4) Includes $12,880 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $1,566 in company-paid life insurance.
(5) Includes $9,800 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $2,592 in company-paid life insurance.
(6) Includes $10,000 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $663 in company-paid life insurance.
(7) Includes $7,320 in contribution by TransDigm, as projected to calendar year
end 1998, to the 401(k) plan and $1,006 in company-paid life insurance.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES VALUE OF UNEXERCISED IN-
ACQUIRED UNDERLYING UNEXERCISED THE MONEY OPTIONS/SARS
EXERCISE ON OPTIONS/SAR AT FISCAL AT
NAME PRICE EXERCISE VALUE REALIZED YEAR-END FISCAL YEAR-END
- --------------------------- ----------- ----------- --------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Douglas W. Peacock $ 100 -- $ -- Exercisable: 9,200 Exercisable: $8,666,400
Chairman of the Board and Unexercisable: 4,200 Unexercisable: 3,956,400
CEO
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 3,097 Unexercisable: 2,189,579
W. Nicholas Howley 100 -- -- Exercisable: 6,900 Exercisable: 6,499,800
President, Chief Unexercisable: 3,150 Unexercisable: 2,967,300
Operating Officer and
Director
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 1,900 Unexercisable: 1,343,300
John D. Peterson, Sr. 200 -- -- Exercisable: 1,250 Exercisable: 1,052,500
President of AdelWiggins Unexercisable: 1,250 Unexercisable: 1,052,500
Group
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 500 Unexercisable: 353,500
Robert S. Henderson 154 -- -- Exercisable: 200 Exercisable: 177,600
President of Marathon Unexercisable: 200 Unexercisable: 177,600
Power Technologies
200 -- -- Exercisable: 200 Exercisable: 168,400
Unexercisable: 200 Unexercisable: 168,400
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 200 Unexercisable: 141,400
Peter B. Radekevich 100 -- -- Exercisable: 400 Exercisable: 376,800
Chief Financial Officer Unexercisable: 400 Unexercisable: 376,800
200 -- -- Exercisable: 200 Exercisable: 168,400
Unexercisable: 200 Unexercisable: 168,400
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 200 Unexercisable: 141,400
</TABLE>
MANAGEMENT STOCKHOLDERS AGREEMENT
Together with the consummation of the Recapitalization, Holdings, Odyssey
and the employee stockholders of Holdings, including the Named Executive
Officers (the "Management Stockholders")
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<PAGE>
entered into a Management Stockholders' Agreement (the "Management Stockholders'
Agreement") which governs the shares of common stock of Holdings (the "Common
Stock") and options to purchase Common Stock, in each case, held by such persons
and including the Rollover Investment and new options and shares obtained in
connection with the Recapitalization, and shares acquired upon exercise of
options. See "--Stock Option Plan."
The Management Stockholders' Agreement provides that, except for certain
transfers to family members and family trusts, no Management Stockholder may
transfer Common Stock until the fifth anniversary of the Recapitalization, and
thereafter, any proposed transfer will be subject to Holdings' right of first
refusal.
The Management Stockholders' Agreement also provides that upon termination
of the employment of a Management Stockholder, that Management Stockholder will
have certain put rights and Holdings will have certain call rights regarding any
Common Stock or any options to purchase Common Stock, in each case, owned by him
at that time.
Upon Mr. Peacock's cessation of active service as Chief Executive Officer on
or after the third anniversary of the Recapitalization, if TransDigm has
achieved specified financial targets, he may require Holdings to repurchase up
to 80% of his Common Stock during the period, if any, for which he is serving as
non-executive Chairman of the Board. See "--Employment Agreements." Mr. Peacock
may thereafter require repurchase of the remaining 20% of his Common Stock on or
after the fifth anniversary of the Recapitalization or his later termination of
services to Holdings. Holdings will be permitted to honor its obligation to Mr.
Peacock by issuing notes under certain circumstances.
If the provisions of any law, the terms of credit and financing arrangements
or Holdings' financial circumstances would prevent Holdings from making a
repurchase of shares pursuant to the Management Stockholders' Agreement,
Holdings will not make such purchase until all such prohibitions lapse, and will
then also pay the Management Stockholder a specified rate of interest on the
repurchase price.
The Management Stockholders' Agreement further provides that in the event of
certain types of transfers of Common Stock by Odyssey the Management
Stockholders may participate in those transfers and/or Odyssey may require the
Management Stockholders to transfer their shares in those transactions, in each
case, on a pro rata basis.
Pursuant to the Management Stockholders' Agreement, some of 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.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, Holdings will enter into an
employment agreement with Mr. Peacock pursuant to which he will continue to
serve as Chairman of the Board and Chief Executive Officer for a period of at
least five years and with Mr. Howley pursuant to which he will continue to serve
as President and Chief Operating Officer of Holdings for a period of at least
five years. Those employment agreements also will provide specified severance
benefits in the event of termination of employment under certain circumstances.
Each of those employment agreements will provide that in the event the
respective executive's employment terminates by reason of death, disability,
termination without "cause" or resignation with "good reason" (all as defined in
those employment agreements), Holdings will continue payment of base salary,
bonus and other perquisites and benefits, in the case of Mr. Howley, for 15
months thereafter and, in the case of Mr. Peacock, for 18 months thereafter or,
if terminated prior to the third anniversary of the Recapitalization, until such
third anniversary, whichever is longer.
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<PAGE>
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. After three years, Mr. Peacock may elect
to continue his service either as Chief Executive Officer or as a non-executive
Chairman and it is intended that Mr. Howley will be his successor.
STOCK OPTION PLAN
Holdings intends to adopt the 1998 Stock Option Plan (the "Option Plan"),
pursuant to which stock options may be granted to Independent Directors (as
defined in the Option Plan), employees and consultants of Holdings, TransDigm
and any subsidiary of Holdings or TransDigm (the "Plan Participants"). In
addition, the Option Plan will govern those options retained pursuant to the
Rollover Investment (the "Rollover Options"). A total of 10% of the fully
diluted shares of Common Stock of Holdings as of the Recapitalization was
reserved for issuance under the Option Plan exclusive of the Rollover
Investment. The Chief Executive Officer will have discretion to select the Plan
Participants and to specify the terms of such options, including the number of
shares, the exercise price and the vesting and expiration of options, subject to
approval by the Compensation Committee.
The Compensation Committee will have discretion under the Option Plan to
adjust options to reflect certain specified events such as stock dividends,
stock splits, recapitalizations, mergers or reorganizations of, or by Holdings.
In addition, the Board of Directors will have the right to amend, suspend or
terminate the Option Plan, subject to stockholder approval for certain
amendments.
The Rollover Options are fully vested and nonforfeitable. In connection with
the Recapitalization, Holdings will grant options to certain employees of
TransDigm including the Named Executive Officers for the purchase of shares of
Common Stock of Holdings (the "New Options"). Such New Options are intended to
qualify as "incentive stock options" to the extent permitted under the Internal
Revenue Code, and will have an exercise price equal to the price per share paid
by Odyssey in connection with the Recapitalization. Twenty percent of each of
Messrs. Peacock's and Howley's New Options will become vested as of the date of
grant. Subject to the executive's continued employment with and, in the case of
Mr. Peacock, continued service as non executive Chairman of the Board of, the
Company, the remaining 80% of his New Options will become exercisable upon the
earlier of (1) the Company's achievement of specified financial targets or (2)
certain specified dates in the Option Agreement. Furthermore, in the event of a
"change of control" (as defined in the Option Agreement), a specified percentage
of the New Options may become exercisable based upon the terms of such
transaction. The New Options generally will expire 10 years after grant and may
expire earlier in the event of the executive's termination of employment.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of Holdings with respect to each beneficial owner
of more than 5.0% of the outstanding common stock of Holdings and beneficial
ownership of the Common Stock of Holdings by each director and Named Executive
Officer and all directors and executive officers as a group:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
- ---------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Stephen Berger.................................................................... 100,240 (7) 83.9%
--------- ---
Robert S. Henderson............................................................... 783(2) *
--------- ---
William Hopkins................................................................... 100,240 (7) 83.9
--------- ---
W. Nicholas Howley................................................................ 5,943(4) 4.8
--------- ---
Kelso (as defined in footnote (5))................................................ 19,234(5) 16.0
--------- ---
Muzzafar Mirza.................................................................... 100,240 (7) 83.9
--------- ---
Odyssey Investment Partners Fund, LLC............................................. 100,240(7) 83.9
--------- ---
Douglas W. Peacock................................................................ 6,900(8) 5.4
--------- ---
John D. Peterson.................................................................. 1,302(9) 1.1
--------- ---
Peter B. Radekevich............................................................... 587 10) *
--------- ---
Thomas R. Wall, IV................................................................ 18,422(5) 15.3
--------- ---
All officers and directors as a group (14 members)................................ 135,476 11) 99.0
--------- ---
</TABLE>
- ------------------------
* Less than 1.0%
(1) Includes 100,240 shares and votes deemed to be beneficially owned by the
General Partner of Odyssey (as defined), of which Mr. Berger is a senior
managing member. As a result, Mr. Berger may be deemed to share voting and
investment power with respect to such shares. Mr. Berger disclaims
beneficial ownership of such shares.
(2) Includes 772 shares purchasable within 60 days upon the exercise of options
held by Mr. Henderson.
(3) Includes 100,240 shares and votes deemed to be beneficially owned by the
General Partner of Odyssey, of which Mr. Hopkins is a managing member. As a
result, Mr. Hopkins may be deemed to share voting and investment power with
respect to such shares. Mr. Hopkins disclaims beneficial ownership of such
shares.
(4) Includes 5,790 shares purchasable within 60 days upon the exercise of
options held by Mr. Howley.
(5) KIA IV-TD, LLC ("KIA IV-TD) and Kelso Equity Partners II, L.P. ("KEP II")
have beneficial ownership of 17,473 and 949 shares, respectively. Due to
their common control, KIA IV-TD, Kelso Partners IV, L.P., the managing
member of KIA IV-TD ("KP IV" and, together with KIA IV-TD and KEP II,
"Kelso"), and KEP II could be deemed to beneficially own each other's
shares, but each disclaims such beneficial ownership. In addition, Mr.
Wall, Joseph S. Schuchert, Frank T. Nickell, George E. Matelich, Michael B.
Goldberg, David I. Wahrhaftig and Frank K. Bynum, Jr. may be deemed to
share beneficial ownership of shares beneficially owned by KIA IV-TD, KP IV
and KEP II by virtue of their status as general partners of KP IV, which is
the managing member of KIA IV-TD, and as general partners of KEP II, but
each disclaims such beneficial ownership. The address of each of KIA IV-TD,
KP IV, KEP II and Messrs. Wall, Schuchert, Nickell, Matelich,
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Goldberg, Wahrhaftig and Bynum is c/o Kelso & Company, 320 Park Avenue,
24th Floor, New York, New York 10022.
(6) Includes 100,240 shares and votes deemed to be beneficially owned by the
General Partner of Odyssey, of which Mr. Mirza is a managing member. As a
result, Mr. Mirza may be deemed to share voting and investment power with
respect to such shares. Mr. Mirza disclaims beneficial ownership of such
shares.
(7) The principal business address for Odyssey Investment Partners Fund, LLC is
280 Park Avenue, West Tower, 38th Floor, New York, NY 10017. The general
partner of Odyssey Investment Partners Fund LLC, is Odyssey Capital
Partners, LLC, a Delaware limited liability company (the "General Partner
of Odyssey"). In addition to Messrs. Berger, Hopkins and Mirza, Paul D.
Barnett, Brian Kwait and Brian F. Wruble are managing members of the
General Partner of Odyssey and, therefore, may each be deemed to share
voting and investment power with respect to 100,240 share and votes deemed
to be owned by the General Partner of Odyssey. Each of Messrs. Barnett,
Kwait and Wruble disclaims beneficial ownership of such shares.
(8) Includes 6,089 shares purchasable within 60 days upon the exercise of
options held by Mr. Peacock and 811 shares and votes owned by TD Equity
LLC, of which Mr. Peacock is the managing member. Mr. Peacock disclaims
ownership of the 811 shares and votes owned by TD Equity LLC.
(9) Includes 1,270 shares purchasable within 60 days upon the exercise of
options held by Mr. Peterson.
(10) Includes 568 shares purchasable within 60 days upon the exercise of options
held by Mr. Radekevich.
(11) As described in footnotes (1), (3), (5), (6), (7) and (8), Messrs. Berger,
Hopkins and Mirza may each be deemed to share investment and voting power
with respect to 100,240 shares deemed to be beneficially owned by the
General Partner of Odyssey, Mr. Wall may be deemed to share investment and
voting power with respect to 18,422 shares owned by Kelso and Mr. Peacock
may be deemed to share investment and voting power with respect to 811
shares owned by TD Equity LLC. Each of Messrs. Berger, Hopkins, Mirza, Wall
and Peacock disclaims ownership of such shares. Excluding such shares, all
officers and directors as a group beneficially own 17,030 shares or 12.5%.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX ALLOCATION AGREEMENT
TransDigm and Holdings entered into a Tax Allocation Agreement concurrently
with the consummation of the Recapitalization. Under the terms of the Tax
Allocation Agreement, TransDigm is obligated to make payments to Holdings equal
to the amount of income taxes that TransDigm would have owed in respect of
federal and state income taxes on behalf of TransDigm and its subsidiaries if
TransDigm and its subsidiaries were, for tax purposes, a separate consolidated
group.
ONE-TIME MANAGEMENT BONUSES
Following the consummation of the Recapitalization, TransDigm paid certain
members of senior management an aggregate of $5.9 million as a one-time bonus in
connection with the Recapitalization. See "Management--Executive Compensation."
TERMINATION OF FINANCIAL ADVISORY SERVICES AGREEMENT
TransDigm paid $6.0 million to Kelso & Company, an affiliate of Kelso, in
consideration for the termination of a Financial Advisory Services Agreement.
This payment was made upon consummation of the Recapitalization.
Kelso may be deemed, collectively, to beneficially own 15.4% of the Common
Stock of Holdings on a fully diluted basis. In addition, Mr. Wall, a director of
Holdings and TransDigm, is a general partner of each of the Kelso entities.
KELSO STOCKHOLDERS AGREEMENT
Pursuant to the Merger Agreement, Holdings, Odyssey and KIA IV-TD and KEP II
entered into a stockholders agreement (the "Stockholders Agreement")
concurrently with consummation of the Recapitalization. The Stockholders
Agreement provides for customary transfer restrictions, tag-along and drag-along
rights, registration rights and an agreement among the parties to vote their
shares of Common Stock, including the agreement of Odyssey to designate a
representative of Kelso to the Board of Directors of Holdings. See also
"Management" for a description of certain agreements that have been entered into
with certain members of management in connection with the Recapitalization. See
"-Termination of Financial Advisory Services Agreement."
ODYSSEY FINANCIAL SERVICES
As part of the Recapitalization, TransDigm paid Odyssey a fee of
approximately $3.5 million. Odyssey is the majority stockholder of Holdings. In
addition, Messrs. Berger, Hopkins and Mirza, each a director of Holdings and
TransDigm, are managing members of the General Partner of Odyssey.
RECAPITALIZATION
As part of the Recapitalization and under the terms of the Merger Agreement,
Phase II Acquisition Corp., a wholly-owned subsidiary of Odyssey, merged with
and into Holdings.
Also, together with the Recapitalization and as part of the consideration
for the Merger, Holdings (1) issued $20.0 million in Holdings PIK Notes and
common stock of Holdings and (2) paid $215.4 million in cash, in each case, to
Kelso. See "Transactions," "--Odyssey Financial Services" and "--Termination of
Financial Advisory Services Agreement."
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DESCRIPTION OF OTHER INDEBTEDNESS
TRANSDIGM
THE NEW CREDIT FACILITY
The New Credit Facility consists of (1) a $30.0 million Revolving Credit
Facility maturing six years from the date of the execution of the New Credit
Facility (the "Execution Date") and (2) a term loan facility in an aggregate
principal amount of $90.0 million, consisting of the $45.0 million Tranche A
Facility maturing six years from the Execution Date and the $45.0 million
Tranche B Facility maturing seven and a half years from the Execution Date.
The New Credit Facility provides that TransDigm shall repay, to the extent
then outstanding, (1) with respect to the Tranche A Facility, the specified
amount set forth in the New Credit Facility for each quarter beginning on August
15, 1999 and (2) with respect to the Tranche B Facility, (A) $225,000 each of
the first two quarters beginning on August 15, 1999, (B) $112,500 each of the
remaining quarters during the first six years after the Execution Date and (C)
$7,050,000 each of the following six quarters. In addition, subject to some
exceptions, the New Credit Facility requires mandatory repayment of the
outstanding indebtedness under the New Credit Facility and concurrent reduction
to the commitments under the New Credit Facility with the proceeds from (1)
assets sales, (2) issuance of debt, (3) issuance of equity interests and capital
contributions, (4) insurance and condemnation claims and (5) 50% of annual
excess cash flow (as defined in the New Credit Facility) from operations in
excess of a predetermined amount, in each case, by or of Holdings, TransDigm or
their subsidiaries. TransDigm will have the option at any time and from time to
time to prepay the outstanding indebtedness under the New Credit Facility
without penalty or premium.
Indebtedness under the New Credit Facility bears interest at the sum of the
(1) Applicable Margin and (2) at the option of TransDigm either the Base Rate or
the Eurodollar Rate (as defined in the New Credit Facility). The "Base Rate"
means the higher of (i) the rate that Bankers Trust Company ("BTCo") announces
from time to time as its prime lending rate, as in effect from time to time, and
(ii) 1/2 of 1% in excess of the overnight federal funds rate. The "Applicable
Margin" means the percentage per year equal to (1) in the case of Tranche A
Facility and Revolving Credit Facility, subject to quarterly step-downs to be
determined based on specified levels of financial performance, (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% and (2) in the case of Tranche B
Facility (A) bearing an interest rate determined by the Base Rate, 3.00% and (B)
bearing an interest rate determined by the Eurodollar Rate, 4.00%.
The New Credit Facility contains various covenants, customary for similar
credit facilities or otherwise appropriate under the circumstances, that (1)
restrict Holdings, TransDigm and their subsidiaries from various actions,
including, among others, mergers and sales of assets, use of proceeds, granting
of liens, incurrence of indebtedness, voluntary prepayment of indebtedness,
including the Old Notes and the New Notes, capital expenditures, paying
dividends, business activities, investments and acquisitions, transactions with
affiliates, certain types of restrictions affecting subsidiaries, voluntary
prepayment of other Indebtedness and amendments or modifications to instruments
governing such other Indebtedness and (2) require TransDigm to achieve and
maintain certain financial covenants.
The New Credit Facility includes events of default provisions that are
typical for senior credit facilities or otherwise appropriate under the
circumstances. All obligations under the New Credit Facility are guaranteed by
Holdings and each of the subsidiaries, direct and indirect, of TransDigm. The
indebtedness under the New Credit Facility are secured by a pledge of the stock
of TransDigm and all of its domestic subsidiaries and a perfected lien and
security interest in assets other than real estate (tangible and intangible) of
TransDigm, its direct and indirect subsidiaries and Holdings.
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HOLDINGS
HOLDINGS PIK NOTES
Concurrently with the issuance of the Old Notes by TransDigm, Holdings
issued $20.0 million in aggregate face value of its pay-in-kind notes due 2009
(the "Holdings PIK Notes") to KIA IV-TD and KEP II as part of the
Recapitalization. The Holdings PIK Notes were issued to KIA IV-TD and KEP II
together with shares of Common Stock of Holdings. The Holdings PIK Notes are
unsecured obligations of Holdings, subordinated to the guarantee of the New
Credit Facility by Holdings, but senior to the guarantee of each of the Old
Notes and the New Notes by Holdings.
Interest on the Holdings PIK Notes accrues at an annual fixed rate of 12%
and is payable semiannually in the form of additional Holdings PIK Notes for
five years after their issuance. Thereafter, cash interest is payable
semi-annually commencing in the year 2004. The Holdings PIK Notes are redeemable
at the option of Holdings, in whole or in part, at a price equal to 100% of the
principal amount of the Holdings PIK Notes for five years after their issuance
and thereafter at the prices set forth in the indenture under the terms of which
the Holdings PIK Notes were issued (the "Holdings Indenture"). If Holdings
experiences specific kinds of changes in control, it must offer to repurchase
the Holdings PIK Notes at a price equal to 101% of the principal amount of the
Holdings PIK Notes.
The Holdings PIK Notes contain some covenants on a consolidated basis,
including covenants that limit (i) indebtedness, (ii) restricted payments, (iii)
distributions by subsidiaries, (iv) transactions with affiliates, (v) sales of
assets and subsidiary stock, (vi) dividend and other payment restrictions, and
(vii) mergers or consolidations. The Holdings PIK Notes contain customary events
of default and the holders of the Holdings PIK Notes have customary registration
rights commencing on the third anniversary of the closing date. The covenants
and default provisions in the Holdings Indenture are substantially similar to
those contained in the Indenture governing the Old Notes and the New Notes, but
are less restrictive in some respects.
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DESCRIPTION OF THE NEW NOTES
TransDigm will issue the New Notes under an indenture (the "Indenture")
among itself, the Guarantors and State Street Bank and Trust Company, as Trustee
(the "Trustee"). The following is a summary of the material provisions of the
Indenture. It does not include all of the provisions of the Indenture. We urge
you to read the Indenture because it defines your rights. The form and terms of
the New Notes will be the same as the form and terms of the Old Notes except
that the New Notes will be freely transferable by you except as otherwise
provided in this Prospectus. See "The Exchange Offer--Purpose and Effect". The
terms of the New Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act as in effect on the
date of the Indenture. A copy of the Indenture may be obtained from TransDigm.
You can find definitions of certain capitalized terms used in the following
summary under "--Certain Definitions." For purposes of this section, references
to (1) "TransDigm" means TransDigm Inc. and not its Subsidiaries or Holdings and
(2) the "Notes" mean the New Notes and the Old Notes, in each case, outstanding
at any given time and issued under the Indenture.
These New Notes will be unsecured obligations of TransDigm, ranking
subordinate in right of payment to all Senior Debt of the Company.
TransDigm will issue the New Notes in fully registered form in denominations
of $1,000 and integral multiples of $1,000. The Trustee will initially act as
Paying Agent and Registrar. The New Notes may be presented for registration of
transfer and exchange at the offices of the Registrar. TransDigm may change any
Paying Agent and Registrar without notice to holders of the New Notes (the
"Holders"). TransDigm will pay principal, and premium, if any, on the New Notes
at the Trustee's corporate office in New York, New York. At TransDigm's option,
interest also may be paid by mailing a check to the Holders registered address.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the New Notes issued as part of the Exchange Offer, will be
treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $200.0 million, of
which up to $125.0 million in aggregate principal amount of the Notes will be
outstanding immediately following the Exchange Offer. The Notes will mature on
December 1, 2008. Additional Notes may be issued from time to time, subject to
the limitations set forth under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness." Interest on the Notes will accrue at the rate of
10 3/8% per annum and will be payable semiannually in cash on each June 1 and
December 1, commencing on June 1, 1999. TransDigm will make interest payments to
the persons who are registered Holders at the close of business on the May 15
and November 15 immediately preceding the applicable interest payment date.
Interest on the New Notes will accrue from December 3, 1998 or from the date of
the last payment of interest on the Old Notes, whichever is later. No additional
interest will be paid on Old Notes tendered and accepted for exchange..
The Notes do not contain any mandatory sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below, these New Notes are not
redeemable before December 1, 2003. Thereafter, TransDigm may redeem the New
Notes at its option, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the following redemption prices, in each
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case, expressed as percentages of the principal amount of the Notes, if redeemed
during the twelve month period commencing on December 1 of the year set forth
below.
<TABLE>
<S> <C>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2003.............................................................................. 105.188%
2004.............................................................................. 103.458%
2005.............................................................................. 101.729%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, TransDigm must pay all accrued and unpaid interest on the Notes
redeemed.
OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. On one or more occasions prior
to December 1, 2001, TransDigm may use the net cash proceeds of one or more
Equity Offerings to redeem up to 35% of the principal amount of the Notes,
including the New Notes, issued under the Indenture at a redemption price of
110.375% of the principal amount of the Notes, plus accrued and unpaid interest
on the notes, if any, to the date of redemption; PROVIDED that:
(1) at least 65% of the aggregate principal amount of Notes issued under the
Indenture remains outstanding immediately after any such redemption; and
(2) TransDigm makes such redemption not more than 120 days after the
consummation of such Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that TransDigm chooses to redeem less than all of the Notes,
selection of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed; or
(2) on a PRO RATA basis, by lot or by such method as the Trustee shall deem fair
and appropriate. No Notes of a principal amount of $1,000 or less shall be
redeemed in part.
If a partial redemption is made with the proceeds of an Equity Offering, the
Trustee will select the Notes only on a PRO RATA basis or on as nearly a PRO
RATA basis as is practicable. Notice of redemption will be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at its registered address. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as TransDigm has deposited with the Paying Agent
funds in satisfaction of the applicable redemption price.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt of TransDigm including its obligations under the New
Credit Facility.
The holders of Senior Debt will be entitled to receive payment in full in
cash of all Obligations due in respect of Senior Debt, including interest after
the commencement of any bankruptcy or other like proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in any such proceeding, before the Holders of Notes will be
entitled to receive any payment with respect to the Notes in the event of any
distribution to creditors of TransDigm:
(1) in a liquidation or dissolution of TransDigm;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to TransDigm or its property;
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(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of TransDigm's assets and liabilities.
TransDigm also may not make any payment in respect of the Notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt that
permits holders of the Designated Senior Debt to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Representative of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived (so long as no other event of default
exists) or 180 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has
been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 days.
TransDigm must promptly notify holders of Senior Debt if payment of the
Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of TransDigm, Holders of these Notes
may recover less ratably than creditors of TransDigm who are holders of Senior
Debt. See "Risk Factors--Subordination."
At January 1, 1999, the aggregate principal amount of Senior Debt
outstanding of TransDigm and Holdings was $91.0 million and $111.0 million,
respectively.
GUARANTEE
The obligations of the Company under the Notes and the Indenture will be
fully and unconditionally guaranteed (the "Guarantees") on a senior subordinated
basis and on a joint and several basis by Holdings and all of the direct and
indirect Domestic Restricted Subsidiaries of TransDigm. The Guarantees will be
subordinated in right of payment to all Senior Debt of Holdings and the Domestic
Restricted Subsidiaries, respectively, to the same extent that the Notes are
subordinated to Senior Debt of TransDigm. Since Holdings is a holding company
with no significant operations, the Guarantee by Holdings provides little, if
any, additional credit support for the Notes, and investors should not rely on
the Guarantee by Holdings in evaluating an investment in the Notes.
CHANGE OF CONTROL
If a Change of Control occurs, each Holder will have the right to require
that TransDigm purchase all or a portion of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer"), at a purchase price equal
to 101% of the principal amount of the Notes plus accrued interest to the date
of purchase. Within 30 days following the date upon which the Change of Control
occurred, TransDigm must send, by first class mail, a notice to each Holder,
which notice shall govern the terms of the Change of Control Offer. Such notice
shall state, among other things, the purchase date, which must be no earlier
than 30 days nor later than 60 days from the date such notice is mailed, other
than
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as may be required by law (the "Change of Control Payment Date"). Holders
electing to have a Note purchased pursuant to a Change of Control Offer will be
required to surrender the Note, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date.
Prior to the mailing of the notice referred to above, but in any event
within 30 days following any Change of Control, TransDigm covenants to:
(1) repay in full all Indebtedness under the New Credit Facility and all other
Senior Debt the terms of which require repayment upon a Change of Control;
or
(2) obtain the requisite consents under the New Credit Facility and all such
other Senior Debt to permit the repurchase of the Notes as provided below.
TransDigm's failure to comply with the covenant described in the immediately
preceding sentence shall constitute an Event of Default described in clause
(3) and not in clause (2) under "Events of Default" below.
TransDigm will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner in compliance with the Indenture.
If a Change of Control Offer is made, there can be no assurance that
TransDigm will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event TransDigm is required to
purchase outstanding Notes pursuant to a Change of Control Offer, TransDigm
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that TransDigm would be able to obtain such financing.
You should note that this provision will not protect you from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction.
TransDigm will comply with the requirements of Rule 14e-1 under the Exchange
Act to the extent such laws and regulations are applicable in connection with
the repurchase of Notes pursuant to a Change of Control Offer. To the extent
that TransDigm complies with the provisions of any such securities laws or
regulations, TransDigm shall not be deemed to have breached its obligations
under the "Change of Control" provisions of the Indenture.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. TransDigm will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively "incur") any Indebtedness, other than Permitted
Indebtedness; PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, TransDigm and the Guarantors may incur
Indebtedness, including, without limitation, Acquired Indebtedness, and
Restricted Subsidiaries of TransDigm that are not Guarantors may incur Acquired
Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of TransDigm would have been greater than 2.0 to
1.0.
LIMITATION ON RESTRICTED PAYMENTS. TransDigm will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly:
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(1) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Qualified Capital Stock of TransDigm) on or in
respect of shares of TransDigm's Capital Stock to holders of such Capital
Stock;
(2) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of TransDigm or any direct or indirect parent of TransDigm or any warrants,
rights or options to purchase or acquire shares of any class of such Capital
Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay, decrease
or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of TransDigm that is subordinate or junior in right of payment
to the Notes; or
(4) make any Investment, other than Permitted Investments (each of the foregoing
actions set forth in clauses (1), (2), (3) and (4) being referred to as a
"Restricted Payment");
if at the time of such Restricted Payment or immediately after giving effect
thereto:
(i) a Default or an Event of Default shall have occurred and be continuing; or
(ii) TransDigm is not able to incur at least $1.00 of additional Indebtedness,
other than Permitted Indebtedness, in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments, including such proposed
Restricted Payment, made subsequent to the Issue Date, other than
Restricted Payments made pursuant to clauses (2)(i), (3), (4), (5), (6),
(7), (8), (9) and (10) of the following paragraph, shall exceed the sum,
without duplication, of:
(w) 50% of the cumulative Consolidated Net Income, or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss, of
TransDigm earned subsequent to the beginning of the first fiscal quarter
commencing after the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as
a single accounting period); plus
(x) 100% of the aggregate net cash proceeds, including the fair market value
of property other than cash that would constitute Marketable Securities
or a Permitted Business, received by TransDigm from any Person, other
than a Subsidiary of TransDigm, from the issuance and sale subsequent to
the Issue Date and on or prior to the Reference Date of Qualified Capital
Stock of TransDigm; plus
(y) without duplication of any amounts included in clause (iii)(x) above,
100% of the aggregate net cash proceeds of any equity contribution
received by TransDigm from a holder of TransDigm's Capital Stock and
excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds
from an Equity Offering to the extent used to redeem the Notes in
compliance with the provisions set forth under "--Redemption--Optional
Redemption Upon Equity Offerings"; plus
(z) 100% of the aggregate net proceeds, including the fair market value of
property other than cash that would constitute Marketable Securities or a
Permitted Business, of any (A) sale or other disposition of any
Investment, other than a Permitted Investment, made by TransDigm and its
Restricted Subsidiaries or (B) dividend from, or the sale of the stock
of, an Unrestricted Subsidiary.
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Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such dividend or
notice of such redemption if the dividend or payment of the redemption
price, as the case may be, would have been permitted on the date of
declaration or notice;
(2) if no Default or Event of Default shall have occurred and be continuing or
shall occur as a consequence thereof, the acquisition of any shares of
Capital Stock of TransDigm (the "Retired Capital Stock") either (A) solely
in exchange for shares of Qualified Capital Stock of TransDigm (the
"Refunding Capital Stock") or (B) through the application of net proceeds of
a substantially concurrent sale for cash, other than to a Subsidiary of
TransDigm, of shares of Qualified Capital Stock of TransDigm and, in the
case of subclause (A) of this clause (2), if immediately prior to the
retirement of the Retired Capital Stock the declaration and payment of
dividends thereon was permitted under clause (5) of this paragraph, the
declaration and payment of dividends on the Refunding Capital Stock in an
aggregate amount per year no greater than the aggregate amount of dividends
per annum that was declarable and payable on such Retired Capital Stock
immediately prior to such retirement; PROVIDED that at the time of the
declaration of any such dividends on the Refunding Capital Stock, no Default
or Event of Default shall have occurred and be continuing or would occur as
a consequence thereof;
(3) if no Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of TransDigm that is subordinate or junior
in right of payment to the Notes either (A) solely in exchange for shares of
Qualified Capital Stock of TransDigm, or (B) through the application of net
proceeds of a substantially concurrent sale for cash, other than to a
Subsidiary of TransDigm, of (a) shares of Qualified Capital Stock of
TransDigm or (b) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof, the declaration and payment of
dividends to holders of any class or series of Designated Preferred Stock,
other than Disqualified Capital Stock, issued after the Issue Date,
including, without limitation, the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable and payable
thereon pursuant to clause (2) of this paragraph; PROVIDED that, at the time
of such issuance, TransDigm, after giving effect to such issuance on a pro
forma basis, would have had a Consolidated Fixed Charge Coverage Ratio of at
least 2.0 to 1.0;
(5) payments to Holdings for the purpose of permitting, and in an amount equal
to the amount required to permit, Holdings to redeem or repurchase Holdings'
common equity or options in respect thereof, in each case in connection with
the repurchase provisions of employee stock option or stock purchase
agreements or other agreements to compensate management employees; PROVIDED
that all such redemptions or repurchases pursuant to this clause (5) shall
not exceed $2.0 million in any fiscal year, which amount shall be increased
by the amount of any net cash proceeds received from the sale since the
Issue Date of Capital Stock, other than Disqualified Capital Stock, to
members of TransDigm's management team that have not otherwise been applied
to the payment of Restricted Payments pursuant to the terms of clause (iii)
of the immediately preceding paragraph and by the cash proceeds of any
"key-man" life insurance policies which are used to make such redemptions or
repurchases) since the Issue Date; PROVIDED, FURTHER, that the cancellation
of Indebtedness owing to TransDigm from members of management of TransDigm
or any of its Restricted Subsidiaries in connection with any repurchase of
Capital Stock of Holdings, or warrants or options or rights to acquire such
Capital Stock, will not be deemed to constitute a Restricted Payment under
the Indenture;
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(6) the making of distributions, loans or advances to Holdings in an amount not
to exceed $1.0 million PER ANNUM in order to permit Holdings to pay the
ordinary operating expenses of Holdings, including, without limitation,
directors' fees, indemnification obligations, professional fees and
expenses;
(7) payments to Holdings in respect of taxes pursuant to the terms of the Tax
Allocation Agreement as in effect on the Issue Date and as amended from time
to time pursuant to amendments that do not increase the amounts payable by
TransDigm or any of its Restricted Subsidiaries thereunder;
(8) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price
thereof;
(9) other Restricted Payments in an aggregate amount not to exceed $7.5 million;
and
(10) distributions to Holdings to fund the Transactions described under "Use of
Proceeds" subsequent to the issuance of the Notes.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, (a) amounts expended pursuant to clauses (1) and (2)(ii) shall be
included in such calculation, PROVIDED such expenditures pursuant to clause (5)
shall not be included to the extent of the cash proceeds received by TransDigm
from any "key-man" life insurance policies and (b) amounts expended pursuant to
clauses (2)(i), (3), (4), (5), (6), (7), (8), (9) and (10) shall be excluded
from such calculation.
LIMITATION ON ASSET SALES. TransDigm will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) TransDigm or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of, as determined
in good faith by TransDigm's Board of Directors;
(2) at least 75% of the consideration received by TransDigm or the Restricted
Subsidiary, as the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such disposition;
PROVIDED that the amount of:
(a) any liabilities, as shown on TransDigm's or such Restricted Subsidiary's
most recent balance sheet, of TransDigm or any such Restricted
Subsidiary, other than liabilities that are by their terms subordinated
to the Notes, that are assumed by the transferee of any such assets;
(b) any notes or other obligations received by TransDigm or any such
Restricted Subsidiary from such transferee that are converted by
TransDigm or such Restricted Subsidiary into cash within 90 days of the
receipt thereof, to the extent of the cash received; and
(c) any Designated Noncash Consideration received by TransDigm or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (c) that is at that time
outstanding, not to exceed 5% of Total Assets at the time of the receipt
of such Designated Noncash Consideration, with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value, shall
be deemed to be cash for the purposes of this provision or for purposes
of the second paragraph of this covenant; and
(3) upon the consummation of an Asset Sale, TransDigm shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 365 days of receipt thereof either (A) to prepay any Senior
Debt, or Indebtedness of a Restricted Subsidiary that is not a Guarantor
and, in the case of any such Indebtedness under any revolving credit
facility, effect a corresponding reduction in the availability under such
revolving credit facility, or effect a
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permanent reduction in the availability under such revolving credit facility
regardless of the fact that no prepayment is required in order to do so, in
which case no prepayment should be required, (B) to reinvest in Productive
Assets, or (C) a combination of prepayment and investment permitted by the
foregoing clauses (3)(A) and (3)(B). Pending the final application of any
such Net Cash Proceeds, TransDigm or such Restricted Subsidiary may
temporarily reduce Indebtedness under a revolving credit facility, if any,
or otherwise invest such Net Cash Proceeds in Cash Equivalents. On the 366th
day after an Asset Sale or such earlier date, if any, as the Board of
Directors of TransDigm or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (3)(A), (3)(B) and (3)(C) of the preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger
Date as permitted in clauses (3)(A), (3)(B) and (3)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by TransDigm
or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 60 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a PRO RATA basis, the maximum amount of
Notes that may be purchased with the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase;
PROVIDED, HOWEVER, that if at any time any non-cash consideration (including
any Designated Noncash Consideration) received by TransDigm or any
Restricted Subsidiary of TransDigm, as the case may be, in connection with
any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall
be applied in accordance with this covenant. Notwithstanding the foregoing,
if a Net Proceeds Offer Amount is less than $10.0 million, the application
of the Net Cash Proceeds constituting such Net Proceeds Offer Amount to a
Net Proceeds Offer may be deferred until such time as such Net Proceeds
Offer Amount plus the aggregate amount of all Net Proceeds Offer Amounts
arising subsequent to the Net Proceeds Offer Trigger Date relating to such
initial Net Proceeds Offer Amount from all Asset Sales by TransDigm and its
Restricted Subsidiaries aggregates at least $10.0 million, at which time
TransDigm or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to
make a Net Proceeds Offer (the first date the aggregate of all such deferred
Net Proceeds Offer Amounts is equal to $10.0 million or more shall be deemed
to be a Net Proceeds Offer Trigger Date).
Notwithstanding the immediately preceding paragraph, TransDigm and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraph to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes Productive
Assets, cash, Cash Equivalents and/or Marketable Securities; and
(2) such Asset Sale is for fair market value; PROVIDED that any consideration
consisting of cash, Cash Equivalents and/or Marketable Securities received
by TransDigm or any of its Restricted Subsidiaries in connection with any
Asset Sale permitted to be consummated under this paragraph shall constitute
Net Cash Proceeds subject to the provisions of the preceding paragraph.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a PRO RATA basis, based on
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amounts tendered. A Net Proceeds Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the extent
that the aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is
less than the Net Proceeds Offer Amount, TransDigm may use any remaining Net
Proceeds Offer Amount for general corporate purposes or for any other purpose
not prohibited by the Indenture. Upon completion of any such Net Proceeds Offer,
the Net Proceeds Offer Amount shall be reset at zero.
TransDigm will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, TransDigm shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue of its compliance with the
applicable securities laws and regulations.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. TransDigm will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary of TransDigm to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(2) make loans or advances or pay any Indebtedness or other obligation owed to
TransDigm or any other Restricted Subsidiary of TransDigm; or
(3) transfer any of its property or assets to TransDigm or any other Restricted
Subsidiary of TransDigm, except for such encumbrances or restrictions
existing under or by reason of:
(a) applicable law;
(b) the Indenture;
(c) non-assignment provisions of any contract or any lease of any Restricted
Subsidiary of TransDigm entered into in the ordinary course of business;
(d) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person or the properties or assets of the
Person so acquired;
(e) the New Credit Facility;
(f) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
(g) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets or Capital Stock
permitted under the Indenture to any Person pending the closing of such
sale;
(i) any agreement or instrument governing Capital Stock of any Person that
is acquired;
(j) any Purchase Money Note or other Indebtedness or other contractual
requirements of a Securitization Entity in connection with a Qualified
Securitization Transaction; provided that such restrictions apply only to
such Securitization Entity;
(k) other Indebtedness or Permitted Subsidiary Preferred Stock outstanding
on the Issue Date or permitted to be issued or incurred under the
Indenture; PROVIDED that any such restrictions are
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ordinary and customary with respect to the type of Indebtedness being
incurred or Preferred Stock being issued (under the relevant
circumstances);
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business; and
(m) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (a) through (l) above; PROVIDED that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of TransDigm's Board of Directors (evidenced by a Board
Resolution) whose judgment shall be conclusively binding, not materially
more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment
restrictions prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. TransDigm will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock,
other than to TransDigm or to a Restricted Subsidiary of TransDigm, or permit
any Person, other than TransDigm or a Restricted Subsidiary of TransDigm, to own
any Preferred Stock of any Restricted Subsidiary of TransDigm, other than
Permitted Subsidiary Preferred Stock. The provisions of this covenant will not
apply to any of the Guarantors.
LIMITATION ON LIENS. TransDigm will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets or any proceeds therefrom, of TransDigm or any of its Restricted
Subsidiaries whether owned on the Issue Date or acquired after the Issue Date,
in each case to secure Indebtedness or trade payables, unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the Notes are equally and ratably secured,
except for:
(a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(b) Liens securing Senior Debt;
(c) Liens securing the Notes;
(d) Liens of TransDigm or a Wholly Owned Restricted Subsidiary of
TransDigm on assets of any Restricted Subsidiary of TransDigm;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness that was secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions
of the Indenture; PROVIDED, HOWEVER, that such Liens do not extend to or
cover any categories of property or assets of TransDigm or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; and
(f) Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. TransDigm will not,
and will not permit any Restricted Subsidiary that is a Guarantor to, incur or
suffer to exist Indebtedness that is senior in right of payment to the Notes or
such Guarantor's Guarantee, as the case may be, and subordinate in right of
payment to any other Indebtedness of TransDigm or such Guarantor, as the case
may be.
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MERGER CONSOLIDATION AND SALE OF ASSETS. TransDigm will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of or
cause or permit any Restricted Subsidiary of TransDigm to sell, assign,
transfer, lease, convey or otherwise dispose of, all or substantially all of
TransDigm's assets, in each case, determined on a consolidated basis for
TransDigm and TransDigm's Restricted Subsidiaries, whether as an entirety or
substantially as an entirety to any Person unless:
(1) either:
(a) TransDigm shall be the surviving or continuing corporation; or
(b) the Person, if other than TransDigm, formed by such consolidation
or into which TransDigm is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the
properties and assets of TransDigm and of TransDigm's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity"):
(x) shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia; and
(y) shall expressly assume, by supplemental indenture in form and
substance satisfactory to the Trustee, executed and delivered to the
Trustee, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Notes and the performance
of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of TransDigm to be performed or
observed;
(2) except in the case of a merger of TransDigm with or into a Wholly
Owned Restricted Subsidiary of TransDigm and except in the case of a merger
entered into solely for the purpose of reincorporating TransDigm in another
jurisdiction, immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred in connection with or
in respect of such transaction), TransDigm or such Surviving Entity, as the
case may be, shall be able to incur at least $1.00 of additional
Indebtedness pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant;
(3) except in the case of a merger of TransDigm with or into a Wholly
Owned Restricted Subsidiary of TransDigm and except in the case of a merger
entered into solely for the purpose of reincorporating TransDigm in another
jurisdiction, immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above, including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred and any Lien granted in connection with or in respect of the
transaction, no Default or Event of Default shall have occurred or be
continuing; and
(4) TransDigm or the Surviving Entity shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply with
the applicable provisions of the Indenture and that all conditions precedent
in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of TransDigm the Capital Stock of which constitutes all or
substantially all of the properties and assets of TransDigm, shall be deemed to
be the transfer of all or substantially all of the properties and assets of
TransDigm. However, transfer of assets between or among TransDigm and its
Restricted Subsidiaries will not be subject to the foregoing covenant.
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The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of TransDigm in
accordance with the foregoing, in which TransDigm is not the continuing
corporation, the successor Person formed by such consolidation or into which
TransDigm is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
TransDigm under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such and that, in the event of a conveyance,
lease or transfer, the conveyor, lessor or transferor will be released from the
provisions of the Indenture.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. TransDigm will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or permit to occur any transaction or series of related transactions,
including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service, with, or for the benefit of, any of
its Affiliates (an "Affiliate Transaction"), other than Affiliate Transactions
on terms that are not materially less favorable than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of TransDigm; PROVIDED, HOWEVER,
that for a transaction or series of related transactions with an aggregate value
of $2.5 million or more, at TransDigm's option, either:
(1) a majority of the disinterested members of the Board of Directors of
TransDigm shall determine in good faith that such Affiliate Transaction is
on terms that are not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of TransDigm or
(2) the Board of Directors of TransDigm or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received an
opinion from a nationally recognized investment banking, appraisal or
accounting firm that such Affiliate Transaction is on terms not materially
less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of TransDigm;
and PROVIDED, FURTHER, that for an Affiliate Transaction with an aggregate value
of $10.0 million or more the Board of Directors of TransDigm or any such
Restricted Subsidiary party to such Affiliate Transaction shall have received an
opinion from a nationally recognized investment banking, appraisal or accounting
firm that such Affiliate Transaction is on terms not materially less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
TransDigm.
The restrictions set forth in the first paragraph of this covenant shall not
apply to:
(1) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of TransDigm or any
Restricted Subsidiary of TransDigm as determined in good faith by
TransDigm's Board of Directors or senior management;
(2) transactions exclusively between or among TransDigm and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby, including pursuant to any
amendment thereto, in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date;
(4) Restricted Payments or Permitted Investments permitted by the
Indenture;
(5) transactions effected as part of a Qualified Securitization
Transaction;
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(6) the payment of customary annual management, consulting and advisory
fees and related expenses to the Permitted Holders and their Affiliates made
pursuant to any financial advisory, financing, underwriting or placement
agreement or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which
are approved by the Board of Directors of TransDigm or such Restricted
Subsidiary in good faith;
(7) payments or loans to employees or consultants that are approved by
the Board of Directors of TransDigm in good faith;
(8) sales of Qualified Capital Stock;
(9) the existence of, or the performance by TransDigm or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement, including any registration rights agreement or
purchase agreement related thereto, to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter;
PROVIDED, HOWEVER, that the existence of, or the performance by TransDigm or
any of its Restricted Subsidiaries of obligations under, any future
amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause (9)
to the extent that the terms of any such amendment or new agreement are not
disadvantageous to the Holders of the Notes in any material respect; and
(10) transactions permitted by and complying with, the provisions of the
"Merger, Consolidation and Sale of Assets" covenant.
FUTURE GUARANTEES BY RESTRICTED SUBSIDIARIES. TransDigm will not create or
acquire another Domestic Restricted Subsidiary unless such Domestic Restricted
Subsidiary executes and delivers a supplemental indenture to the Indenture,
providing for a senior subordinated guarantee of payment of the Notes by such
Restricted Subsidiary (the "Guarantee").
Notwithstanding the foregoing, any such Guarantee by a Domestic Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon any sale or other
disposition, by merger or otherwise, to any Person which is not a Restricted
Subsidiary of TransDigm of all of TransDigm's Capital Stock in, or all or
substantially all of the assets of, such Domestic Restricted Subsidiary;
PROVIDED that such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the Indenture. A form of such
Guarantee will be attached as an exhibit to the Indenture.
CONDUCT OF BUSINESS. The Indenture provides that TransDigm will not, and
will not permit any of its Restricted Subsidiaries to, engage in any businesses
a majority of whose revenues are not derived from businesses that are the same
or reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which TransDigm and its
Restricted Subsidiaries are engaged on the Issue Date.
REPORTS TO HOLDERS. The Indenture provides that, whether or not required by
the rules and regulations of the Commission, so long as any Notes are
outstanding, TransDigm will furnish to the Holders of Notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if TransDigm were required to file those Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of TransDigm and its consolidated Subsidiaries, showing in reasonable
detail, either on the face of the financial statements or in the footnotes
thereto and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the financial condition and results of operations
of
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TransDigm and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of
TransDigm, and, with respect to the annual information only, a report
thereon by TransDigm's certified independent accountants and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if TransDigm were required to file such reports, in
each case, within the time periods specified in the Commission's rules and
regulations. For so long as Holdings is a guarantor of the Notes, the
Indenture permits TransDigm to satisfy its obligations under this covenant
by furnishing financial information relating to Holdings; PROVIDED that the
same is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to Holdings, on the
one hand, and the information relating to TransDigm and its Restricted
Subsidiaries on a stand-alone basis, on the other hand.
In addition, following the consummation of this exchange offer, whether or
not required by the rules and regulations of the Commission, TransDigm will file
a copy of all those information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations, unless the Commission will not accept such a filing, and make such
information available to securities analysts and prospective investors upon
request. In addition, TransDigm has agreed that, for so long as any Old Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d) (4) under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days, whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture;
(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise,
including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer on the date specified
for such payment in the applicable offer to purchase and whether or not such
payment shall be prohibited by the subordination provisions of the
Indenture;
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after TransDigm receives written notice specifying the default and
demanding that such default be remedied from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the Notes, except in the
case of a default with respect to the "Merger, Consolidation and Sale of
Assets" covenant, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement;
(4) the failure to pay at final stated maturity, after giving effect to
any applicable grace periods and any extensions of the grace periods, the
principal amount of any Indebtedness of TransDigm or any Restricted
Subsidiary of TransDigm other than a Securitization Entity, which failure
continues for at least 20 days, or the acceleration of the final stated
maturity of any such Indebtedness, which acceleration remains uncured or
unrescinded for at least 20 days, if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, in each case, with respect to which the 20-day
period described above has passed, aggregates $5.0 million or more at any
time;
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(5) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against TransDigm or any of its Significant
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable; or
(6) certain events of bankruptcy affecting TransDigm or any of its
Significant Subsidiaries.
If an Event of Default, other than an Event of Default specified in clause
(6) above with respect to TransDigm, shall occur and be continuing, the Trustee
or the Holders of at least 25% in principal amount of outstanding Notes may
declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to TransDigm and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same:
(1) shall become immediately due and payable or
(2) if there are any amounts outstanding under the New Credit Facility,
shall become immediately due and payable upon the first to occur of an
acceleration under the New Credit Facility or 5 business days after receipt
by TransDigm and the Representative under the New Credit Facility of such
Acceleration Notice but only if such Event of Default is then continuing. If
an Event of Default specified in clause (6) above with respect to TransDigm
occurs and is continuing, then all unpaid principal of, and premium, if any,
and accrued and unpaid interest on all of the outstanding Notes shall IPSO
FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the Holders
of a majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid;
(4) if TransDigm has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
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Under the Indenture, TransDigm is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
TransDigm may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that TransDigm shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, except
for:
(1) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when such payments
are due;
(2) TransDigm's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
TransDigm's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, TransDigm may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) TransDigm must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2) in the case of Legal Defeasance, TransDigm shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that
(a) TransDigm has received from, or there has been published by the
Internal Revenue Service a ruling or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, TransDigm shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the
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Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit, other than a Default or an Event of Default
resulting from the borrowing of funds to be applied to such deposit and the
grant of any Lien securing such borrowing, or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture, other
than a Default or an Event of Default resulting from the borrowing of funds
to be applied to such deposit and the grant of any Lien securing such
borrowing, or any other material agreement or instrument to which TransDigm
or any of its Subsidiaries is a party or by which TransDigm or any of its
Subsidiaries is bound;
(6) TransDigm shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by TransDigm with the
intent of preferring the Holders over any other creditors of TransDigm or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of TransDigm or others;
(7) TransDigm shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) TransDigm shall have delivered to the Trustee an opinion of counsel
to the effect that:
(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture; and
(b) after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all Notes not
therefore delivered to the Trustee for cancellation (1) have become due and
payable, or (2) will become due and payable on the maturity date within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of TransDigm.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture, as to all outstanding Notes
when
(1) either:
(a) all the Notes theretofore authenticated and delivered, except
lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by TransDigm and thereafter repaid to
TransDigm or discharged from such trust, have been delivered to the
Trustee for cancellation or
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(b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, pursuant to an optional
redemption notice or otherwise, and TransDigm has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient
to pay and discharge the entire Indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if
any, and interest on the Notes to the date of deposit together with
irrevocable instructions from TransDigm directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case
may be; and
(2) TransDigm has paid all other sums payable under the Indenture by
TransDigm,
The Trustee will acknowledge the satisfaction and discharge of the Indenture
if TransDigm has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, TransDigm and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or reduce the redemption price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in the provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes to
waive Defaults or Events of Default;
(6) after the Company's obligation to purchase Notes arises thereunder,
amend, change or modify in any material respect the obligation of TransDigm
to make and consummate a Change of Control Offer in the event of a Change of
Control or modify any of the provisions or definitions with respect thereto
after a Change of Control has occurred; or
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes in a manner
which adversely affects the Holders.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of TransDigm, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
TransDigm or at the time it merges or consolidates with or into TransDigm or any
of its Subsidiaries or that is assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of TransDigm or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
Notwithstanding the foregoing, no Person, other than TransDigm or any Subsidiary
of TransDigm, in whom a Securitization Entity makes an Investment in connection
with a Qualified Securitization Transaction shall be deemed to be an Affiliate
of TransDigm or any of its Subsidiaries solely by reason of such Investment.
"ASSET ACQUISITION" means (a) an Investment by TransDigm or any Restricted
Subsidiary of TransDigm in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of TransDigm, or shall be merged with or into
TransDigm or any Restricted Subsidiary of TransDigm, or (b) the acquisition by
TransDigm or any Restricted Subsidiary of TransDigm of the assets of any Person,
other than a Restricted Subsidiary of TransDigm, other than in the ordinary
course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease, other than operating leases entered into in the ordinary course
of business, assignment or other transfer for value by TransDigm or any of its
Restricted Subsidiaries in each case, including any Sale and Leaseback
Transaction to any Person other than TransDigm or a Restricted Subsidiary of
TransDigm of:
(1) any Capital Stock of any Restricted Subsidiary of TransDigm, or
(2) any other property or assets of TransDigm or any Restricted
Subsidiary of TransDigm other than in the ordinary course of business;
PROVIDED, HOWEVER, that Asset Sales or other dispositions shall not include:
(a) a transaction or series of related transactions for which
TransDigm or its Restricted Subsidiaries receive aggregate consideration
of less than $1.0 million;
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(b) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of TransDigm as permitted under
"--Certain Covenants--Merger, Consolidation and Sale of Assets" or any
disposition that constitutes a Change of Control;
(c) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(d) disposals or replacements of obsolete equipment in the ordinary
course of business;
(e) the sale, lease, conveyance, disposition or other transfer by
TransDigm or any Restricted Subsidiary of assets or property to one or
more Restricted Subsidiaries in connection with Investments permitted
under the "Limitation on Restricted Payments" covenant or pursuant to any
Permitted Investment; and
(f) sales of accounts receivable, equipment and related assets,
including contract rights, of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof as determined in accordance with
GAAP. For the purposes of this clause (f), Purchase Money Notes shall be
deemed to be cash.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"CAPITAL STOCK" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents, however designated
and whether or not voting, of corporate stock, including each class of
Common Stock and Preferred Stock, of such Person and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
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(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through (5)
above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer in each case, in one
transaction or a series of related transactions, of all or substantially all
of the assets of TransDigm or Holdings to any Person or group of related
Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other
than to the Permitted Holders or their Related Parties or any Permitted
Group;
(2) the approval by the holders of Capital Stock of TransDigm or
Holdings, as the case may be, of any plan or proposal for the liquidation or
dissolution of TransDigm or Holdings, as the case may be, whether or not
otherwise in compliance with the provisions of the Indenture;
(3) any Person or Group, other than the Permitted Holders or their
Related Parties or any Permitted Group, shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 40%
of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of TransDigm or Holdings at a time where the
Permitted Holders and their Related Parties in the aggregate own a lesser
percentage of the aggregate ordinary voting power represented by such issued
and outstanding Capital Stock; or
(4) the first day on which a majority of the members of the Board of
Directors of TransDigm or Holdings are not Continuing Directors.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents, however designated and whether voting
or non-voting, of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum, without duplication, of such Person's:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes and foreign withholding taxes of such Person and
its Restricted Subsidiaries paid or accrued in accordance with GAAP for
such period;
(b) Consolidated Interest Expense;
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, other than normal accruals in
the ordinary course of business, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with
GAAP; and
(d) any cash charges resulting from the Transactions that are
incurred prior to the six month anniversary of the Issue Date.
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"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four-Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person and, in the case of
TransDigm and the Guarantors, for the Four-Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness or the issuance of
any Designated Preferred Stock of such Person or any of its Restricted
Subsidiaries, and the application of the proceeds of such incurrence,
repayment or issuance, giving rise to the need to make such calculation and
any incurrence or repayment of other Indebtedness or the issuance or
redemption of other Preferred Stock and the application of the proceeds of
such incurrence, repayment, issuance or redemption, other than the
incurrence or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to revolving credit facilities,
occurring during the Four-Quarter Period or at any time subsequent to the
last day of the Four-Quarter Period and on or prior to the Transaction Date,
as if such incurrence or repayment or issuance or redemption, as the case
may be and the application of the proceeds of such incurrence, repayment,
issuance or redemption, had occurred on the first day of the Four-Quarter
Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions
including, without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated EBITDA
(including any pro forma expense and cost reductions and other operating
improvements that have occurred or are reasonably expected to occur, all as
determined in accordance with Regulation S-X promulgated under the
Securities Act) attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale or other disposition and without regard to
clause (4) of the definition of Consolidated Net Income) occurring during
the Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or other disposition or Asset Acquisition, including the
incurrence or assumption of any such Acquired Indebtedness, occurred on the
first day of the Four-Quarter Period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Restricted Subsidiary
of such Person had directly incurred or otherwise assumed such other
Indebtedness that was so guaranteed.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator, but not the numerator, of this "Consolidated Fixed
Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date; and
(2) notwithstanding clause (1) of this paragraph, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
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"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; PLUS
(2) the product of (x) the amount of all cash dividend payments on any
series of Preferred Stock of such Person times (y) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal; PLUS
(3) the product of (x) the amount of all dividend payments on any series
of Permitted Subsidiary Preferred Stock times (y) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal; PROVIDED that with respect to any series of
Preferred Stock that was not paid cash dividends during such period but that
is eligible to be paid cash dividends during any period prior to the
maturity date of the Notes, cash dividends shall be deemed to have been paid
with respect to such series of Preferred Stock during such period for
purposes of this clause (3).
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of all cash and non-cash interest expense with respect
to all outstanding Indebtedness of such Person and its Restricted
Subsidiaries, including the net costs associated with Interest Swap
Obligations, for such period determined on a consolidated basis in
conformity with GAAP, but excluding amortization or write-off of debt
issuance costs;
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; and
(3) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the aggregate net income or
loss of TransDigm and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP and without any deduction
in respect of Preferred Stock dividends; PROVIDED that there shall be excluded
therefrom:
(1) gains and losses from Assets Sales, without regard to the $1.0
million limitation set forth in the definition of Asset Sale, and the
related tax effects according to GAAP;
(2) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP;
(3) all extraordinary, unusual or nonrecurring charges, gains and
losses, including, without limitation, all restructuring costs and any
expense or charge related to the repurchase of Capital Stock or warrants or
options to purchase Capital Stock, and the related tax effects according to
GAAP;
(4) the net income or loss of any Person acquired in a pooling of
interests transaction accrued prior to the date it becomes a Restricted
Subsidiary of TransDigm or is merged or consolidated with or into TransDigm
or any Restricted Subsidiary of TransDigm;
(5) the net income but not loss of any Restricted Subsidiary of
TransDigm to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of TransDigm of that income is
prohibited by contract, operation of law or otherwise;
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(6) the net loss of any Person, other than a Restricted Subsidiary of
TransDigm;
(7) the net income of any Person, other than a Restricted Subsidiary of
TransDigm, except to the extent of cash dividends or distributions paid to
TransDigm or a Restricted Subsidiary of TransDigm by such Person;
(8) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or transfer
of assets; and
(9) any non-cash compensation charges, including any arising from
existing stock options resulting from any merger or recapitalization
transaction.
For purposes of clause (iii)(w) of the first paragraph of the "Limitation on
Restricted Payments" covenant, Consolidated Net Income shall be reduced by any
cash dividends paid with respect to any series of Designated Preferred Stock.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash charges and
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, excluding any such
charges that require an accrual of or a reserve for cash payments for any future
period other than accruals or reserves associated with mandatory repurchases of
equity securities.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of TransDigm or Holdings who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors by
any of the Permitted Holders or with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"CREDIT FACILITIES" means one or more debt facilities, including, without
limitation, the New Credit Facility, or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term loans,
receivables financing, including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables, and/or letters of credit or banker's acceptances.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
TransDigm or any Restricted Subsidiary of TransDigm against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means any noncash consideration received
by TransDigm or one of its Restricted Subsidiaries in connection with an Asset
Sale that is designated as Designated Noncash Consideration pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of TransDigm or such Restricted Subsidiary at the
time of such Asset Sale. Any particular item of Designated Noncash Consideration
will cease to be considered to be outstanding once it has been sold for cash or
Cash Equivalents. At the time of receipt of any Designated Noncash
Consideration, TransDigm shall deliver an Officers' Certificate to the Trustee
which shall state the fair market value of such Designated Noncash Consideration
and shall state the basis of such valuation, which shall be a report of a
nationally recognized investment banking, appraisal or accounting firm with
respect to the receipt in one or a series of related transactions of Designated
Noncash Consideration with a fair market value in excess of $10.0 million.
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"DESIGNATED PREFERRED STOCK" means Preferred Stock that is so designated as
Designated Preferred Stock, pursuant to an Officers' Certificate executed by the
principal executive officer and the principal financial officer of TransDigm, on
the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (iii)(x) of the first paragraph of the
"Limitation on Restricted Payments" covenant.
"DESIGNATED SENIOR DEBT" means
(1) Indebtedness under or in respect of the New Credit Facility and
(2) any other Indebtedness constituting Senior Debt which, at the time
of determination, has an aggregate principal amount of at least $25.0
million and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by TransDigm.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder of that security, or upon
the happening of any event, other than an event which would constitute a Change
of Control, matures, excluding any maturity as the result of an optional
redemption by the issuer of that security, or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole
option of the holder of that security (except, in each case, upon the occurrence
of a Change of Control) on or prior to the final maturity date of the Notes.
"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
TransDigm that is incorporated under the laws of the United States or any state
thereof or the District of Columbia.
"EQUITY OFFERING" means any offering of Qualified Capital Stock of Holdings
or TransDigm; provided that:
(1) in the event of an offering by Holdings, Holdings contributes to the
capital of TransDigm the portion of the net cash proceeds of such offering
necessary to pay the aggregate redemption price plus accrued interest to the
redemption date of the Notes to be redeemed pursuant to the provisions
described under "--Redemption--Optional Redemption upon Equity Offerings"
and,
(2) in the event such equity offering is not in the form of a public
offering registered under the Securities Act, the proceeds received by
TransDigm directly or indirectly from such offering are not less than $10.0
million.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 or any successor
statute or statutes to the Securities Exchange Act of 1934.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of TransDigm acting reasonably and
in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of TransDigm delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect from time to time.
"GUARANTEE" means:
(1) the guarantee of the Notes by Holdings and the Domestic Restricted
Subsidiaries of TransDigm; and
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(2) the guarantee of the Notes by any Restricted Subsidiary required
under the terms of the "Future Guarantees by Restricted Subsidiaries"
covenant.
"GUARANTOR" means any Restricted Subsidiary that incurs a Guarantee;
provided that upon the release and discharge of such Restricted Subsidiary from
its Guarantee in accordance with the Indenture, such Restricted Subsidiary shall
cease to be a Guarantor.
"HEDGING AGREEMENT" means any agreement with respect to the hedging of price
risk associated with the purchase of commodities used in the business of
TransDigm and its Restricted Subsidiaries, so long as any such agreement has
been entered into in the ordinary course of business and not for purposes of
speculation.
"INDEBTEDNESS" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement but excluding trade accounts
payable and other accrued liabilities arising in the ordinary course of
business;
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of that Disqualified Capital Stock as if
that Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if that price
is based upon, or measured by, the fair market value of that Disqualified
Capital Stock, that fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of that Disqualified Capital
Stock. For the purposes of calculating the amount of Indebtedness of a
Securitization Entity outstanding as of any date, the face or notional amount of
any interest in receivables or equipment that is outstanding as of that date
shall be deemed to be Indebtedness but any such interests held by Affiliates of
such Securitization Entity shall be excluded for purposes of that calculation.
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"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby directly or indirectly, that
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit, including, without limitation, a guarantee, or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by
TransDigm and its Restricted Subsidiaries in accordance with normal trade
practices of TransDigm or such Restricted Subsidiary, as the case may be. If
TransDigm or any Restricted Subsidiary of TransDigm sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of TransDigm
such that, after giving effect to any such sale or disposition, such Restricted
Subsidiary is no longer a Restricted Subsidiary of TransDigm or, in the case of
a Restricted Subsidiary that is not Wholly Owned Restricted Subsidiary of
TransDigm, such Restricted Subsidiary has a minority interest that is held by an
Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm,
TransDigm shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means December 3, 1998, the date of original issuance of the
Old Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind, including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest.
"MARKETABLE SECURITIES" means publicly traded debt or equity securities that
are listed for trading on a national securities exchange and that were issued by
a corporation whose debt securities are rated in one of the three highest rating
categories by either S&P or Moody's.
"MOODY'S" means Moody's Investors Service, Inc.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents, other
than the portion of any such deferred payment constituting interest, received by
TransDigm or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale, including, without limitation, legal, accounting and investment
banking fees and sales commissions;
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements; and
(3) appropriate amounts to be provided by TransDigm or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
TransDigm or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"NEW CREDIT FACILITY" means the Credit Agreement dated as of the Issue Date
among TransDigm, the lenders party thereto in their capacities as lenders
thereunder and Bankers Trust Company, as administrative agent, together with the
related documents to the Credit Agreement, including, without
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limitation, any guarantee agreements and security documents, in each case, as
those agreements may be amended, including any amendment and restatement of
those agreements, supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring, including increasing the amount of available borrowings
under those agreements, or adding Restricted Subsidiaries of TransDigm as
additional borrowers or guarantors under those agreements) all or any portion of
the Indebtedness under that agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any business, including stock or assets of that
business, that derives a majority of its revenues from the business engaged in
by TransDigm and its Restricted Subsidiaries on the Issue Date and/or activities
that are reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which TransDigm and its
Restricted Subsidiaries are engaged on the Issue Date.
"PERMITTED GROUP" means any group of investors that is deemed to be a
"person," as such term is used in Section 13(d)(3) of the Exchange Act, by
virtue of the Stockholders Agreements, as the same may be amended, modified or
supplemented from time to time, provided that no single Person, together with
its Affiliates, other than the Permitted Holders and their Related Parties, is
the "beneficial owner," as such term is used in Section 13(d) of the Exchange
Act, directly or indirectly, of more than 50% of the voting power of the issued
and outstanding Capital Stock of TransDigm or Holdings, as applicable, that is
"beneficially owned" (as defined above) by such group of investors.
"PERMITTED HOLDERS" means Odyssey Investment Partners Fund, LP, its
Affiliates and any general or limited partners of Odyssey Investment Partners
Fund, L.P.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(1) Indebtedness under the Notes in an aggregate principal amount not to
exceed $125.0 million;
(2) Indebtedness of TransDigm or any of its Restricted Subsidiaries
incurred pursuant to one or more Credit Facilities in an aggregate principal
amount at any time outstanding not to exceed $155.0 million, less:
(A) the aggregate amount of Indebtedness of Securitization Entities
at the time outstanding, less
(B) the amount of all mandatory principal payments actually made by
TransDigm or any such Restricted Subsidiary since the Issue Date with the
Net Proceeds of an Asset Sale in respect of term loans under a Credit
Facility, excluding any such payments to the extent refinanced at the
time of payment, and
(C) further reduced by any repayments of revolving credit borrowings
under a Credit Facility with the Net Cash Proceeds of an Asset Sale that
are accompanied by a corresponding commitment reduction thereunder;
PROVIDED that the amount of Indebtedness permitted to be incurred
pursuant to the Credit Facilities in accordance with this clause (2)
shall be in addition to any Indebtedness permitted to be incurred
pursuant to the Credit Facilities in reliance on, and in accordance with,
clauses (7), (13) and (14) below;
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(3) other indebtedness of TransDigm and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(4) Interest Swap Obligations of TransDigm or any of its Restricted
Subsidiaries covering Indebtedness of TransDigm or any of its Restricted
Subsidiaries; PROVIDED that any Indebtedness to which any such Interest Swap
Obligations correspond is otherwise permitted to be incurred under the
Indenture; and PROVIDED, FURTHER, that such Interest Swap Obligations are
entered into, in the judgment of TransDigm, to protect TransDigm or any of
its Restricted Subsidiaries from fluctuation in interest rates on its
outstanding Indebtedness;
(5) Indebtedness of TransDigm or any Restricted Subsidiary under Hedging
Agreements and Currency Agreements;
(6) the incurrence by TransDigm or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among TransDigm and any such Restricted
Subsidiaries; PROVIDED, HOWEVER, that:
(a) if TransDigm is the obligor on such Indebtedness and the payee is
a Restricted Subsidiary that is not a Guarantor, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and
(b) (1) any subsequent issuance or transfer of Capital Stock that
results in any such Indebtedness being held by a Person other than
TransDigm or a Restricted Subsidiary thereof and
(2) any sale or other transfer of any such Indebtedness to a Person
that is not either TransDigm or a Restricted Subsidiary of TransDigm,
other than by way of granting a Lien permitted under the Indenture or in
connection with the exercise of remedies by a secured creditor shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
TransDigm or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) Indebtedness, including Capitalized Lease Obligations, incurred by
TransDigm or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property, whether real or personal, or equipment,
whether through the direct purchase of assets or the Capital Stock of any
person owning such assets, in an aggregate principal amount outstanding not
to exceed $5.0 million;
(8) Refinancing Indebtedness;
(9) guarantees by TransDigm and its Restricted Subsidiaries of each
other's Indebtedness; PROVIDED that such Indebtedness is permitted to be
incurred under the Indenture and PROVIDED, FURTHER, that in the event such
Indebtedness, other than Acquired Indebtedness, is incurred pursuant to the
Consolidated Fixed Charge Coverage Ratio, such guarantees are by TransDigm
or a Guarantor only;
(10) Indebtedness arising from agreements of TransDigm or a Restricted
Subsidiary of TransDigm providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of TransDigm, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; PROVIDEDthat the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually
received by TransDigm and its Restricted Subsidiaries in connection with
such disposition;
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(11) obligations in respect of performance and surety bonds and
completion guarantees provided by TransDigm or any Restricted Subsidiary of
TransDigm in the ordinary course of business;
(12) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to TransDigm or
any Subsidiary of TransDigm, except for Standard Securitization
Undertakings;
(13) Indebtedness incurred by TransDigm or any of the Guarantors in
connection with the acquisition of a Permitted Business which Indebtedness
is incurred on or prior to September 30, 1999; PROVIDED that on the date of
the incurrence of such Indebtedness, after giving effect to the incurrence
thereof and the use of proceeds therefrom, the Consolidated Fixed Charge
Coverage Ratio of TransDigm would be greater than the greater of (x) the
Consolidated Fixed Charge Coverage Ratio of TransDigm immediately prior to
the incurrence of such Indebtedness and (y) the Consolidated Fixed Charge
Coverage Ratio of TransDigm on the Issue Date;
(14) additional Indebtedness of TransDigm and its Restricted
Subsidiaries in an aggregate principal amount does not exceed $10.0 million
at any one time outstanding, which amount may, but need not, be incurred in
whole or in part under a Credit Facility;
(15) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently, except in
the case of daylight overdrafts, drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such indebtedness is
extinguished within five business days of incurrence; and
(16) Indebtedness of TransDigm or any of its Restricted Subsidiaries
represented by letters of credit for the account of TransDigm or such
Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of TransDigm or such Restricted Subsidiary, including, without
limitation, in order to provide security for workers' compensation claims or
payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business and other Indebtedness with
respect to workers' compensation claims, self-insurance obligations,
performance, surety and similar bonds and completion guarantees provided by
TransDigm or any Restricted Subsidiary of TransDigm in the ordinary course
of business.
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (16) above or is entitled to be incurred
pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such
covenant, TransDigm shall, in its sole discretion, classify, or later
reclassify, such item of Indebtedness in any manner that complies with such
covenant. Accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Capital Stock in the form of additional shares of the same class of Disqualified
Capital Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Capital Stock for purposes of the "Limitations on
Incurrence of Additional Indebtedness" covenant.
"PERMITTED INVESTMENTS" means:
(1) Investments by TransDigm or any Restricted Subsidiary of TransDigm
in any Restricted Subsidiary of TransDigm (other than a Restricted
Subsidiary of TransDigm in which an Affiliate of TransDigm that is not a
Restricted Subsidiary of TransDigm holds a minority interest) (whether
existing on the Issue Date or created after the Issue Date) or any Person
(including by means of any transfer of cash or other property) if as a
result of that Investment that Person shall become a Restricted Subsidiary
of TransDigm, other than Restricted Subsidiary of TransDigm in which an
Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm
holds a minority interest,
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or that will merge with or consolidate into TransDigm or a Restricted
Subsidiary of TransDigm and Investments in TransDigm by any Restricted
Subsidiary of TransDigm;
(2) investments in cash and Cash Equivalents;
(3) loans and advances to employees and officers of TransDigm and its
Restricted Subsidiaries for bona fide business purposes in an aggregate
principal amount not to exceed $5.0 million at any one time outstanding;
(4) Currency Agreements, Hedging Agreements and Interest Swap
Obligations entered into in the ordinary course of business and otherwise in
compliance with the Indenture;
(5) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good
faith settlement of delinquent obligations of such trade creditors or
customers;
(6) Investments made by TransDigm or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant;
(7) Investments existing on the Issue Date;
(8) accounts receivable created or acquired in the ordinary course of
business;
(9) guarantees by TransDigm or a Restricted Subsidiary of TransDigm
permitted to be incurred under the Indenture;
(10) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (10) that
are at that time outstanding, not to exceed $10.0 million, with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value;
(11) any Investment by TransDigm or a Subsidiary of TransDigm in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest; and
(12) Investments the payment for which consists exclusively of Qualified
Capital Stock of TransDigm.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either:
(a) not delinquent; or
(b) contested in good faith by appropriate proceedings and as to
which TransDigm or its Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen and repairmen and other Liens imposed by
law incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any
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Lien securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations, exclusive of obligations for the payment of
borrowed money;
(4) judgment Liens not giving rise to an Event of Default;
(5) easements, rights-of-way zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of TransDigm or
any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation;
(7) purchase money Liens to finance property or assets of TransDigm or
any Restricted Subsidiary of TransDigm acquired, constructed or improved in
the ordinary course of business; PROVIDED, HOWEVER, that
(a) the related purchase money Indebtedness shall not exceed the cost
of such property or assets and shall not be secured by any property or
assets of TransDigm or any Restricted Subsidiary of TransDigm other than
the property and assets so acquired and
(b) the Lien securing such Indebtedness shall be created within 90
days of such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of TransDigm or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens securing Indebtedness under Currency Agreements and Hedging
Agreements;
(13) Liens incurred in the ordinary course of business of TransDigm or
any Restricted Subsidiary with respect to obligations that do not in the
aggregate exceed $5.0 million at any one time outstanding;
(14) Liens on assets transferred to a Securitization Entity or an assets
of a Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction;
(15) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of TransDigm and its
Restricted Subsidiaries;
(16) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(17) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(18) Liens securing Acquired Indebtedness incurred in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
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(19) Liens placed upon assets of a Restricted Subsidiary of TransDigm
that is not a Guarantor to secure Indebtedness of such Restricted Subsidiary
that is otherwise permitted under the Indenture; and
(20) Liens existing on the Issue Date, together with any Liens securing
Indebtedness incurred in reliance on clause (8) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by
Liens existing on the Issue Date; PROVIDED that the Liens securing the
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced.
"PERMITTED SUBSIDIARY PREFERRED STOCK" means any series of Preferred Stock
of a Restricted Subsidiary of TransDigm that constitutes Qualified Capital Stock
and has a fixed dividend rate, the liquidation value of all series of which,
when combined with the aggregate amount of Indebtedness of TransDigm and its
Restricted Subsidiaries incurred pursuant to clause (14) of the definition of
Permitted Indebtedness, does not exceed $5.0 million.
"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision of a governmental agency.
"PREFERRED STOCK" of any Person means any Capital Stock of that Person that
has preferential rights to any other Capital Stock of that Person with respect
to dividends or redemptions or upon liquidation.
"PRODUCTIVE ASSETS" means assets, including Capital Stock, that are used or
usable by TransDigm and its Restricted Subsidiaries in Permitted Businesses.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from TransDigm or any
Subsidiary of TransDigm in connection with a Qualified Securitization
Transaction to a Securitization Entity, which note shall be repaid from cash
available to the Securitization Entity other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest and principal and amounts paid in connection with the
purchase of newly generated receivables or newly acquired equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions that may be entered into by TransDigm or any of its Restricted
Subsidiaries pursuant to which TransDigm or any of its Subsidiaries may sell,
convey or otherwise transfer to:
(1) a Securitization Entity, in the case of a transfer by TransDigm or
any of its Restricted Subsidiaries; and
(2) any other Person, in the case of a transfer by a Securitization
Entity, or may grant a security interest in any accounts receivable or
equipment, whether now existing or arising or acquired in the future, of
TransDigm or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable and equipment, all contracts and contract rights and all
guarantees or other obligations in respect of such accounts receivable and
equipment, proceeds of such accounts receivable and equipment and other
assets, including contract rights, which are customarily transferred or in
respect of which security interests are customarily granted in connection
with assets securitization transactions involving accounts receivable and
equipment.
"RECAPITALIZATION" means the recapitalization of Holdings consummated on the
Issue Date.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or
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replacement for, such security or Indebtedness in whole or in part. "Refinanced"
and "Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing, modification, replacement,
restatement, refunding, deferral, extension, substitution, supplement,
reissuance or resale of existing or future Indebtedness, other than intercompany
Indebtedness, including any additional Indebtedness incurred to pay interest or
premiums required by the instruments governing such existing or future
Indebtedness as in effect at the time of issuance thereof ("Required Premiums")
and fees in connection therewith; PROVIDED that any such event shall not:
(1) directly or indirectly result in an increase in the aggregate
principal amount of Permitted Indebtedness, except to the extent such
increase is a result of a simultaneous incurrence of additional
Indebtedness:
(a) to pay Required Premiums and related fees; or
(b) otherwise permitted to be incurred under the Indenture; and
(2) create Indebtedness with a Weighted Average Life to Maturity at the
time that Indebtedness is incurred that is less than the Weighted Average
Life to Maturity at such time of the Indebtedness being refinanced,
modified, replaced, renewed, restated, refunded, deferred, extended,
substituted, supplemented, reissued or resold.
"RELATED PARTY" with respect to any Permitted Holder means:
(a) (1) any spouse, sibling, parent or child of such Permitted
Holder; or
(2) the estate of any Permitted Holder during any period in which
that estate holds Capital Stock of TransDigm for the benefit of any
Person referred to in clause (a)(1); or
(b) any trust, corporation, partnership, limited liability company or
other entity, the beneficiaries, stockholders, partners, owners or
Persons beneficially owning an interest of more than 50% of which consist
of, or the sole managing partner or managing member of which is, one or
more Permitted Holders and/or such other Persons referred to in the
immediately preceding clause (a).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to TransDigm or a Restricted Subsidiary of any property, whether owned
by TransDigm or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by TransDigm or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of TransDigm, or
another Person in which TransDigm or any Subsidiary of TransDigm makes an
Investment and to which TransDigm or any Subsidiary of TransDigm transfers
accounts receivable or equipment and related assets which engages in no
activities other than in connection with the financing of accounts receivable or
equipment and
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which is designated by the Board of Directors of TransDigm (as provided below)
as a Securitization Entity:
(1) no portion of the Indebtedness or any other Obligations, contingent
or otherwise, of which:
(a) is guaranteed by TransDigm or any Restricted Subsidiary of
TransDigm (excluding guarantees of Obligations, other than the principal
of, and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings;
(b) is recourse to or obligates TransDigm or any Restricted
Subsidiary of TransDigm in any way other than pursuant to Standard
Securitization Undertakings; or
(c) subjects any property or asset of TransDigm or any Restricted
Subsidiary of TransDigm directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings;
(2) with which neither TransDigm nor any Restricted Subsidiary of
TransDigm has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to TransDigm or such Restricted
Subsidiary than those that might be obtained at the time from Persons that
are not Affiliates of TransDigm, other than fees payable in the ordinary
course of business in connection with servicing receivables of such entity;
and
(3) to which neither TransDigm nor any Restricted Subsidiary of
TransDigm has any obligations to maintain or preserve such entity's
financial condition or cause such entity to achieve certain levels of
operating results.
Any such designation by the Board of Directors of TransDigm shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution of TransDigm giving effect to such designation and an Officers'
Certificate certifying that such designation complied with foregoing conditions.
"SENIOR DEBT" means the principal of, premium, if any, and interest,
including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect to that
Senior Debt, whether or not such interest is an allowed claim under applicable
law, on any Indebtedness of TransDigm or any Guarantor, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include the
principal of, premium, if any, interest, including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect to that Senior Debt, whether or not such interest
is an allowed claim under applicable law, on, and all other amounts owing in
respect of:
(x) all monetary obligations of every nature of TransDigm or any
Guarantor under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations and guarantees of those Interest Swap
Obligations; and
(z) all obligations and guarantees of those obligations under Currency
Agreements and Hedging Agreements, in each case whether outstanding on the
Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(i) any Indebtedness of TransDigm or a Guarantor to TransDigm or to a
Subsidiary of TransDigm;
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(ii) other than the Holdings PIK Notes, any Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee
of TransDigm or any Subsidiary of TransDigm, including, without
limitation, amounts owed for compensation, other than a shareholder who
is also a lender or an Affiliate of a lender under the Credit Facilities,
including the New Credit Facility;
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by TransDigm;
(vi) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (vi) if
the holder(s) of that obligation or their representative and the Trustee
shall have received an Officer's Certificate of TransDigm to the effect
that the incurrence of such Indebtedness does not or, in the case of
revolving credit indebtedness, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing
thereunder is made would not violate such provisions of the Indenture;
(vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is
without recourse to TransDigm; and
(viii) any Indebtedness which is, by its express terms, subordinated
in right of payment to any other Indebtedness of TransDigm.
"SIGNIFICANT SUBSIDIARY," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by TransDigm or any subsidiary of
TransDigm which are reasonably customary in an accounts receivable or equipment
transaction.
"STOCKHOLDERS AGREEMENTS" means those certain stockholders agreements
entered into in connection with the Recapitalization.
"SUBSIDIARY," with respect to any Person, means:
(i) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly by such Person; or
(ii) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"TAX ALLOCATION AGREEMENT" means the tax allocation agreement dated as of
the Issue Date between Holdings and TransDigm.
"TOTAL ASSETS" means the total consolidated assets of TransDigm and its
Restricted Subsidiaries, as set forth on TransDigm's most recent consolidated
balance sheet.
"U.S. SUBSIDIARY" means any Subsidiary of TransDigm that is incorporated
under the laws of the United States or any State thereof or the District of
Columbia.
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"UNRESTRICTED SUBSIDIARY" of any Person means:
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary, including any newly
acquired or newly formed Subsidiary, to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, TransDigm or any other Subsidiary of TransDigm that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED that:
(1) TransDigm certifies to the Trustee that such designation complies
with the "Limitation on Restricted Payments" covenant; and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of TransDigm or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if (x) immediately after giving effect to that
designation, TransDigm is able to incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such
Indebtedness; into
(2) the sum of the total of the products obtained by multiplying;
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment
at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities, other than, in the case of a
Restricted Subsidiary, that is incorporated in a jurisdiction other than a State
in the United States or the District of Columbia, directors' qualifying shares
or an immaterial amount of shares required to be owned by other Persons pursuant
to applicable law, are owned by such Person or any Wholly Owned Subsidiary of
such Person.
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REGISTRATION RIGHTS
THE SUMMARY SET FORTH BELOW OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN
ITS ENTIRETY BY, ALL THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, A COPY
OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT.
TransDigm, the Guarantors and the initial purchasers entered into the
Registration Rights Agreement on December 3, 1998 (the "Issue Date") under the
terms of which each of TransDigm and the Guarantors agreed that they will, at
their expense, for the benefit of holders of the Old Notes (the "Holders");
- within 60 days after the Issue Date (the "Filing Date"), file a
registration statement on an appropriate registration form (the "Exchange
Offer Registration Statement") with respect to a registered offer (the
"Exchange Offer") to exchange the Old Notes for these New Notes,
guaranteed on a senior subordinated basis by the Guarantors, which New
Notes will have terms substantially identical in all material respects to
the Old Notes; and
- cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act within 150 days after the Issue Date. Upon the
Exchange Offer Registration Statement being declared effective, TransDigm
will offer these New Notes in exchange for surrender of the Old Notes.
TransDigm will keep the Exchange Offer open for not less than 30 days
after the date notice of the Exchange Offer is mailed to the Holders. For
each of the Old Notes surrendered to TransDigm in to the Exchange Offer,
the Holder who surrendered that Old Note will receive a New Note having a
principal amount equal to that of the surrendered Old Note. Interest on
each New Note will accrue (1) from the later of (A) the last interest
payment date on which interest was paid on the Old Note surrendered in
exchange for the New Note, or (B) if the Old Note is surrendered for
exchange on a date in a period which includes the record date for an
interest payment date to occur on or after the date of that exchange and
as to which interest will be paid, the date of that interest payment date
or (2) if no interest has been paid on that Old Note, from the Issue Date.
If, (1) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, TransDigm is not permitted to
effect an exchange offer, (2) the Exchange Offer is not consummated by June 6,
1999 or (3) in certain circumstances, certain holders of unregistered Old Notes
so request, or (4) in the case of any Holder that participates in the exchange
offer, that Holder does not receive New Notes on the date of the exchange that
may be sold without restriction under state and federal securities laws, other
than due solely to the status of such Holder as an affiliate of the Company
within the meaning of the Securities Act, then in each case, TransDigm will (A)
promptly deliver to the Holders and the Trustee written notice of that event and
(B) at its sole expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Old Notes (the "Shelf
Registration Statement"); and (b) use its best efforts to keep effective the
Shelf Registration Statement until the earlier of two years after its effective
date or such time as all of the applicable Old Notes have been sold under the
Shelf Registration Statement. TransDigm will, in the event that a Shelf
Registration Statement is filed, provide to each Holder copies of the prospectus
that is a part of the Shelf Registration Statement, notify each such Holder when
the Shelf Registration Statement for the Old Notes has become effective and take
other actions as are required to permit unrestricted resales of the Old Notes. A
Holder that sells Old Notes relying on the Shelf Registration Statement will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to some of the civil
liability provisions under the Securities Act in connection with those sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to that Holder.
If TransDigm fails to comply with the above provisions or if the Exchange
Offer Registration Statement or the Shelf Registration Statement fails to become
effective, then, as liquidated damages,
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additional interest (the "Additional Interest") shall become payable in respect
of the Old Notes as follows:
- if (A) neither the Exchange Offer Registration Statement or Shelf
Registration Statement is filed with the Commission on or prior to the
applicable filing date or (B) notwithstanding that TransDigm has
consummated or will consummate an exchange offer, TransDigm is required to
file a Shelf Registration Statement and that Shelf Registration Statement
is not filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing
dates, Additional Interest shall accrue on the principal amount of the Old
Notes at a rate of 0.50% per year for the first 90 days immediately
following each such filing date, such Additional Interest rate increasing
by an additional 0.50% per year at the beginning of each subsequent 90-day
period; or
- if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 90 days after the applicable filing deadline set for that filing in the
Registration Rights Agreement or (B) notwithstanding that TransDigm has
consummated or will consummate an exchange offer, TransDigm is required to
file a Shelf Registration Statement and such Shelf Registration Statement
is not declared effective by the Commission on or prior to the 90th day
following the filing date deadline set for such filing in the Registration
Rights Agreement, then, commencing on the day after such 90th day
following the filing deadline set for such filing in the Registration
Rights Agreement, Additional Interest shall accrue on the principal amount
of the Old Notes at a rate of 0.50% per year for the first 90 days
immediately following such date, that Additional Interest rate increasing
by an additional 0.50% per year at the beginning of each subsequent 90-day
period; or
- if (A) TransDigm has not exchanged New Notes for all Old Notes validly
tendered in accordance with the terms of the exchange offer on or prior to
the 185th day after the Issue Date or (B) if applicable, the Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of the Issue Date, unless at that time all Old Notes
have been disposed of under the Shelf Registration Statement, then
Additional Interest shall accrue on the principal amount of the Old Notes
at a rate of 0.50% per year for the first 90 days commencing on (x) the
185th day after the Issue Date, in the case of (A) above, or (y) the day
such Shelf Registration Statement ceases to be effective in the case of
(B) above, that Additional Interest rate increasing by an additional 0.50%
per year at the beginning of each subsequent 90-day period;
However, the Additional Interest rate on the Old Notes may not accrue under more
than one of the foregoing clauses at any one time and at no time shall the
aggregate amount of Additional Interest accruing exceed in the aggregate 1.0%
per year; and (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement, (2) upon the effectiveness of the Exchange
Offer Registration Statement or a Shelf Registration Statement, or (3) upon the
exchange of New Notes for all Old Notes tendered, or upon the effectiveness of
the Shelf Registration Statement which had ceased to remain effective.
Additional Interest on the Old Notes as a result of that clause, as the case may
be, shall cease to accrue.
Any amounts of Additional Interest will be payable in cash on the original
interest payment dates for the Old Notes.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons.
Except as described herein under the heading "-Certificated Securities," New
Notes will initially be represented by a permanent global New Note in fully
registered form without interest coupons (the "Global Note") and will be
deposited with the Trustee as custodian for DTC and registered in the name of a
nominee of such depositary.
THE GLOBAL NOTE
TransDigm expects that according to procedures established by DTC (A) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of the individual beneficial interests
represented by the Global Note to the respective accounts of persons who have
accounts with that depositary and (B) ownership of beneficial interests in the
Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee and the records
of participants. Ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the New
Notes, DTC or that nominee, as the case may be, will be considered the sole
owner or holder of the New Notes represented by the Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on, the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner of that Global Note. None of TransDigm, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Note or for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
TransDigm expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. TransDigm also expects that payments
by participants to owners of beneficial interests in the Global Note held
through those participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Those payments
will be the responsibility of those participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell New Notes to persons in
states that require physical delivery of the New Notes, or to pledge such
securities, that holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised TransDigm that it will take any action permitted to be taken
by a holder of New Notes, including the presentation of New Notes for exchange
as described below, only at the direction of one or more participants to whose
accounts the DTC interests in the Global Note are credited and only in respect
of that portion of the aggregate principal amount of New Notes as to which that
participant or those participants has or have given that direction. However, if
there is an Event of
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Default under the Indenture applicable to the Global Note, DTC will exchange the
Global Note for Certificated Securities, which it will distribute to its
participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform those procedures and those procedures may be
discontinued at any time. Neither TransDigm nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
Certificated securities shall be issued in exchange for the Old Notes in the
Exchange Offer or for beneficial interest in the Global Note, in each case, if
requested by a Holder of such Old Note or such beneficial interests,
respectively. In addition, certificated securities shall be issued in exchange
for beneficial interests in the Global Note if DTC is at any time unwilling or
unable to continue as a depositary for the Global Note and a successor
depositary is not appointed by TransDigm within 90 days.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material U.S. federal income
tax aspects of the exchange offer to holders of the Old Notes. This discussion
is summary for general information only and does not consider all aspects of the
Old Notes in light of such holder's personal circumstances. This discussion also
does not address the U.S. federal income tax consequences to holders subject to
special treatment under the U.S. federal income tax laws, such as dealers in
securities, or foreign currency, tax-exempt entities, banks, thrifts, insurance
companies, persons that hold the Old Notes as part of a "straddle", a "hedge"
against currency risk or a "conversion transaction"; persons that have a
"functional currency" other than the U.S. dollar, and investors in pass-through
entities. In addition, this discussion does not prescribe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing and presupposed regulations
thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decision now in effect, all of which are subject to change, possibly on
a retroactive basis. TransDigm has not and will not seek any rulings or opinions
from the IRS or counsel with respect to the matters discussed below. There can
be no assurance that the IRS will not take positions concerning the tax
consequences of the exchange offer which are difference from those discussed
herein.
HOLDERS OF THE OLD NOTES SHOULD CONSULT THEIR OWN ADVISORS CONCERNING THE
APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE,
LOCAL OR FOREIGN JURISDICTION, TO THE EXCHANGE OFFER IN LIGHT OF THEIR
PARTICULAR SITUATIONS.
The exchange of Old Notes for New Notes under the terms of the exchange
offer should not constitute a taxable exchange. As a result, a holder (A) should
not recognize taxable gains of loss as a result of exchanging Old Notes for New
Notes under the terms of the exchange offer, (B) the holding period of the New
Notes should include the holding period of the Old Notes exchanged for the New
Notes and (C) the adjusted tax basis of the New Notes should be the same as the
adjusted tax basis, immediately before the exchange of the Old Notes exchange
for the New Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus together with
any resale of those New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in the resales of
New Notes received in exchange for Old Notes where those Old Notes were acquired
as a result of market-making activities or other trading activities. TransDigm
has agreed that for a period of up to 180 days after the Expiration Date, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer that requests it in the letter of transmittal for use in any such
resale.
TransDigm and the Guarantors will not receive any proceeds from any sale of
New Notes by broker-dealers or any other persons. New Notes received by
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of those New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
TransDigm has agreed to pay all expenses incident to TransDigm's performance
of, or compliance with, the Registration Rights Agreement and will indemnify the
holders of Old Notes including any broker-dealers, and certain parties related
to such holders, against certain types of liabilities, including liabilities
under the Securities Act.
EXPERTS
The consolidated financial statements of TransDigm Holding Company as of
September 30, 1998 and 1997, and for each of the three years in the period ended
September 30, 1998, included in this Prospectus and the related financial
statement schedule included elsewhere in the Registration Statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the Registration Statement, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Marathon Power Technologies Company
as of December 31, 1996 and 1995 and for each of the two years in the period
ended December 31, 1996 included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for
TransDigm by Latham & Watkins, New York, New York.
112
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TRANSDIGM HOLDING COMPANY
Report of Deloitte & Touche LLP, Independent Auditors................................ F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997........................ F-3
Consolidated Statements of Income and Retained Earnings (Deficit) for each of the
three years in the period ended September 30, 1998................................. F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1998................................................................. F-5
Notes to Consolidated Financial Statements for each of the three years in the period
ended September 30, 1998........................................................... F-6
Unaudited Consolidated Balance Sheet as of January 1, 1999........................... F-19
Unaudited Consolidated Statements of Operations for the thirteen weeks ended January
1, 1999 and December 26, 1997...................................................... F-20
Unaudited Consolidated Statement of Changes in Stockholders Equity for the thirteen
weeks ended January 1, 1999........................................................ F-21
Unaudited Consolidated Statements of Cash Flows for the thirteen weeks ended January
1, 1999 and December 26, 1997...................................................... F-22
Notes to Unaudited Consolidated Financial Statements for the thirteen weeks ended
January 1, 1999 and December 26, 1997.............................................. F-23
MARATHON POWER TECHNOLOGIES COMPANY
Report of PricewaterhouseCoopers LLP, Independent Accountants........................ F-26
Consolidated Balance Sheets as of December 31, 1996 and 1995......................... F-27
Consolidated Statements of Operations and Retained Earnings for each of the two years
in the period ended December 31, 1996.............................................. F-28
Consolidated Statements of Cash Flows for each of the two years in the period ended
December 31, 1996.................................................................. F-29
Notes to Consolidated Financial Statements for each of the two years in the period
ended December 31, 1996............................................................ F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TransDigm Holding Company
We have audited the accompanying consolidated balance sheets of TransDigm
Holding Company and its subsidiaries (the "Company") as of September 30, 1998
and 1997, and the related consolidated statements of income and retained
earnings (deficit) and of cash flows for each of the three years in the period
ended September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of TransDigm Holding Company and
its subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 17 to the consolidated financial statements, in 1998,
the Company retroactively changed its method of accounting for put warrants.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 9, 1998 (except for Note 18 for which the date is December 3, 1998)
F-2
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS (NOTE 9)
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 19,486 $ 5,397
Accounts receivable--Net (Note 4)....................................................... 12,530 12,475
Inventories (Note 5).................................................................... 18,280 17,410
Deferred income taxes (Note 11)......................................................... 3,799 3,902
Prepaid expenses and other.............................................................. 165 313
---------- ----------
Total current assets................................................................ 54,260 39,497
PROPERTY, PLANT AND EQUIPMENT--Net (Note 6)............................................... 21,951 21,022
INTANGIBLE ASSETS--Net (Note 7)........................................................... 35,294 37,508
DEBT ISSUE COSTS--Net..................................................................... 606 873
DEFERRED INCOME TAXES (Note 11)........................................................... 3,674 3,069
---------- ----------
TOTAL..................................................................................... $ 115,785 $ 101,969
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 9).............................................. $ 5,000 $ 5,000
Accounts payable........................................................................ 5,667 5,275
Accrued liabilities (Note 8)............................................................ 10,239 12,702
Put warrants (Notes 9 and 17)........................................................... 16,700 --
---------- ----------
Total current liabilities........................................................... 37,606 22,977
LONG-TERM DEBT--Less current portion (Note 9)............................................. 40,000 45,000
PUT WARRANTS (Notes 9 and 17)............................................................. -- 10,160
NON-CURRENT PORTION OF ACCRUED PENSION COSTS (Note 10).................................... 1,752 1,219
---------- ----------
Total liabilities................................................................... 79,358 79,356
---------- ----------
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY:
Capital stock (Note 12)................................................................. 24,281 24,352
Retained earnings (deficit)............................................................. 12,900 (1,237)
Minimum pension liability adjustment (Note 10).......................................... (754) (502)
---------- ----------
Total stockholders' equity.......................................................... 36,427 22,613
---------- ----------
TOTAL..................................................................................... $ 115,785 $ 101,969
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
NET SALES (Note 4).............................................................. $ 110,868 $ 78,159 $ 62,897
COST OF SALES (Including charge of $242 in 1998 and $666 in 1997 due to
inventory purchase accounting adjustment) (Note 2)............................ 59,395 49,303 41,874
---------- --------- ---------
GROSS PROFIT.................................................................... 51,473 28,856 21,023
---------- --------- ---------
OPERATING EXPENSES:
Selling and administrative.................................................... 10,473 7,561 6,459
Amortization of intangibles................................................... 2,438 2,089 3,838
Research and development...................................................... 1,724 1,116 836
---------- --------- ---------
Total operating expenses.................................................. 14,635 10,766 11,133
---------- --------- ---------
INCOME FROM OPERATIONS.......................................................... 36,838 18,090 9,890
INTEREST EXPENSE--NET........................................................... 3,175 3,463 4,510
WARRANT PUT VALUE ADJUSTMENT (Note 17).......................................... 6,540 4,800 2,160
---------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS............................... 27,123 9,827 3,220
INCOME TAX PROVISION (Note 11).................................................. 12,986 5,193 2,045
---------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS................................................ 14,137 4,634 1,175
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $975
(Note 9)...................................................................... -- 1,462 --
---------- --------- ---------
NET INCOME...................................................................... 14,137 3,172 1,175
---------- --------- ---------
RETAINED EARNINGS (DEFICIT) BEGINNING OF YEAR:
As previously reported........................................................ -- (1,985) (4,537)
Accounting change (Note 17)................................................... -- (2,424) (1,047)
---------- --------- ---------
As restated................................................................... (1,237) (4,409) (5,584)
---------- --------- ---------
RETAINED EARNINGS (DEFICIT), END OF YEAR........................................ $ 12,900 $ (1,237) $ (4,409)
---------- --------- ---------
---------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
OPERATING ACTIVITIES:
Net income.................................................................. $ 14,137 $ 3,172 $ 1,175
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 4,029 3,677 3,485
Amortization of intangibles............................................... 2,438 2,089 3,838
Amortization of debt discount and debt issue costs........................ 267 757 1,267
Warrant put value adjustment.............................................. 6,540 4,800 2,160
Deferred income taxes..................................................... (341) (1,733) 839
Extraordinary charge for early extinguishment of debt (Note 9)............ -- 1,462 --
Changes in assets and liabilities, net of effects from acquisition of
business (Note 2):
Accounts receivable..................................................... (821) (1,343) 2,790
Inventories............................................................. (870) 337 1,794
Prepaid expenses and other assets....................................... 148 787 (361)
Accounts payable........................................................ 392 1,233 1,224
Accrued and other liabilities........................................... (2,464) 2,230 484
---------- ---------- ----------
Net cash provided by operating activities................................. 23,455 17,468 18,695
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures........................................................ (5,061) (2,285) (2,494)
Acquisition of Marathon Power Technologies Company, net of cash acquired of
$748 (Note 2)............................................................. 766 (40,875) --
---------- ---------- ----------
Net cash used in investing activities....................................... (4,295) (43,160) (2,494)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from term loan net of fees of $873................................. -- 49,127 --
Net repayments under revolving credit loans................................. -- -- (6,690)
Repayment of term and subordinated notes including prepayment charge of $867
in 1997 (Note 9).......................................................... (5,000) (20,867) (6,500)
Proceeds from issuance of capital stock..................................... -- 67 115
Purchase of capital stock................................................... (71) (174) (400)
---------- ---------- ----------
Net cash provided by (used in) financing activities......................... (5,071) 28,153 (13,475)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 14,089 2,461 2,726
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 5,397 2,936 210
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 19,486 $ 5,397 $ 2,936
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest...................................... $ 3,640 $ 2,600 $ 3,483
---------- ---------- ----------
---------- ---------- ----------
Cash paid during the year for income taxes.................................. $ 13,490 $ 5,468 $ 700
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holding Company ("Holding") through its wholly-owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary
mechanical components servicing the aircraft, mining, marine and other
manufacturing industries. TransDigm along with its wholly-owned subsidiary,
Marathon Power Technologies Company ("Marathon"), offers a broad line of
component products including tube connectors, valves, batteries, static
inverters, pumps, quick disconnects, clamps and ball bearing and sliding
controls. Holding has no operations, liabilities or assets except for its
investment in TransDigm.
On August 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity formed
by affiliates of Odyssey Investment Partners, LP ("Odyssey") and Holding entered
into a definitive agreement and plan of merger which agreement was amended on
November 9, 1998 (the "Merger Agreement" or the "Merger"). Pursuant to the terms
of the Merger, Acquiror will be merged with and into Holding, with Holding being
the surviving corporation in the Merger (the "Surviving Corporation"). In the
Merger, holders of Holding's outstanding common stock will be entitled to
receive, in exchange for each outstanding share of common stock (except for
shares held directly or indirectly by Holding or the Rolled Shares, as defined
below) the "Per Share Merger Consideration" as defined in the Merger Agreement.
The aggregate consideration payable pursuant to the Merger, including amounts
payable to holders of options and warrants, is expected to be approximately
$299.7 million.
In connection with the Merger, Kelso Investment Associates IV, LP and Kelso
Equity Partners II, LP (collectively "Kelso") will retain approximately 15.4% of
the Surviving Corporation's outstanding common stock (the "Rolled Shares")
subject to adjustment for certain transactions prior to closing. In addition,
certain members of management of Holding agreed, in connection with and as a
condition to entering into the Merger Agreement, to rollover stock options with
an estimated gross and net value of approximately $17.2 million and $13.7
million, respectively.
The Merger is intended to be treated as a recapitalization for financial
reporting purposes which will have no impact on the historical basis of
Holding's consolidated assets and liabilities. The Merger is subject to
customary closing conditions, including the termination or expiration of the
relevant waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended, Holding having a minimum consolidated net worth, as defined,
at closing of not less than $52 million and funding of committed financing.
Odyssey has received financing commitments for the transactions from Bankers
Trust Corporation, whose commitments are subject to certain conditions.
Simultaneously with the Merger, Holding and TransDigm will refinance all of
its existing debt (Note 9). The Merger, the refinancing, and payment of fees and
expenses are expected to be funded by (i) existing cash balances, (ii)
investments by Odyssey of $100.2 million, (iii) funds from a new $120 million
Senior Credit Facility, (iv) funds from $125 million senior subordinated notes
and (v) Holding PIK notes and additional common stock of $20 million issued to
certain stockholders. After consummation of the Merger, Holding anticipates that
it will have approximately $27.0 million available for working capital, certain
permitted acquisitions and for general corporate purposes under the new Senior
Credit Facility.
Upon consummation of the Merger, Odyssey and its co-investors will own
approximately 73.7% of the Surviving Corporation's common stock and Kelso and
other continuing stockholders will own approximately 26.3% of the outstanding
shares of Holdings' common stock on a fully diluted basis.
F-6
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND MERGER (CONTINUED)
During each of the years ended September 30, 1998, 1997 and 1996, TransDigm
paid Kelso a management fee of approximately $0.1 million.
2. ACQUISITION
On August 8, 1997, TransDigm acquired all of the outstanding common stock of
Marathon for approximately $41.6 million in cash (including acquisition
expenses), $4 million of which was placed into two $2 million escrow accounts
(an environmental escrow and an indemnity escrow) to indemnify TransDigm in the
event certain defined environmental and other costs were incurred by Marathon or
TransDigm subsequent to the acquisition. At September 30, 1997, a post-closing
purchase price adjustment of approximately $.8 million was due from the seller
(see Note 4), which was received during November 1997 from the indemnity escrow.
The remainder of the indemnity escrow was released to the seller during the year
ended September 30, 1998. The environmental escrow account expires after the
occurrence of certain defined events in the Stock Purchase Agreement. During
September 1998, the seller filed a lawsuit against the Company to release the
environmental escrow alleging that the Company had violated the requirements of
the Stock Purchase Agreement relating to the investigation of the presence of
certain contaminants at the Marathon facility in Texas (Note 15). The Company
has filed counter claims against the seller and the ultimate outcome of this
matter cannot presently be determined.
The acquisition has been accounted for as a purchase. Accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based upon their estimated fair value at the date of acquisition, as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets..................................................... $ 8,176
Property and equipment............................................. 9,519
Intangible and other assets........................................ 28,859
Current liabilities................................................ (4,308)
Other liabilities.................................................. (1,389)
---------
Net............................................................ $ 40,857
---------
---------
</TABLE>
The acquisition was financed with available cash of approximately $10.9
million and the proceeds of senior term debt of approximately $30 million. The
excess of the aggregate purchase price over the fair market value of net assets
acquired of approximately $28.9 million was recognized as goodwill.
F-7
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
2. ACQUISITION (CONTINUED)
Marathon's results of operations have been included in Holdings' financial
statements since the date of the acquisition. The following table summarizes the
unaudited consolidated pro forma results of operations, as if the acquisition
had occurred at the beginning of the following periods:
<TABLE>
<CAPTION>
UNAUDITED
<S> <C> <C>
YEAR ENDED SEPTEMBER
30,
--------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Net sales............................................................... $ 96,075 $ 82,425
Income before income taxes and extraordinary items...................... 11,220 9,190
Net income.............................................................. 3,894 1,522
</TABLE>
Pro forma net income for the year ended September 30, 1997 includes an
extraordinary loss from extinguishment of debt (net of income taxes of $975) of
$1,462. Pro forma net income for the year ended September 30, 1996 includes an
extraordinary gain from Marathon's extinguishment of debt (net of income taxes
of $135) of $230.
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the operations had been combined
during the periods presented and is not intended to be a projection of future
results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION--The accompanying consolidated financial statements include
the accounts of TransDigm Holding Company and subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated. Because TransDigm Holding Company has no operations of its own and,
prior to the Recapitalization, had no assets or liabilities other than its
equity interest in TransDigm, the consolidated financial statements of TransDigm
Holding Company for the three year period ended September 30, 1998 are identical
to the historical consolidated financial statements of TransDigm.
REVENUE RECOGNITION--Revenue is recognized when products are shipped to the
customer. Any anticipated losses on contracts are charged to earnings when
identified.
CASH EQUIVALENTS--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS--The Company reserves for amounts
determined to be uncollectible based on specific identification and historical
experience.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost of
inventories is determined by the average cost and the first-in, first-out (FIFO)
methods. In accordance with industry practice, all inventories are classified as
current assets even though a portion of the inventories is not expected to be
realized within one year.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method at rates based on
the estimated useful lives of the assets.
F-8
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUE COSTS AND DISCOUNTS--The cost of obtaining financing for the
acquisition as well as debt discounts are amortized using the interest method
over the respective terms of the related debt issues.
INTANGIBLE ASSETS--Intangible assets are amortized on a straight-line basis
over their respective estimated useful lives ranging from 2 to 40 years. The
Company assesses the recoverability of intangibles by determining whether the
amortization over the remaining life can be recovered through projected
undiscounted cash flows from future operations.
INCOME TAXES--The Company accounts for income taxes using an asset and
liability approach. Deferred taxes are recorded for the difference between the
book and tax basis of various assets and liabilities.
PRODUCT WARRANTY COSTS--The Company provides a one year warranty on certain
products beginning on the date the product is installed on an aircraft. A
provision for estimated sales returns and the cost of repairs is recorded at the
time of sale and periodically adjusted to reflect actual experience.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. ACCOUNTS RECEIVABLE, MAJOR CUSTOMERS AND EXPORT SALES
Accounts receivable consist of the following at September 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Due from U.S. government or prime contractors under
U.S. government programs.............................................. $ 1,217 $ 773
Commercial customers.................................................... 11,578 11,439
Marathon post-closing purchase price adjustment (Note 2)................ -- 766
Allowance for uncollectible amounts..................................... (265) (503)
--------- ---------
Accounts receivable--net................................................ $ 12,530 $ 12,475
--------- ---------
--------- ---------
</TABLE>
The Company's sales and receivables are concentrated in the aircraft
industry. The Company's customers consist primarily of original equipment
manufacturers of aircraft and aircraft subassemblies, commercial airlines,
distributors, and various agencies of the United States government, including
the U.S. military.
For the year ended September 30, 1998, two customers represented
approximately 20% and 14%, respectively, of the Company's net sales. One
customer represented approximately 15% of the Company's net sales during the
year ended September 30, 1997 and a group of related customers represented
approximately 11% of the Company's net sales for the year ended September 30,
1996.
Export sales to customers, primarily in Western Europe, were $17.8 million
in 1998, $15.5 million in 1997 and $12.3 million in 1996.
F-9
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
4. ACCOUNTS RECEIVABLE, MAJOR CUSTOMERS AND EXPORT SALES (CONTINUED)
Approximately 9.6% of the Company's receivables at September 30, 1998 were
due from one customer and approximately 14.5% of the receivables were due from
entities which principally operate outside of the United States. Credit is
extended based on an evaluation of the customer's financial condition and
collateral is generally not required.
5. INVENTORIES
Inventories consist of the following at September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Work-in-progress and finished goods............................................... $ 10,577 $ 14,913
Raw materials and purchased component parts....................................... 12,038 6,268
--------- ---------
Total........................................................................... 22,615 21,181
Reserve for excess and obsolete inventory......................................... (4,335) (3,771)
--------- ---------
Inventories--net.................................................................. $ 18,280 $ 17,410
--------- ---------
--------- ---------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30
(dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and improvements........................................................... $ 4,683 $ 4,667
Buildings and improvements...................................................... 8,125 7,575
Machinery and equipment......................................................... 26,198 21,977
Construction in progress........................................................ 150 265
---------- ----------
Total......................................................................... 39,156 34,484
Accumulated depreciation........................................................ (17,205) (13,462)
---------- ----------
Property, plant and equipment--net.............................................. $ 21,951 $ 21,022
---------- ----------
---------- ----------
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the following
at September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Goodwill.................................................................................... $ 33,341 $ 34,155
Technology and other........................................................................ 1,953 3,353
--------- ---------
Total....................................................................................... $ 35,294 $ 37,508
--------- ---------
--------- ---------
</TABLE>
Accumulated amortization of intangibles was $16.5 million at September 30,
1998 and $14 million at September 30, 1997.
F-10
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Compensation and related benefits....................................... $ 3,993 $ 4,025
Estimated losses on uncompleted contracts............................... 3,012 3,733
Sales returns and repairs............................................... 1,391 1,797
Environmental costs..................................................... 280 683
Income taxes............................................................ 380 266
Interest................................................................ 135 350
Other................................................................... 1,048 1,848
--------- ---------
Total................................................................... $ 10,239 $ 12,702
--------- ---------
--------- ---------
</TABLE>
9. DEBT
SUMMARY--The Company's long-term debt consists of the following at September
30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Term loans.............................................................. $ 45,000 $ 50,000
Current maturities...................................................... (5,000) (5,000)
--------- ---------
Long-term portion....................................................... $ 40,000 $ 45,000
--------- ---------
--------- ---------
</TABLE>
REVOLVING CREDIT, SWING LINE, AND TERM LOANS--During the year ended
September 30, 1997, the Company obtained a new $70 million credit facility with
a group of financial institutions which consist of a $20 million revolving
credit line (including $1 million of available swing line loans) and $50 million
of term loans. At September 30, 1998, the Company had $20 million of borrowings
(the entire revolving credit line) available under the credit facility. Any
amounts borrowed under the revolving credit and swing line loans mature in the
year 2003 and amounts borrowed under the term loans mature on various dates
through the year 2003.
Borrowings under the credit facility bear interest at the Company's option
of (1) the Alternate Base Rate plus .25% or (2) the LIBO rate for Eurodollar
loans plus 1.25%, payable quarterly. The Alternate Base Rate is equal to the
highest of (a) the Prime Rate, (b) the Base CD Rate plus 1% or (c) the Federal
Funds Effective Rate plus .5%. The interest rate on outstanding borrowings at
September 30, 1998 was approximately 6.9%.
Any amounts borrowed under the credit facility are collateralized by
substantially all of the tangible assets of the Company. The agreement also
contains a number of restrictive covenants that, among other things, limit the
ability of the Company to incur indebtedness, pay dividends, engage in mergers
and consolidations, engage in transactions with affiliates, make capital
expenditures, engage in sales of assets or the stock of a subsidiary company and
make certain investments. The agreement also requires the maintenance of a
minimum net worth as well as debt to adjusted earnings, interest coverage, and
other ratios. The Company is in compliance with all financial covenants of the
credit facility as of September 30, 1998.
F-11
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
9. DEBT (CONTINUED)
The maturities of the Company's term loans are as follows: 1999--$5 million;
2000 through 2003-- $10 million each year.
SUBORDINATED NOTES--During the year ended September 30, 1997, the Company
redeemed, in advance of their scheduled maturity, outstanding subordinated notes
which had a carrying value at the time of the redemption of approximately $19.3
million ($20 million principal balance net of an unamortized discount of
approximately $.7 million). As a result of the redemption, the Company
recognized an extraordinary loss of approximately $1.5 million (net of a current
income tax benefit of approximately $1 million) on the early extinguishment of
debt which included prepayment costs of approximately $.8 million and the
write-off of the remaining unamortized debt issue costs of approximately $1
million. The subordinated notes bore interest at an annual rate of 13%, payable
semi-annually.
The subordinated notes included detachable warrants to purchase
approximately 16,000 shares of non-voting common stock of TransDigm Holding
Company at a price of $.10 per share which were not affected by the redemption
of the subordinated notes. The warrants are not exercisable except in connection
with the following triggering events: public offering of TransDigm Holding
Company's common stock, a business combination in which the Company is not the
surviving entity, and a change of control (see Note 1). If no transaction
constituting a triggering event is consummated prior to July 31, 1999, warrant
holders have the right to exercise a put option requiring the Company to
repurchase all of the warrants at their then appraised fair market value. If the
warrant holders have not exercised their put option prior to September 30, 2001,
then TransDigm Holding Company will have the right to call the warrants at their
then appraised fair market value.
10. RETIREMENT PLANS
The Company has two non-contributory, defined benefit pension plans which
together cover all of its union employees. The plans provide benefits of stated
amounts for each year of service. The Company's funding policy is to contribute
actuarially determined amounts allowable under Internal Revenue Service
regulations. The plans' assets consist primarily of guaranteed investment
contracts with an insurance company.
Net periodic pension cost of the defined benefit plans consists of the
following for the years ended September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the period..................... $ 86 $ 74 $ 72
Interest cost on projected benefit obligation....................... 306 288 262
Actual return on plan assets........................................ (190) (136) (130)
Net amortization and deferral....................................... 94 101 28
--------- --------- ---------
Net periodic pension cost........................................... $ 296 $ 327 $ 232
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
10. RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets at September 30 (dollars
in thousands).
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation, substantially
all vested............................................................... $ 4,969 $ 4,096
Plan assets at fair value.................................................. 2,817 2,232
--------- ---------
Projected benefit obligation in excess of plan assets...................... 2,152 1,864
Unrecognized net loss from past experience different from that assumed..... (1,196) (791)
Unamortized prior service cost............................................. (226) (98)
Adjustment required to recognize additional minimum liability.............. 1,422 889
--------- ---------
Accrued pension cost recognized in the consolidated balance sheets (current
and long-term portions).................................................. $ 2,152 $ 1,864
--------- ---------
--------- ---------
</TABLE>
The assumptions used to determine net periodic pension cost as well as the
funded status are:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Discount rate................................................................... 6.5% 7.5%
Long-term rate of return on plan assets......................................... 7.5% 7.5%
</TABLE>
The provisions of Financial Accounting Standards Board Statement No. 87,
"Employers' Accounting for Pensions" require recognition in the balance sheet of
an additional minimum liability and related intangible asset (limited by the
amount of unamortized prior service cost) for pension plans with accumulated
benefits in excess of plan assets. At September 30, 1998 and 1997, an additional
liability of $1.4 million and $.9 million, respectively, is reflected in the
consolidated balance sheets. At September 30, 1998 and 1997, the liability
exceeded the unrecognized prior service cost resulting in a charge to
stockholders' equity, net of taxes, of $.8 million and $.5 million,
respectively.
The Company also sponsors a defined contribution employee savings plan which
covers substantially all of the Company's non-union employees. Under the plan,
the Company contributes a percentage of employee compensation and matches a
portion of employee contributions to the plan. The cost recognized for such
contributions under this plan for the years ended September 30, 1998, 1997 and
1996 was approximately $.6 million in all years.
F-13
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current......................................................... $ 13,327 $ 6,926 $ 2,897
Deferred........................................................ (341) (1,733) 839
Benefit of operating loss carryforward.......................... -- -- (1,691)
--------- --------- ---------
Total........................................................... $ 12,986 $ 5,193 $ 2,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the provision for income taxes at the federal
statutory income tax rate and the tax shown in the consolidated statements of
income and retained earnings (deficit) for the years ended September 30 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate of 35% (34% in 1997 and 1996)............. $ 9,493 $ 3,341 $ 1,095
State and local income taxes.................................... 1,053 445 160
Nondeductible warrant put value adjustment...................... 2,289 1,632 734
Benefit from foreign sales corporation.......................... (349) (394) --
Nondeductible goodwill amortization............................. 353 70 --
Other--net...................................................... 147 99 56
--------- --------- ---------
Provision for income taxes...................................... $ 12,986 $ 5,193 $ 2,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the deferred tax assets at September 30 consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSET:
Estimated losses on uncompleted contracts.................................. $ 1,175 $ 1,300
Employee benefits.......................................................... 649 743
Sales returns and repairs.................................................. 548 541
Other accrued liabilities.................................................. 1,427 1,318
--------- ---------
Total...................................................................... $ 3,799 $ 3,902
--------- ---------
--------- ---------
NON-CURRENT ASSET:
Intangible assets.......................................................... $ 3,724 $ 3,638
Retirement obligations..................................................... 596 401
Property, plant and equipment.............................................. (646) (970)
--------- ---------
Total...................................................................... $ 3,674 $ 3,069
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
12. STOCKHOLDERS' EQUITY
CAPITAL STOCK--Authorized capital stock of the Company consists of 900,000
shares of common stock (voting), par value $.01 per share and 100,000 shares of
Class A (non-voting) common stock. At September 30, 1998, outstanding common
shares were 236,120 of voting common stock and 13,750 of Class A non-voting
common stock. There was no change in the number of outstanding Class A
non-voting shares during the years ended September 30, 1998, 1997 and 1996.
During the years ended September 30, 1998, 1997, and 1996, the Company
issued voting common shares, principally to employees and members of its board
of directors, as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ---------
<S> <C> <C> <C>
Number of shares........................................................ -- 200 575
--- --- ---------
--- --- ---------
Proceeds................................................................ -- $ 67 $ 115
--- --- ---------
--- --- ---------
</TABLE>
During the years ended September 30, 1998, 1997, and 1996, the Company also
repurchased certain voting common shares, principally from terminated employees,
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- --------- ---------
<S> <C> <C> <C>
Number of shares....................................................... 175 410 1,085
--- --------- ---------
--- --------- ---------
Acquisition cost....................................................... $ 71 $ 174 $ 400
--- --------- ---------
--- --------- ---------
</TABLE>
STOCK OPTIONS--The Company has certain stock option plans for its employees.
The options generally vest upon the earlier of: (1) the occurrence of certain
events such as the achievement of certain earnings targets or a change in the
control of the Company or (2) certain specified dates in the option agreements.
A summary of the status of the Company's stock option plans as of September 30,
1998, 1997 and 1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ ------------------------------ ---------
<S> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
--------- ------------------- --------- ------------------- ---------
Outstanding at beginning of year....... 37,467 $ 158 31,150 $ 116 36,700
Granted................................ -- -- 7,597 324 4,900
Exercised.............................. -- -- (220) 145 (5,090)
Forfeited.............................. -- -- (1,060) 147 (5,360)
--------- --------- ---------
Outstanding at end of year............. 37,467 158 37,467 158 31,150
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year............. 19,670 113 17,121 110 14,792
--------- --------- ---------
--------- --------- ---------
<CAPTION>
<S> <C>
WEIGHTED-AVERAGE
EXERCISE PRICE
-------------------
Outstanding at beginning of year....... $ 105
Granted................................ 200
Exercised.............................. 100
Forfeited.............................. 100
Outstanding at end of year............. 116
Exercisable at end of year............. 106
</TABLE>
F-15
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
12. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
<S> <C> <C> <C>
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- ------------------------------------------------- ----------- --------------------- -----------
$100............................................. 25,170 5.8 17,020
154............................................. 400 6.8 200
200............................................. 4,900 7.5 2,450
335............................................. 6,997 8.5
----------- -----------
37,467 19,670
----------- -----------
----------- -----------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. No compensation cost
has been recognized for its stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method specified in
Statement of Financial Accounting Standards No. 123, the Company's net income
for the years ended September 30, 1998 and 1997 would have been reduced by
approximately $115,000 in both years.
The weighted average fair value of options granted during fiscal 1997 and
1996 was $950,000 and $340,000, respectively. The fair value of the options
granted was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants in both fiscal
1997 and 1996: risk-free interest rates ranging from 6.25% to 6.85%, expected
life of seven years, expected volatility and dividend yield of 0%.
13. LEASES
TransDigm leases office space for its corporate headquarters and one of its
divisions. The lease requires rental payments of approximately $200,000 per year
through the initial term of the lease, which expires in 1999. TransDigm may also
be required to share in the operating costs of the facility under certain
conditions. TransDigm has the option to renew the lease for an additional five
years beyond the expiration of the initial lease term. TransDigm also has
commitments under operating leases for vehicles and equipment. Rental expense
was $599,000 in 1998, $540,000 in 1997, and $570,000 in 1996. Future, minimum
rental commitments at September 30, 1998 under operating leases having initial
or remaining non-cancelable lease terms exceeding one year are $383,000 in 1999,
$166,000 in 2000, $79,000 in 2001, and $29,000 in 2002.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable and payable, and accrued liabilities approximate their fair value due
to the short-term maturities of these assets and liabilities. The Company also
believes that the aggregate fair value of its term loans approximates its
carrying amount because the interest rates on the debt are reset on a frequent
basis to reflect current market rates.
F-16
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
15. CONTINGENCIES
ENVIRONMENTAL--The soil and groundwater beneath the Company's facility in
Waco, Texas have been impacted by releases of hazardous materials. The resulting
contaminants of concern have been delineated and characterized. Because the
majority of these contaminants are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission ("TNRCC"), and because an
escrow (Note 2) was previously funded to cover the cost of remediation that
TNRCC might require for those contaminants currently in excess of action limits,
management does not believe the condition of the soil and groundwater at the
Waco facility will require incurrence of material expenditures.
OTHER--While the Company is currently involved in certain legal proceedings,
management believes the results of these proceedings will not have a material
effect on the financial condition, results of operations or cash flows of the
Company. During the ordinary course of business, the Company is from time to
time threatened with, or may become a party to, legal actions and other
proceedings. The Company believes that its potential exposure to such legal
actions is adequately covered by its aviation product and general liability
insurance.
16. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company's other comprehensive
income consists of the minimum pension liability adjustment. If the Company had
adopted SFAS No. 130, comprehensive income would have been reduced by $252,000,
$122,000, and $177,000 in 1998, 1997, and 1996, respectively. The Company will
adopt this standard during fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. The Company will adopt this standard during fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employer's Disclosures about Pensions and Other Postretirement Benefits."
The statement requires an enterprise to disclose certain information about its
pension and postretirement benefits, including a reconciliation of beginning and
ending balances of the benefit obligation, the funded status of the plans, and
the amount of net periodic benefit cost recognized. The Company will adopt this
standard during fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a
F-17
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
16. NEW ACCOUNTING STANDARDS (CONTINUED)
hedge of the exposure to variable cash flows of a forecasted transaction, or (c)
a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The Company will adopt this
standard during fiscal 2000.
While management has not completed its analysis of these new accounting
standards, the adoption of these standards is not expected to have a material
effect on the Company's financial statements.
17. ACCOUNTING CHANGE
In connection with the planned registration of the Senior Subordinated Notes
described in Note 1 with the Securities and Exchange Commission ("Commission"),
the Company has retroactively adopted a new method of accounting for the put
warrants issued in 1993 (see Note 9). The Company adopted the new method to
comply with the requirements of the Commission for put warrants. Under the new
method of accounting, the Company has recorded a liability for the estimated put
value of the warrants and is recognizing changes in the estimated put value in
earnings. Previously, the Company recognized the warrants as a component of
stockholders' equity and adjusted the carrying value of the warrants on a
straight-line basis for the difference between their original recorded amount of
$1.6 million and their estimated put value in July 1999, with an offsetting
charge to the Company's retained earnings (deficit). The Company has restated
its 1997 and 1996 consolidated financial statements for this change in
accordance with the provisions of Accounting Principles Board Opinion No. 20,
"Accounting Changes." The significant effects of the change in accounting on the
Company's consolidated statements of income and retained earnings (deficit) are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
As previously reported:
Income before extraordinary loss......................................... $ 9,434 $ 3,335
Net income............................................................... 7,972 3,335
As restated:
Income before extraordinary loss......................................... 4,634 1,175
Net income............................................................... 3,172 1,175
</TABLE>
Because the Merger described in Note 1 constitutes a "triggering event"
pursuant to the terms of the warrants, the warrant holders will be permitted to
exercise their put option in connection with the closing of the transaction.
Accordingly, the Company has adjusted the carrying value of the warrants in the
accompanying September 30, 1998 consolidated balance sheet to their estimated
fair value.
18. SUBSEQUENT EVENT
The Merger described in Note 1 was completed on December 3, 1998.
* * * * * * *
F-18
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
JANUARY 1,
1999
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................................... $ 2,103
Accounts receivable, net........................................................................... 14,403
Inventories........................................................................................ 18,180
Refundable income taxes............................................................................ 7,692
Deferred income taxes and other.................................................................... 3,992
-----------
Total current assets........................................................................... 46,370
PROPERTY, PLANT AND EQUIPMENT--Net................................................................... 21,709
INTANGIBLE ASSETS--Net............................................................................... 34,649
DEBT ISSUE COSTS--Net................................................................................ 11,101
-----------
DEFERRED INCOME TAXES AND OTHER...................................................................... 4,332
-----------
-----------
TOTAL................................................................................................ $ 118,161
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................................................. $ 4,700
Accounts payable................................................................................... 5,554
Accrued liabilities................................................................................ 9,362
-----------
Total current liabilities...................................................................... 19,616
LONG-TERM DEBT--Less current portion................................................................. 231,500
OTHER LIABILITIES.................................................................................... 2,410
-----------
Total liabilities.............................................................................. 253,526
-----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK.............................................................................. 800
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
Capital stock...................................................................................... 100,624
Retained earnings (deficit)........................................................................ (236,035)
Accumulated other comprehensive income............................................................. (754)
-----------
Total stockholders' equity (deficit)........................................................... (136,165)
-----------
TOTAL................................................................................................ $ 118,161
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------
<S> <C> <C>
JANUARY 1, DECEMBER 26,
1999 1997
----------- ------------
NET SALES.............................................................................. $ 28,194 $ 26,104
COST OF SALES.......................................................................... 14,937 14,707
----------- ------------
GROSS PROFIT........................................................................... 13,257 11,397
----------- ------------
OPERATING EXPENSES:
Selling and administrative........................................................... 2,685 2,669
Amortization of intangibles.......................................................... 645 635
Research and development............................................................. 448 339
Merger expenses...................................................................... 39,593 --
----------- ------------
Total operating expenses......................................................... 43,371 3,643
----------- ------------
INCOME (LOSS) FROM OPERATIONS.......................................................... (30,114) 7,754
INTEREST EXPENSE--Net.................................................................. 2,276 1,046
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES...................................................... (32,390) 6,708
INCOME TAX PROVISON (BENEFIT).......................................................... (7,566) 2,590
----------- ------------
NET INCOME (LOSS)...................................................................... $ (24,824) $ 4,118
----------- ------------
----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JANUARY 1, 1999
-----------------------------------------------------
ACCUMULATED
RETAINED OTHER
CAPITAL EARNINGS COMPREHENSIVE
STOCK (DEFICIT) INCOME TOTAL
---------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1998................................... $ 24,281 $ 12,900 $ (754) $ 36,427
ISSUANCE OF CAPITAL STOCK.................................. 100,200 100,200
PAYMENT OF CONSIDERATION IN RECAPITALIZATION............... (23,857) (224,111) (247,968)
NET LOSS................................................... -- (24,824) -- (24,824)
---------- ----------- ----- -----------
BALANCE, JANUARY 1, 1999................................... $ 100,624 $ (236,035) $ (754) $ (136,165)
---------- ----------- ----- -----------
---------- ----------- ----- -----------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
<S> <C> <C>
JANUARY 1, DECEMBER 26,
1999 1997
------------ ------------
OPERATING ACTIVITIES:
Net income (loss).................................................................. $ (24,824) $ 4,118
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation..................................................................... 954 1,020
Amortization of intangibles...................................................... 645 635
Amortization of debt issue costs................................................. 766 70
Interest deferral on Holdings PIK Notes.......................................... 200 --
Changes in assets and liabilities:
Accounts receivable............................................................ (1,873) (1,069)
Inventories.................................................................... 100 611
Refundable income taxes........................................................ (7,692) --
Prepaid expenses and other assets.............................................. (28) (237)
Accounts payable............................................................... (113) (369)
Accrued liabilities............................................................ (870) 1,706
------------ ------------
Net cash provided by (used in) operating activities.............................. (32,735) 6,485
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures............................................................... (712) (628)
Marathon acquisition, post-closing purchase price adjustment....................... 766
------------ ------------
Net cash provided by (used in) investing activities.............................. (712) 138
------------ ------------
FINANCING ACTIVITIES:
Proceeds from subordinated notes, net of fees of $6,155............................ 118,845 --
Proceeds from new credit facility, net of fees of $4,765........................... 87,832 --
Proceeds from Holdings PIK Notes and common stock, net of fees of $341............. 19,659 --
Payment of consideration in recapitalization--common stock and warrants............ (263,875) --
Net repayments under revolving credit loans........................................ (1,597) --
Repayment of term notes............................................................ (45,000) --
Proceeds from issuance of capital stock............................................ 100,200 --
Purchase of capital stock.......................................................... -- (20)
------------ ------------
Net cash provided by (used in) financing activities.............................. 16,064 (20)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (17,383) 6,603
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................................... 19,486 5,397
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................. $ 2,103 $ 12,000
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........................................... $ 1,293 $ 350
Cash paid during the period for income taxes....................................... 506 68
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holdings Company ("Holdings") through its wholly owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary
mechanical components servicing the aircraft, mining, marine and other
manufacturing industries. TransDigm along with its wholly-owned subsidiary,
Marathon Power Technologies Company ("Marathon"), offers a broad line of
component products including tube connectors, valves, batteries, static
inverters, pumps, quick disconnects, clamps and ball bearings and sliding
controls.
On December 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity
formed by affiliates of Odyssey Investment Partners, LP ("Odyssey") and Holdings
consummated a definitive agreement and plan of merger (the "Merger Agreement" or
the "Merger"). Pursuant to the terms of the Merger, Acquiror was merged with and
into Holdings, with Holdings being the surviving corporation in the Merger (the
"Surviving Corporation"). In the Merger, owners of Holdings' outstanding common
stock received, in exchange for each outstanding share of common stock (except
for shares held directly or indirectly by Holdings or the Rolled Shares, as
defined below), the "Per Share Merger Consideration" as defined in the Merger
Agreement. The aggregate consideration payable pursuant to the Merger, including
amounts payable to holders of options and warrants, was approximately $299.7
million.
In connection with the Merger, Kelso Investment Associates IV, LP and Kelso
Equity Partners II, LP (collectively "Kelso") retained approximately 15.4% of
the Surviving Corporation's outstanding common stock (the "Rolled Shares"). In
addition, certain members of management of Holdings agreed, in connection with
and as a condition to entering into the Merger Agreement, to rollover stock
options with an estimated gross and net value of approximately $17.2 million and
$13.7 million, respectively. The Merger was treated as a recapitalization (the
"Recapitalization") for financial reporting purposes, which had no impact on the
historical basis of Holdings' consolidated assets and liabilities.
Simultaneously with the Merger, Holdings and TransDigm (collectively with
Marathon, the "Company") refinanced all of its existing debt. The Merger, the
refinancing, and payment of fees and expenses were funded by (i) existing cash
balances, (ii) investments by Odyssey of $100.2 million, (iii) funds from a new
$120 million Senior Credit Facility, (iv) funds from $125 million Senior
Subordinated Notes and (v) Holdings PIK Notes of $20 million issued to certain
stockholders. At January 1, 1999, Holdings had $29.0 million available for
working capital, certain permitted acquisitions and general corporate purposes
under the new Senior Credit Facility.
Separate financial statements of TransDigm are not presented since the
Senior Subordinated Notes are guaranteed by Holdings and all direct and indirect
subsidiaries of TransDigm, and since Holdings has no operations or assets
separate from its investment in TransDigm.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and results of operations and
cash flows for the interim periods presented. The results of operations for the
thirteen weeks ended January 1, 1999 are not necessarily indicative of the
results to be expected for the full year.
F-23
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined by the average cost and the first-in, first-out (FIFO) methods.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1,
1999
-----------
<S> <C>
Work-in-progress and finished goods............................................... $ 10,051
Raw materials and purchased component parts....................................... 12,775
-----------
Total......................................................................... 22,826
Reserve for excess and obsolete inventory......................................... (4,646)
-----------
Inventories--net.................................................................. $ 18,180
-----------
-----------
</TABLE>
4. INCOME TAXES
Income tax expense (benefit) as a percentage of income (loss) before income
taxes was (23.3)% for the first quarter of fiscal 1999 compared to 38.6% for the
first quarter of fiscal 1998. The tax benefit recorded for the first quarter of
fiscal 1999 was significantly impacted by the non-deductible expenses incurred
in connection with the Recapitalization.
5. REDEEMABLE COMMON STOCK
The redeemable common stock represents the estimated value of common stock
held by management shareholders which have certain put rights.
6. CONTINGENCIES
ENVIRONMENTAL--The soil and goundwater beneath the Company's facility in
Waco, Texas have been impacted by releases of hazardous materials. The resulting
contaminants of concern have been delineated and characterized. Because the
majority of these contaminants are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission ("TNRCC"), and because an
escrow was previously funded to cover the cost of remediation that TNRCC might
require for those contaminants currently in excess of action limits, management
does not believe the condition of the soil and groundwater at the Waco facility
will require incurrence of material expenditures.
OTHER--While the Company is currently involved in certain legal proceedings,
management believes the results of these proceedings will not have a material
effect on the financial condition, results of operations or cash flows of the
Company. During the ordinary course of business, the Company is from time to
time threatened with, or may become a party to, legal actions and other
proceedings. The Company believes that its potential exposure to such legal
actions is adequately covered by its aviation product and general liability
insurance.
F-24
<PAGE>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
7. NEW ACCOUNTING STANDARD
The Company adopted the provisions of Statement No. 130 of the Financial
Accounting Standards Board "Reporting Comprehensive Income" during the thirteen
weeks ended January 1, 1999. Accordingly, the Company's accumulated other
comprehensive income, consisting solely of its minimum pension liability
adjustment, is reported separately in the accompanying consolidated balance
sheet and statement of changes in stockholders' equity. There were no changes in
accumulated other comprehensive income during the thirteen weeks ended January
1, 1999 and December 26, 1997.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Marathon Power Technologies Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Marathon
Power Technologies Company and its subsidiary at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Dallas, Texas
January 17, 1997
F-26
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 326 $ 79
Accounts receivable, less allowance for doubtful accounts of $25 and $24 at December 31,
1996 and 1995, respectively............................................................. 2,419 2,636
Inventories............................................................................... 3,191 3,076
Deferred income taxes..................................................................... 321 292
Prepaid income taxes...................................................................... 40 119
Other current assets...................................................................... 68 67
--------- ---------
Total current assets.................................................................. 6,365 6,269
Property, plant and equipment............................................................. 6,496 6,570
--------- ---------
Total assets.......................................................................... $ 12,861 $ 12,839
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 776 $ 719
Accrued expenses.......................................................................... 2,108 2,238
Short-term debt........................................................................... 518 476
Current maturities of long-term debt...................................................... 475 --
--------- ---------
Total current liabilities............................................................. 3,877 3,433
--------- ---------
Deferred income taxes....................................................................... 339 216
Long-term debt.............................................................................. 2,025 5,000
--------- ---------
Total long-term liabilities........................................................... 2,364 5,216
--------- ---------
Commitments and contingencies (Note 13)
Shareholders' equity:
Common stock, $.01 par value; 50,000 shares authorized, 30,000 shares issued and
outstanding............................................................................. 1 1
Capital in excess of par value............................................................ 2,999 2,999
Retained earnings......................................................................... 3,628 1,198
Treasury stock, at cost; 75 shares........................................................ (8) (8)
--------- ---------
Total shareholders' equity............................................................ 6,620 4,190
--------- ---------
Total liabilities and shareholders' equity.......................................... $ 12,861 $ 12,839
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Net sales................................................................................... $ 20,065 $ 18,072
Cost of goods sold.......................................................................... 11,833 11,280
--------- ---------
Gross profit................................................................................ 8,232 6,792
Selling expenses............................................................................ 1,286 1,024
General and administrative expenses......................................................... 3,100 2,959
--------- ---------
Income from operations...................................................................... 3,846 2,809
Interest expense............................................................................ (403) (644)
--------- ---------
Income before income taxes and extraordinary items.......................................... 3,443 2,165
Provision for income taxes.................................................................. (1,243) (759)
--------- ---------
Income before extraordinary items........................................................... 2,200 1,406
Extraordinary gain on extinguishment of debt, net of income taxes........................... 230 --
--------- ---------
Net income.................................................................................. 2,430 1,406
Retained earnings (accumulated deficit), beginning of period................................ 1,198 (208)
--------- ---------
Retained earnings, end of period............................................................ $ 3,628 $ 1,198
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Cash flows from operating activities:
Net income................................................................................. $ 2,430 $ 1,406
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary gain on early extinguishment of debt, net of income taxes................ (230) --
Depreciation and amortization.......................................................... 766 673
Deferred income tax provision.......................................................... 94 175
Other.................................................................................. (4) --
Changes in operating assets and liabilities:
Accounts receivable.................................................................... 217 (500)
Inventories............................................................................ (246) 604
Prepaid income taxes................................................................... 79 (119)
Other current assets................................................................... (1) 126
Accounts payable....................................................................... 57 313
Accrued expenses....................................................................... (130) (293)
Income taxes payable................................................................... -- (45)
--------- ---------
Net cash provided by operating activities............................................ 3,032 2,340
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions.................................................... (702) (363)
Property, plant and equipment dispositions................................................. 10 --
--------- ---------
Net cash used in investing activities................................................ (692) (363)
--------- ---------
Cash flows from financing activities:
Net increase of line of credit............................................................. 42 476
Repayment of long-term debt................................................................ (2,125) (3,000)
Other...................................................................................... (10) --
Acquisition of treasury stock.............................................................. -- (8)
--------- ---------
Net cash used in financing activities................................................ (2,093) (2,532)
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 247 (555)
Cash and cash equivalents at beginning of period............................................. 79 634
--------- ---------
Cash and cash equivalents at end of period................................................... $ 326 $ 79
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................................. $ 459 $ 672
Income taxes............................................................................. $ 1,198 $ 748
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FORMATION
Marathon Power Technologies Company ("Company") was organized in March 1994
and purchased substantially all of the net assets of Marathon Power
Technologies, a wholly-owned subsidiary of American Premier Underwriters, Inc.,
on May 19, 1994. The Company, located in Waco, Texas, manufactures vented and
sealed nickel cadmium rechargeable batteries which are used in aviation and
consumer electrical equipment. The Company also manufactures static inverters,
used largely in the aviation industry, which convert DC power into AC power, as
well as other items, such as battery chargers. The Company maintains a
subsidiary in the United Kingdom used primarily for distribution of vented
products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION--The financial statements include the accounts
of the Company and its wholly-owned subsidiary after elimination of intercompany
transactions and balances. Certain reclassifications were made to conform prior
year amounts to the current year presentation.
USE OF ESTIMATES--Financial statements prepared in conformity with generally
accepted accounting principles require management to make estimates and
assumptions about reported amounts of assets and liabilities; disclosure of
contingent assets and liabilities and reported amounts of revenues and expenses.
Management must also make estimates and judgments about future results of
operations related to specific elements of the business in assessing
recoverability of assets and recorded values of liabilities. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand
and short-term investments with original maturities of three months or less.
CREDIT CONCENTRATIONS--The Company sells products chiefly to aviation
companies and/or suppliers to aviation companies, generally on an unsecured
basis. The Company provides estimated reserves against accounts receivable for
collection losses.
INVENTORIES--Inventories are stated at the lower of cost or market, cost
being determined on a first-in first-out basis.
PROPERTY PLANT AND EQUIPMENT--Property, plant and equipment, including
assets under capital lease, are carried at acquisition cost. Depreciation and
amortization are computed on the straight-line basis over the estimated
remaining useful lives of the assets (ranging from 2 to 30 years) and the
remaining term of capital leases, respectively. Repair and maintenance
expenditures are charged to operations as incurred, and expenditures for major
renewals and betterments are capitalized. When units of property are disposed,
the cost and related accumulated depreciation are removed from the accounts, and
the resulting gains or losses are included in operations.
REVENUE RECOGNITION--Sales revenue and related cost of sales are recognized
as products are shipped to customers. In the normal course of business, the
Company provides for product defects through the issuance of one to two year
warranties covering its products. The costs associated with these warranties are
accrued at the time of sale which totaled $130,000 and $232,000 in 1996 and
1995, respectively.
F-30
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Deferred income taxes are provided for differences between tax
laws and financial accounting standards regarding the recognition and
measurement of assets, liabilities, revenues and expenses. Such differences
result principally from different methods of purchase price allocation for tax
and financial accounting purposes and depreciation.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Management believes the recorded values
of financial instruments approximate their current fair values as such items are
current in nature and/or generally bear variable interest rates which adjust
yield to derive current market value.
STOCK-BASED COMPENSATION--In October 1995, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123") was
issued. This statement requires the fair value of stock options and other
stock-based compensation issued to employees to either be included as
compensation in the statement of operations, or the pro forma effect on net
income of such compensation expense to be disclosed in the footnotes to the
Company's financial statements commencing with the Company's year ending
December 31, 1996. The Company has adopted SFAS 123 on a disclosure basis only.
As such, implementation of SFAS 123 is not expected to impact the Company's
consolidated balance sheet or consolidated statement of operations.
3. INVENTORIES
Inventories comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Raw materials.............................................................. $ 887 $ 716
Work-in-process............................................................ 1,601 1,731
Finished goods............................................................. 703 629
--------- ---------
$ 3,191 $ 3,076
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Land....................................................................... $ 693 $ 693
Building and improvements.................................................. 3,379 3,370
Machinery and equipment.................................................... 3,550 3,258
Other...................................................................... 678 294
--------- ---------
8,300 7,615
Less accumulated depreciation and amortization............................. 1,804 1,045
--------- ---------
$ 6,496 $ 6,570
--------- ---------
--------- ---------
</TABLE>
Routine repairs and maintenance charged to expense were $108,000 and $161,
000 for the years ended December 31, 1996 and 1995, respectively.
F-31
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Customer rebates........................................................... $ 690 $ 200
Compensation............................................................... 583 788
Warranty................................................................... 435 535
Other...................................................................... 400 715
--------- ---------
$ 2,108 $ 2,238
--------- ---------
--------- ---------
</TABLE>
6. LONG-TERM DEBT
Long-term debt comprises the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
$3,000 revolving credit facility with a bank, bearing interest at 0.25%
above prime at December 31, 1996 (8.5%) and 1.0% above prime at December
31, 1995 (9.5%) on the outstanding balance, principal and interest
payable upon deposit of available funds, available until June 1999....... $ 518 $ 476
Note payable to a bank, bearing interest at 0.25% above prime at December
31, 1996 (8.5%) and 1.0% above prime at December 31, 1995 (9.5%) payable
in varying installments through June 1999................................ 2,500 2,500
Subordinated note payable to a corporation, interest payable quarterly at
9.0%, principal due in two installments through May 2000................. -- 2,500
--------- ---------
3,018 5,476
Less current maturities.................................................... 993 476
--------- ---------
$ 2,025 $ 5,000
--------- ---------
--------- ---------
</TABLE>
The Company's revolving credit facility includes an additional $750,000
overadvance facility under which no borrowings were outstanding in 1996 or 1995.
The overadvance facility will be reduced to $500,000, $250,000 and $0 on January
1, April 1, and July 1 of 1997, respectively. The Company pays a commitment fee
of .25% per annum of the daily average of the unused portion of the revolving
credit facility. Prior to October 1996, the commitment fee paid was .5%.
The above debt is secured by the Company's assets and common stock and is
restricted by certain financial covenants including capital base, debt ratio and
current ratio requirements, among others.
F-32
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
In 1996, the Company extinguished its $2,500,000 subordinated note payable
for a cash payment of $2,125,000, obtained from a combination of operating cash
flows and an increase in borrowings under the line of credit. The difference
between the carrying amount of the note and the cash paid to the holder of such
borrowings (and related expenses of $10,000) was recorded as an extraordinary
gain on the early extinguishment of debt of $365,000 ($230,000 net of income
taxes). The effective tax rate for the extraordinary gain was 37.0%.
Aggregate maturities of long-term debt as of December 31, 1996 are as
follows (dollars in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 993
1998................................................................ 900
1999................................................................ 1,125
2000................................................................ --
2001................................................................ --
---------
$ 3,018
---------
---------
</TABLE>
7. INCOME TAXES
Income tax provision comprises the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Current
Federal.................................................................... $ 1,060 $ 536
State...................................................................... 154 48
--------- ---------
Total current............................................................ 1,214 584
--------- ---------
Deferred:
Federal.................................................................... 25 156
State...................................................................... 4 19
--------- ---------
Total deferred........................................................... 29 175
--------- ---------
Provision for income taxes before extraordinary gain..................... 1,243 759
Income tax expense from extraordinary gain................................... 135 --
--------- ---------
Total provision for income taxes......................................... $ 1,378 $ 759
--------- ---------
--------- ---------
</TABLE>
F-33
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The effective tax rate on earnings before income taxes and extraordinary
items was different than the federal statutory tax rate. The following summary
reconciles the federal statutory tax rate and provision with the actual
effective rate and provision:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Federal income tax expense................................................. 34.0% 34.0%
State taxes, net of federal expense........................................ 3.0% 3.1%
Disallowed meals and entertainment......................................... 0.2% 1.4%
Valuation allowance........................................................ -- (2.8%)
Other...................................................................... (1.1%) (0.7%)
--- ---
36.1% 35.0%
--- ---
--- ---
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's net deferred tax assets and liabilities comprise the
following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Deferred tax assets and liabilities
Accruals and reserves...................................................... $ 321 $ 292
Asset allocation difference................................................ (339) (216)
--------- ---------
Net deferred tax asset (liability)....................................... $ (18) $ 76
--------- ---------
--------- ---------
</TABLE>
8. SALES TO MAJOR CUSTOMERS
The Company made sales to various U.S. governmental agencies representing
14.0% and 7.0% of net sales in 1996 and 1995, respectively. Sales to two of the
Company's nongovernmental customers represent 25.6% and 22.8%, respectively, of
net sales in 1996 and 31.3% and 29.5% respectively, in 1995. These customers
also represented 20.4% and 34.6%, respectively, of outstanding trade receivables
at December 31, 1996 and 28.0% and 22.6%, respectively, at December 31, 1995. In
the normal course of business, the Company extends credit on open account to its
customers, including U.S. governmental agencies and distributors of the
Company's products. Extensions of credit to all customers are closely monitored
and no significant credit losses have occurred during the years ended December
31, 1996 and 1995.
9. RESEARCH AND DEVELOPMENT
The Company is engaged in several research and development projects. Costs
associated with these projects are charged to operations when incurred. Research
and development costs are included in general and administrative expenses and
totaled $362,000 and $279,000 in 1996 and 1995, respectively.
F-34
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company paid management fees of $200,000 and $181,000 during 1996 and
1995, respectively, which are included in general and administrative expenses,
to its principal shareholder under an agreement which calls for quarterly
installments equal to 1.0% of quarterly net sales. Included in accrued
liabilities other (Note 5) are management fees payable of $51,000 and $46,000 as
of December 31, 1996 and 1995, respectively.
Included in treasury stock at December 31, 1996 and 1995 are 75 shares of
the Company's common stock which were repurchased from a former employee during
1995 for approximately $8,000.
11. STOCK OPTIONS
The Company established an incentive stock option plan in 1994 under which
options to acquire an aggregate of 3,000 shares of the Company's common stock
may be granted to employees and consultants of the Company. The plan requires
that the exercise price for each stock option be not less than 100% of the fair
market value of common stock at the time the option is granted. Both
nonqualified stock options and incentive stock options, as defined by the
Internal Revenue Code of 1986, as amended, may be granted under the plan. The
options are nontransferable and are cancelable if the optionee's employment or
other association with the Company is terminated for any reason. The plan and
all underlying options terminate on January 1, 2005 or earlier. As of December
31, 1996 and 1995, options of 2,681 and 2,531, respectively, had been granted
under the plan.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
----------- -----------
<S> <C> <C>
Options granted (initially) in 1995..................................... 2,531 $ 100
Exercised............................................................. -- --
Canceled/Expired...................................................... -- --
----- -----
Outstanding at December 31, 1995........................................ 2,531 100
Options granted in 1996................................................. 150 100
Exercised............................................................. -- --
Canceled/Expired...................................................... -- --
----- -----
Outstanding at December 31, 1996........................................ 2,681 $ 100
----- -----
----- -----
</TABLE>
As of December 31, 1996 and 1995, options for 1,609 and 1,012 shares,
respectively, were exercisable under the Company's stock option plan.
The fair market values of options as of their grant dates were approximately
$49 and $42 per option in December 1996 and 1995, respectively, based on
comparison of the fair market value of the underlying shares and the net present
value of the exercise price over the period of exercisability at a risk free
market rate of 7.9% and 5.7%, respectively. No dividend payments or volatility
in stock prices were assumed in the fair market value calculations.
No compensation expense was recorded during 1996 or 1995 for options issued
under the plan since the Company accounts for such transactions in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Had the
Company included the stock-based compensation in the consolidated statement of
operations, $17,000 and $28,000 in additional employee compensation expenses,
net of the effect of income taxes, would have been recorded in 1996 and 1995,
respectively. This would result in pro forma net income of $2,413,000 and
$1,378,000, respectively.
F-35
<PAGE>
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS
The Company sponsors a defined contribution retirement plan for Company
employees. Employees are eligible to participate in the plan on the first day of
the calendar quarter following their employment date. The Company makes annual
contributions to the plan equal to 50% of the employees contribution (up to a
maximum of 6% of each employee's compensation). The Company's expense under this
plan was $68,000 and $62,000 in 1996 and 1995, respectively.
The Company sponsors a self-funded employee welfare benefit plan which
provides comprehensive medical benefits to Company employees and their
dependents. All full-time employees become eligible on the first day of the
month following the month in which they complete 30 days of service. The Company
incurred expenses of $366,000 and $304,000 under this plan during the years
ended December 31, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENCIES
Under the terms of the May 19, 1994 asset purchase agreement, the Company is
indemnified for any preacquisition environment remediation costs. The Company
had accrued $36,000 and $25,000 at December 31, 1996 and 1995, respectively, for
additional hazardous waste disposal costs.
The Company is party to certain legal proceedings incidental to its
business. Certain claims arising in the ordinary course of business have been
filed or are pending against the Company. Management does not believe the
outcome of any of these proceedings will materially affect the Company's
financial position or results of operations. Under the terms of the May 19, 1994
asset purchase agreement, the Company is indemnified for any preacquisition
legal costs. The Company accrues for claims that are both probable and for which
expected loss can be reasonably estimated.
F-36
<PAGE>
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PROSPECTUS
-----------------------------------------------------------------
TRANSDIGM INC.
OFFER TO EXCHANGE ITS
10 3/8% SENIOR SUBORDINATED NOTES
DUE 2008 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
, 1999
------------------------------------------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THESES
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
provides that a corporation has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) against the expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense of any action by
reason of being or having been directors or officers, if such person shall have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, provided that such person had no reasonable cause to
believe his conduct was unlawful, except that, if such action shall be in the
right of the corporation, no such indemnification shall be provided as to any
claim, issue or matter as to which such person shall have been judged to have
been liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware (the "Court of Chancery"), or any court in
such suit or action was brought, shall determine upon application that, despite
the liability judgment, but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the Court of Chancery or such other court shall deem proper.
Accordingly, each of (i) the Restated Certificate of Incorporation (dated
September 28, 1993) and the amendments thereto (dated December 21, 1993) of
TransDigm Holding Company (filed herewith as Exhibits 3.1 and 3.2,
respectively), (ii) the Certificate of Incorporation (dated July 2, 1993) and
the amendments thereto (dated July 22, 1993) of TransDigm Inc. (filed herewith
as Exhibits 3.4 and 3.5, respectively), (iii) the Certificate of Incorporation
(dated March 28, 1994) and the amendments thereto (dated May 18, 1994 and May
24, 1994) of Marathon Power Technologies Company (filed herewith as Exhibits
3.7, 3.8 and 3.9, respectively), provide that subject to certain exceptions,
TransDigm Holding Company, TransDigm Inc. and Marathon Power Technologies
Company (collectively, the "Co-Registrants" and, individually, the
"Co-Registrant") shall indemnify each of its respective director or officer
against any and all expenses (including attorneys' fees), judgments, fines,
excise taxes assessed with respect to any employee benefit plan, or penalties
and amounts paid in settlement actually and reasonably incurred by such director
or officer in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of such Co-Registrant), to which such
director or officer is, was or at any time becomes a party, or is threatened to
be made a party, by reason of the fact that such director or officer is, was or
at any time becomes a director or officer of such Co-Registrant, or is, or was
serving, or at any time serves at the request of such Co-Registrant as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise. The Restated Certificate of Incorporation or the Certificate
of Incorporation, as applicable, and the amendments thereto also provide that
the respective Co-Registrant shall advance expenses (including attorneys' fees)
actually and reasonably incurred by its director or officer in defending any
proceeding and any judgments, fines or amounts to be paid in settlement thereof.
The Restated Certificate of Incorporation or the Certificate of Incorporation,
as applicable, and the amendments thereto provide, however, that the foregoing
provisions shall not require the respective Co-Registrant to pay any indemnity
(i) for which payment is actually made to such director or officer under a valid
and collectible insurance policy, except in respect of any excess beyond the
amount of payment under such insurance; (ii) for which such director or officer
is indemnified by the respective Co-Registrant pursuant to applicable law or
otherwise than pursuant to the Restated Certificate of Incorporation or the
Certificate of Incorporation, as applicable, of the respective Co-Registrant;
(iii) for an accounting of profits made from the purchase or sale by such
director or officer of securities of the respective Co-Registrant within the
meaning of
II-1
<PAGE>
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any state statutory law or common law; (iv) on account of
such director's or officer's conduct which is finally adjudged by a court to
have been knowingly fraudulent, deliberately dishonest or willful misconduct; or
(v) if a final decision by a court having jurisdiction in the matter shall
determine that such indemnity is not lawful. Such indemnification shall not be
deemed exclusive of any other rights to which a director or officer seeking
indemnification may be entitled under any statute, the Bylaws, other provisions
of the Restated Certificate of Incorporation or the Certificate of
Incorporation, as applicable, of the respective Co-Registrant, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
such director's or officer's official capacity and as to action in any other
capacity while holding such office.
Furthermore, a director of a Co-Registrant shall not be liable to the
respective Co-Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the respective Co-Registrant or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) for the unlawful payment of a
dividend, unlawful stock purchase or unlawful redemption, (d) for any
transaction from which the director derived an improper personal benefit, or
such exemption from liability or limitation thereof is not permitted under the
DGCL as currently in effect or as the same may hereafter be amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm
Holding Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition
Corp. and TransDigm Holding Company.
*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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*3.10 Bylaws of TransDigm Holding Company.
*3.11 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.12 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
*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 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit
4.1 hereto).
*4.3 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes")
(included in Exhibit 4.1 hereto).
*4.4 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.
*4.5 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.
*4.6 Specimen Certificate of 12% Pay-in-Kind Senior due 2008 (included in Exhibit 4.5 hereto).
*4.7 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.
*4.8 Credit Agreement, dated December 3, 1998, 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.
*4.9 First Amendment to the Credit Agreement, dated December 10, 1998, 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.
*4.10 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in
Exhibit 4.8 hereto).
*4.11 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in
Exhibit 4.8 hereto).
*4.12 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in
Exhibit 4.8 hereto).
*4.13 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.
*4.14 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.
*4.15 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 4.13 hereto).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*4.16 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 4.13 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 , 1999, between TransDigm Holding Company and Douglas W. Peacock.
+10.5 Employment Agreement, dated , 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 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Cash Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, less Capital Expenditures to Cash Interest
Expense.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA.
21.1 Subsidiaries of TransDigm Holding Company.
+23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
*24.1 Power of Attorney of TransDigm Holding Company, TransDigm Inc. and Marathon Power Technologies (included
on signature pages to this Registration Statement on Form S-4).
25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
</TABLE>
- ------------------------
+ To be filed as an amendment
* Previously filed
II-4
<PAGE>
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
Each of the undersigned Co-Registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the respective
Co-Registrant pursuant to the foregoing provisions described under Item 20
above, or otherwise, the respective Co-Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the respective Co-Registrant of
expenses incurred or paid by a director, officer or controlling person of such
Co-Registrant in the successful defense of any action, suit paid by a director,
officer or controlling person of such Co-Registrant in the successful defense of
any action, suit or proceeding) is asserted against such Co-Registrant by such
director, officer or controlling person in connection with the securities being
registered, such Co-Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
Each of the undersigned Co-Registrants hereby undertakes (i) to respond to
requests for information that is incorporated by reference into this Prospectus
pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This undertaking also includes documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
Each of the undersigned Co-Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Each of the undersigned Co-Registrants hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement (notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement); and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Each of the undersigned Co-Registrants hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called
II-5
<PAGE>
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the application form.
Each of the undersigned Co-Registrants hereby undertakes that every
prospectus: (i) that is filed pursuant to the immediately preceding paragraph or
(ii) that purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933, as amended, and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Each of the undersigned Co-Registrants hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the exchange offer.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, each
of the Co-Registrants has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Waco, State of Texas, on March 24, 1999.
<TABLE>
<S> <C> <C>
TRANSDIGM INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
TRANSDIGM HOLDING COMPANY
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
</TABLE>
II-7
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of TransDigm Inc., a Delaware corporation (the "Company"), for himself
and not for one another, does hereby constitute and appoint Peter B. Radekevich,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement with
respect to the proposed issuance, offer, exchange and delivery by the Company of
its registered 10 3/8% Senior Subordinated Notes due 2008, or any registration
statement for this offering that is to be effective upon the filing pursuant to
rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer) and Chairman of March 24, 1999
Douglas W. Peacock the Board
President and Chief
* Operating Officer
- ------------------------------ (Principal Executive March 24, 1999
W. Nicholas Howley Officer) and Director
* Chief Financial Officer
- ------------------------------ (Principal Financial and March 24, 1999
Peter B. Radekevich Accounting Officer
*
- ------------------------------ Director March 24, 1999
Stephen Berger
*
- ------------------------------ Director March 24, 1999
William Hopkins
*
- ------------------------------ Director March 24, 1999
Muzzafar Mirza
*
- ------------------------------ Director March 24, 1999
John W. Paxton
*
- ------------------------------ Director March 24, 1999
Thomas R. Wall, IV
</TABLE>
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
II-8
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of TransDigm Holding Company, a Delaware corporation ("Holdings"), for
himself and not for one another, does hereby constitute and appoint Peter B.
Radekevich, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement with respect to the proposed issuance, offer, exchange and delivery by
Holdings of its guarantee of TransDigm Inc.'s registered 10 3/8% Senior
Subordinated Notes due 2008, or any registration statement for this offering
that is to be effective upon the filing pursuant to rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer) and Chairman of March 24, 1999
Douglas W. Peacock the Board
President and Chief
* Operating Officer
- ------------------------------ (Principal Executive March 24, 1999
W. Nicholas Howley Officer) and Director
* Chief Financial Officer
- ------------------------------ (Principal Financial and March 24, 1999
Peter B. Radekevich Accounting Officer
*
- ------------------------------ Director March 24, 1999
Stephen Berger
*
- ------------------------------ Director March 24, 1999
William Hopkins
*
- ------------------------------ Director March 24, 1999
Muzzafar Mirza
*
- ------------------------------ Director March 24, 1999
John W. Paxton
*
- ------------------------------ Director March 24, 1999
Thomas R. Wall, IV
</TABLE>
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
II-9
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Marathon Power Technologies Company, a Delaware corporation
("Marathon"), for himself and not for one another, does hereby constitute and
appoint Peter Radekevich, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement with respect to the proposed issuance, offer, exchange
and delivery by Marathon of its guarantee of TransDigm Inc.'s registered 10 3/8%
Senior Subordinated Notes due 2008, or any registration statement for this
offering that is to be effective upon the filing pursuant to rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer) and Chairman of March 24, 1999
Douglas W. Peacock the Board
*
- ------------------------------ President (Principal March 24, 1999
Robert S. Henderson Executive Officer)
* Chief Financial Officer
- ------------------------------ (Principal Financial and March 24, 1999
Peter B. Radekevich Accounting Officer
*
- ------------------------------ Director March 24, 1999
W. Nicholas Howley
</TABLE>
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
II-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TransDigm Holding Company
We have audited the consolidated balance sheets of TransDigm Holding Company and
its subsidiaries (the "Company") as of September 30, 1998 and 1997 and the
related consolidated statements of income and retained earnings (deficit) and of
cash flows for each of the three years in the period ended September 30, 1998
and have issued our report thereon dated November 9, 1998 (December 3, 1998 as
to Note 18); such consolidated financial statements and report are included in
this Registration Statement No. 333-71397. Our audits also included the
consolidated financial statement schedule of the Company, shown on page II-12.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 9, 1998
II-11
<PAGE>
TRANSDIGM HOLDING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
--------------------------
COLUMN B ADDITIONS COLUMN D
----------- -------------------------- ------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO DEDUCTIONS -------------
- --------------------------------------------- BEGINNING COSTS AND MARATHON FROM BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACQUISITION RESERVE(1) END OF PERIOD
- --------------------------------------------- ----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts............ $ 503 $ (165) -- $ 73 $ 265
Reserve for excess and obsolete
inventory................................ 3,771 773 -- 209 4,335
Sales returns and repairs.................. 1,797 273 -- 679 1,391
Environmental 683 (158) -- 245 280
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts............ $ 403 $ 149 $ 25 $ 74 $ 503
Reserve for excess and obsolete
inventory................................ 2,299 914 785 227 3,771
Sales returns and repairs.................. 1,155 792 748 898 1,797
Environmental.............................. 15 118 550 -- 683
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts............ $ 421 $ 158 $ -- $ 176 $ 403
Reserve for excess and obsolete
inventory................................ 2,375 411 -- 487 2,299
Sales returns and repairs.................. 1,436 398 -- 679 1,155
Environmental.............................. 18 -- -- 3 15
</TABLE>
(1) For the allowance for doubtful accounts and the reserve for excess and
obsolete inventory, the amounts in this column represent charge-offs net of
recoveries. For the sales returns and repairs and environmental accrued
liabilities, the amounts primarily represent expenditures charged against
liabilities.
II-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm
Holding Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition
Corp. and TransDigm Holding Company.
*3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company.
*3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of
TransDigm Holding Company.
*3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with
and into TransDigm Holding Company.
*3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm
Acquisition, Inc. (TransDigm Inc.).
*3.6 Certificate of Ownership and Merger, filed on September 13, 1993, merging IMO Aerospace Company with and
into TransDigm Inc.
*3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power
Technologies Company).
*3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
*3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
*3.10 Bylaws of TransDigm Holding Company.
*3.11 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.12 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
*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 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit
4.1 hereto).
*4.3 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes")
(included in Exhibit 4.1 hereto).
*4.4 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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
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<C> <S>
*4.5 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.
*4.6 Specimen Certificate of 12% Pay-in-Kind Senior due 2008 (included in Exhibit 4.5 hereto).
*4.7 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.
*4.8 Credit Agreement, dated December 3, 1998, 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.
*4.9 First Amendment to the Credit Agreement, dated December 10, 1998, 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.
*4.10 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in
Exhibit 4.8 hereto).
*4.11 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in
Exhibit 4.8 hereto).
*4.12 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in
Exhibit 4.8 hereto).
*4.13 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.
*4.14 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.
*4.15 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 4.13 hereto).
*4.16 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 4.13 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 , 1999, between TransDigm Holding Company and Douglas W.
Peacock.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
+10.5 Employment Agreement, dated , 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 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Cash Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, less Capital Expenditures to Cash Interest
Expense.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA.
21.1 Subsidiaries of TransDigm Holding Company.
+23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
*24.1 Power of Attorney of TransDigm Holding Company, TransDigm Inc. and Marathon Power Technologies (included
on signature pages to this Registration Statement on Form S-4).
25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
</TABLE>
- ------------------------
+ To be filed as an amendment
* Previously filed
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================================================================================
Exhibit 10.1
MANAGEMENT STOCKHOLDERS' AGREEMENT
Dated as of December 3, 1998
================================================================================
<PAGE>
<TABLE>
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TABLE OF CONTENTS
<S> <C>
SECTION PAGE
1. RESTRICTIONS ON TRANSFER OF COMMON STOCK..................................................................2
1.1. GENERAL RESTRICTION ON TRANSFER................................................................2
1.2. PERMITTED TRANSFEREES..........................................................................3
2. SALES OF COMMON STOCK TO HOLDINGS; CANCELLATION OF OPTIONS................................................4
2.1. THE MANAGEMENT STOCKHOLDERS'RIGHTS.............................................................4
2.2. NOTICE.........................................................................................5
2.3. PAYMENT........................................................................................5
3. HOLDINGS'RIGHTS TO PURCHASE FROM MANAGEMENT STOCKHOLDERS SHARES OF COMMON STOCK AND TO
CANCEL OPTIONS......................................................................................6
3.1. HOLDINGS'RIGHTS................................................................................6
3.2. NOTICE.........................................................................................6
3.3. PAYMENT........................................................................................7
4. TAG-ALONG AND DRAG-ALONG RIGHTS...........................................................................8
4.1. TAG-ALONG RIGHTS...............................................................................8
4.2. DRAG-ALONG RIGHTS..............................................................................9
5. TAX LIABILITY LOANS; ADDITIONAL OFFERINGS................................................................10
5.1. TAX LIABILITY LOANS...........................................................................10
5.2. ADDITIONAL OFFERINGS..........................................................................11
6. PURCHASE PRICE...........................................................................................11
6.1. APPRAISAL.....................................................................................11
6.2. FAIR MARKET VALUE.............................................................................12
6.3. NOTICE TO STOCKHOLDERS........................................................................13
6.4. CARRYING VALUE................................................................................13
7. PROHIBITED PURCHASES.....................................................................................13
8. SALES TO THIRD PARTIES...................................................................................16
8.1. GENERAL.......................................................................................16
8.2. RIGHT OF FIRST REFUSAL........................................................................17
8.3. INVOLUNTARY TRANSFERS.........................................................................18
9. ELECTION OF DIRECTORS....................................................................................19
9.1. BOARD MAKE-UP.................................................................................19
9.2. IRREVOCABLE PROXY.............................................................................19
10. TERMINATION OF RIGHTS AND OBLIGATIONS UNDER CERTAIN SECTIONS............................................19
</TABLE>
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<TABLE>
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11. STOCK CERTIFICATE LEGEND................................................................................19
12. COVENANTS; REPRESENTATION AND WARRANTIES................................................................21
12.1. NEW MANAGEMENT STOCKHOLDERS..................................................................21
12.2. NO OTHER ARRANGEMENTS OR AGREEMENTS..........................................................21
13. AMENDMENT AND MODIFICATION..............................................................................22
14. PARTIES.................................................................................................22
14.1. ASSIGNMENT BY HOLDINGS.......................................................................22
14.2. ASSIGNMENT GENERALLY.........................................................................23
14.3. TERMINATION..................................................................................23
14.4. AGREEMENTS TO BE BOUND.......................................................................23
15. RECAPITALIZATIONS, EXCHANGES, ETC. AFFECTING THE COMMON STOCK...........................................24
16. TRANSFER OF COMMON STOCK................................................................................24
17. FURTHER ASSURANCES......................................................................................25
18. GOVERNING LAW...........................................................................................25
19. INVALIDITY OF PROVISION.................................................................................25
20. NOTICES.................................................................................................25
21. HEADINGS; EXECUTION IN COUNTERPART......................................................................27
22. EFFECTIVENESS OF VOTING AGREEMENTS......................................................................27
23. ENTIRE AGREEMENT........................................................................................27
24. INJUNCTIVE RELIEF.......................................................................................28
25. DEFINED TERMS...........................................................................................28
25.1. AFFILIATE....................................................................................28
25.2. CARRYING VALUE...............................................................................28
25.3. CAUSE........................................................................................29
25.4. CHANGE IN CONTROL............................................................................29
25.5. CLOSING DATE.................................................................................30
25.6. DISABILITY...................................................................................30
25.7. EXCHANGE ACT.................................................................................30
25.8. EXERCISABLE OPTIONS..........................................................................30
25.9. FAIR MARKET VALUE............................................................................30
25.10. GOOD REASON.................................................................................30
25.11. INVOLUNTARY TRANSFER........................................................................31
</TABLE>
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<CAPTION>
<S> <C>
25.12. MAJORITY MANAGEMENT STOCKHOLDERS............................................................31
25.13. MERGER; MERGER AGREEMENT....................................................................31
25.14. PERMITTED ASSIGNEE..........................................................................31
25.15. PERSON......................................................................................32
25.16. PRINCIPAL STOCKHOLDER.......................................................................32
25.17. ROLL-OVER OPTIONS...........................................................................32
25.18. ROLL-OVER SHARES............................................................................32
25.19. TRANSFER....................................................................................32
</TABLE>
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<PAGE>
MANAGEMENT STOCKHOLDERS' AGREEMENT
This MANAGEMENT STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of
December 3, 1998, by and among TransDigm Holding Company, a Delaware corporation
("Holdings"), Odyssey Investment Partners Fund, LP ("Odyssey"), and those
employees of TransDigm Inc. ("TransDigm") listed on Schedule A attached hereto
(such employees, together with any persons who become parties to this Agreement
pursuant to Section 12.1 of this Agreement and each of their respective
Permitted Transferees, are referred to herein, collectively, as the "Management
Stockholders"). Schedule A shall be updated from time to time to include each
Management Stockholder who becomes a party to this Agreement after the date
hereof. Odyssey and the Management Stockholders are hereinafter referred to
collectively as the "Stockholders."
RECITALS
In connection with that certain Agreement and Plan of Merger, dated as of
August 3, 1998, between Phase II Acquisition Corp. and Holdings, as amended (the
"Merger Agreement"), as of the date of consummation of the Merger (as defined in
the Merger Agreement, the "Closing Date"), each Management Stockholder listed on
Schedule B attached hereto holds certain options to purchase shares of common
stock of Holdings, $0.01 par value per share (the "Common Stock"), as set forth
on Schedule B attached hereto, which options were held by such Management
Stockholder immediately prior to the Merger and which options shall be
exercisable in full and remain outstanding immediately following the Merger (the
"Roll-Over Options"). Each Management Stockholder's Roll-Over Options will
remain subject to the terms of the TransDigm Holding Company 1994 Stock
Incentive Plan, as the same may be amended
<PAGE>
from time to time (the "1994 Plan"), and shall be augmented by the provisions of
the applicable Option Roll-Over/Cancellation Agreement executed by such
Management Stockholder and the provisions of this Agreement. In addition,
effective as of the Closing Date, Holdings is granting to certain employees,
options to purchase Common Stock pursuant to the terms of the 1998 Stock Option
Plan of TransDigm Holding Company, as amended from time to time (the "1998
Plan") and an Incentive Stock Option Agreement between Holdings and such
Management Stockholder, and Holdings may in the future grant additional options
to purchase Common Stock to certain employees.
As used in this Agreement, "Options" shall mean all options to purchase
Common Stock granted to or held by a Management Stockholder at any time when
this Agreement is in effect (including, where applicable, Roll-Over Options).
Capitalized terms used herein without definition elsewhere in this Agreement
are defined in Section 25.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, and to implement the foregoing, the parties
hereto agree as follows:
AGREEMENT
1. RESTRICTIONS ON TRANSFER OF COMMON STOCK.
1.1. GENERAL RESTRICTION ON TRANSFER. No shares of Common Stock now or
hereafter owned by any Management Stockholder nor any interest therein nor any
rights relating thereto may be Transferred, except for (a) Transfers to a
Permitted Transferee pursuant to Section 1.2, (b) sales of shares of Common
Stock to Holdings pursuant to Section 2 or 3 or (c) Transfers to a third party,
Holdings or any Permitted Assignee of shares of Common Stock pursuant to, or
otherwise permitted under, Section 8.
2
<PAGE>
1.2. PERMITTED TRANSFEREES.
(a) TRUST, CORPORATION, PARTNERSHIP, ETC. Subject to Section 14.4, a
Management Stockholder may Transfer any shares of Common Stock or any interest
therein (i) for estate-planning purposes of such Management Stockholder and with
the prior written consent of the Compensation Committee of the Board of
Directors of Holdings (the "Committee"), which consent shall not be unreasonably
withheld, to (x) a trust under which the distribution of the shares of Common
Stock may be made only to beneficiaries who are such Management Stockholder, his
or her spouse, his or her parents, members of his or her immediate family or his
or her lineal descendants ("Permitted Family Members"), (y) a corporation the
stockholders of which are only Permitted Family Members or (z) a partnership the
partners of which are only Permitted Family Members or (ii) in case of his or
her death, by will or by the laws of intestate succession, to his or her
executors, administrators, testamentary trustees, legatees or beneficiaries
(each such person and entity a "Permitted Transferee" and collectively, the
"Permitted Transferees"); PROVIDED, HOWEVER, that in each such case, the shares
of Common Stock so Transferred shall be subject to all provisions of this
Agreement as though the transferring Management Stockholder were still the
holder of such shares.
(b) SECURITY AGREEMENTS. Subject to Section 14.4, a Management
Stockholder may pledge any or all shares of Common Stock now or hereafter owned
by him or her or grant a security interest therein to secure indebtedness of
such Stockholder owing to a bank or other financial institution approved by
Holdings so long as such indebtedness was incurred for the purpose of paying all
or part of the purchase price of such shares of Common Stock or for the purpose
of refinancing indebtedness incurred for such purpose, PROVIDED, HOWEVER, that
any transferee pursuant to this Section 1.2(b) shall acquire only a security
interest in such shares of
3
<PAGE>
Common Stock entitling such transferee to the proceeds from any sale of such
shares of Common Stock made in compliance with the terms of this Agreement and
any proceeds of any distribution to stockholders on account of the stock in any
liquidation as a result of any bankruptcy proceeding or the winding up of
affairs of Holdings, but not title to such shares of Common Stock or any other
rights incident thereto. The pledge agreements or other related financing
agreements of any Management Stockholder shall be subject to, and acknowledge,
the rights of Holdings and the other Stockholders set forth herein.
2. SALES OF COMMON STOCK TO HOLDINGS; CANCELLATION OF OPTIONS.
2.1. THE MANAGEMENT STOCKHOLDERS' RIGHTS.
(a) Subject to all subsections of this Section 2 and Section 7, each
of the Management Stockholders shall have the right to sell to Holdings, and
Holdings shall have the obligation to purchase from such Management Stockholder,
all, but not less than all, of such Management Stockholder's shares of Common
Stock (including Roll-Over Shares, where applicable) held by such Management
Stockholder for at least six months as of the date of such Management
Stockholder's notice described in Section 2.2 at their Fair Market Value, if the
employment of such Management Stockholder with Holdings or any of its
subsidiaries is terminated as a result of (i) termination by Holdings or any
such subsidiary without Cause, (ii) the death or Disability of such Management
Stockholder or (iii) the resignation of such Management Stockholder for Good
Reason.
(b) Subject to all subsections of this Section 2 and Section 7, each
of the Management Stockholders shall have the right to sell to Holdings, and
Holdings shall have the obligation to purchase from such Management Stockholder,
all or any portion of such Management Stockholder's shares of Common Stock
(including Roll-Over Shares, where
4
<PAGE>
applicable), held by such Management Stockholder for at least six months as of
the date of such Management Stockholder's notice described in Section 2.2 at
their Fair Market Value, if the employment of such Management Stockholder with
Holdings or any of its subsidiaries is terminated as a result of the retirement
of such Management Stockholder upon or after reaching the age of 65 or as
otherwise defined in a written agreement between Holdings and such Management
Stockholder ("Retirement").
2.2. NOTICE. If any Management Stockholder desires to sell shares of Common
Stock pursuant to Section 2.1, he or she (or his or her estate, trust,
corporation or partnership, as the case may be) shall notify Holdings not more
than 15 months after the effective date of such Management Stockholder's
termination of employment (or such later date as mutually agreed to by such
Management Stockholder and Holdings) and shall specify the number of shares of
Common Stock such Management Stockholder owns, and the number of shares of
Common Stock to be repurchased hereunder.
2.3. PAYMENT.
Subject to Section 7, payment for shares of Common Stock sold by a
Management Stockholder pursuant to Section 2.1(a) or (b) shall be made on or
prior to the date 30 days (or the first business day thereafter if the 30th day
is not a business day) following the date of the receipt by Holdings of such
Management Stockholder's notice described in Section 2.2; PROVIDED, HOWEVER,
that if such payment is being made pursuant to Section 6.2(c), then such payment
shall be made on or prior to the date that is 30 days (or the first business day
thereafter if the 30th day is not a business day) following the date of the
determination of Fair Market Value.
Any payments required to be made by Holdings under this Section 2.3 (other
than payments made under the terms of a note issued by Holdings pursuant to
Section 7) shall accrue
5
<PAGE>
simple interest at a rate per annum of 6% from the effective date of termination
of employment of the relevant Management Stockholder to the date Holdings has
paid in full for all of the shares of Common Stock. All payments of interest
accrued hereunder (other than interest on any note issued by Holdings pursuant
to Section 7) shall be paid only at the date of payment by Holdings for the
shares of Common Stock being purchased.
3. HOLDINGS' RIGHTS TO PURCHASE FROM MANAGEMENT STOCKHOLDERS SHARES OF COMMON
STOCK AND TO CANCEL OPTIONS.
3.1. HOLDINGS' RIGHTS.
Subject to all subsections of this Section 3 and Section 7, Holdings shall
have the right to purchase from a Management Stockholder, and such Management
Stockholder shall have the obligation to sell to Holdings, all, but not less
than all, of such Management Stockholder's shares of Common Stock:
(a) at the Fair Market Value of the shares of Common Stock to be
purchased if such Management Stockholder's employment with Holdings or any
of its subsidiaries is terminated either (i) as a result of (A) the
termination by Holdings or any such subsidiary of such employment without
Cause, (B) the death or Disability of such Management Stockholder or (C)
the resignation of such Management Stockholder for Good Reason or without
Good Reason; or (ii) with regard to Roll-Over Shares, for any reason; or
(b) at the lesser of the Fair Market Value and the Carrying Value of
the shares of Common Stock to be purchased if such Management Stockholder's
employment with Holdings or any of its subsidiaries is terminated by
Holdings or any such subsidiary for Cause.
3.2. NOTICE. If Holdings desires to purchase shares of Common Stock from a
Management Stockholder and/or to cancel Options pursuant to Section 3.1, it
shall notify such Management Stockholder (or his or her estate, trust,
corporation or partnership, as the case may be hereinafter, collectively with
such Management Stockholder, the "Management Stockholder Parties") not more than
15 months after the effective date of the termination of such Management
6
<PAGE>
Stockholder's employment (or such later date as mutually agreed to by such
Management Stockholder and Holdings).
3.3. PAYMENT. Subject to Section 7, payment for shares of Common Stock
purchased by Holdings (including Roll-Over Shares) by reason of an event
described in Section 3.1(a) shall be made on or prior to the date 30 days (or
the first business day thereafter if the 30th day is not a business day)
following the date of the receipt by such Management Stockholder Parties of
Holdings' notice pursuant to Section 3.2; PROVIDED, however, that if such
payment is being made pursuant to Section 6.2(c), then such payment shall be
made on or prior to the date that is 30 days (or the first business day
thereafter if the 30th day is not a business day) following the date of
determination of Fair Market Value.
Subject to Section 7, and in the sole discretion of the Committee, payment
for shares of Common Stock purchased by Holdings (other than Roll-Over Shares)
by reason of an event described in Section 3.1(b) shall be made as follows (or
on a more accelerated schedule if the Committee so elects):
(a) if the date of termination occurs prior to the third anniversary
of the Closing Date, then one-third of the aggregate purchase price of the
purchased shares shall be paid within 30 days following each of the third,
fourth and fifth anniversaries of the Closing Date;
(b) if the date of termination occurs on or after the third
anniversary of the Closing Date and prior to the fourth anniversary of the
Closing Date, then (x) two-thirds of the purchase price of the purchased
shares shall be paid within 30 days following such fourth anniversary and
(y) one-third of the purchase price of the purchased shares shall be paid
within 30 days following the fifth anniversary of the Closing Date;
7
<PAGE>
(c) if the date of termination occurs on or after the fourth
anniversary of the Closing Date and prior to the fifth anniversary of the
Closing Date, then the purchase price of the purchased shares shall be paid
within 30 days following such fifth anniversary; and
(d) if the date of termination occurs on or after the fifth
anniversary of the Closing Date, then the purchase price of the purchased
shares shall be paid contemporaneously with the surrender of the
certificates representing the purchased shares and evidence of cancellation
of such Options.
Any payments based on Fair Market Value required to be made by Holdings
under this Section 3.3 (other than payments made under the terms of a note
issued by Holdings pursuant to Section 7) shall accrue simple interest at a rate
per annum of 6% on the amounts not paid from the date of termination of
employment to the date Holdings makes such payments. All payments of interest
accrued hereunder (other than interest on any note issued by Holdings pursuant
to Section 7) shall be paid only at the date or dates of payment by Holdings for
the shares of Common Stock being purchased.
4. TAG-ALONG AND DRAG-ALONG RIGHTS.
4.1. TAG-ALONG RIGHTS. Odyssey may not sell any shares of Common Stock to
one or more third parties if such shares, together with all shares of Common
Stock previously sold by Odyssey to one or more third parties, would represent
more than 15% of the aggregate number of shares of Common Stock held by Odyssey
immediately after the Closing Date (as adjusted to reflect any stock dividend,
split, reverse split, combination, recapitalization, reclassification of shares
or capital contributions), UNLESS each Management Stockholder is offered a PRO
RATA right (calculated by reference to the aggregate number of shares of Common
Stock held, and shares of
8
<PAGE>
Common Stock underlying Roll-Over Options held, by each Management Stockholder
at the time of such sale) to participate in such sale for a purchase price per
share of Common Stock and on other terms and conditions not less favorable to
such Management Stockholder than those applicable to Odyssey. For the purposes
of this Section 4.1, a sale to a "third party" shall not include a sale to any
Permitted Assignee, a sale pursuant to an effective registration statement (a
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") or a sale pursuant to Rule 144 under the Securities Act.
4.2. DRAG-ALONG RIGHTS. If Odyssey proposes to sell to one or more third
parties shares of Common Stock which, together with all shares of Common Stock
previously sold by Odyssey to one or more third parties, would represent more
than 15% of the aggregate number of shares of Common Stock held by Odyssey
immediately after the Closing Date (as adjusted to reflect any stock dividend,
split, reverse split, combination, recapitalization, reclassification of shares
or capital contributions), then, if requested by Odyssey, each Management
Stockholder shall be required to join Odyssey in such sale on a PRO RATA basis
(calculated by reference to the aggregate number of shares of Common Stock held
by, and shares of Common Stock underlying Roll-Over Options held by, each
Management Stockholder at the time of such sale) for a purchase price per share
of Common Stock and on other terms and conditions not less favorable to each
Management Stockholder than those applicable to Odyssey. For the purposes of
this Section 4.2, a sale to a "third party" shall not include a sale to any
Permitted Assignee or a sale pursuant to a Registration Statement.
5. TAX LIABILITY LOANS; ADDITIONAL OFFERINGS.
5.1. TAX LIABILITY LOANS. If a Management Stockholder holds Exercisable
Options on the date of his or her termination of employment with Holdings for
any reason other than
9
<PAGE>
termination for Cause or resignation without Good Reason, and within 15 days
following the date of such termination of employment such Management Stockholder
notifies Holdings that he or she desires to exercise a specified portion of such
Exercisable Options (the "Specified Options"), Holdings shall, or shall cause an
Affiliate of Holdings to, lend to such Management Stockholder within 30 days
after Holdings' receipt of such notice from such Management Stockholder 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 such Management Stockholder as a result of his or her exercise of
the Specified Options in accordance with such notice, except as otherwise
provided in a written agreement between such Management Stockholder and
Holdings. Any such loan pursuant to this Section 5.1 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 Management Stockholder receives payment from
Holdings 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
Holdings and (iv) which shall be in a form acceptable to Holdings' (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
5.1 result in adverse accounting consequences to Holdings, such provisions shall
be modified in a manner mutually acceptable to the affected parties hereto.
5.2. ADDITIONAL OFFERINGS.
10
<PAGE>
In the event that Odyssey desires to purchase shares of Common Stock from
Holdings in an offering that is not required to be registered under the
Securities Act (a "Private Offering"), Holdings shall also offer each Management
Stockholder a PRO RATA right to participate in such Private Offering (calculated
by reference to the aggregate number of shares of Common Stock held by, and
shares of Common Stock underlying Roll-Over Options held by, each Management
Stockholder at the time of such Private Offering) for a purchase price per share
of Common Stock and on other terms and conditions not less favorable to such
Management Stockholder than those applicable to Odyssey.
6. PURCHASE PRICE.
6.1. APPRAISAL. Holdings shall engage, from time to time, but not less
often than once with respect to every fiscal year commencing with the fiscal
year ending on September 30, 1999, and not later than 90 days after the end of
each fiscal year, an independent valuation consultant or appraiser of recognized
national standing reasonably satisfactory to Odyssey (the "Appraiser") to
appraise the Fair Market Value of the shares of Common Stock as of the last day
of the fiscal year then most recently ended or, at the request of Holdings, as
of any more recent date (the "Appraisal Date") and to prepare and deliver a
report to Holdings describing the results of such appraisal (the "Appraisal").
6.2. FAIR MARKET VALUE.
(a) The "Fair Market Value" of a share of Common Stock determined for
purposes of Section 2 and 3 hereof shall be (i) the fair market value of the
entire Common Stock equity interest of Holdings taken as a whole, without
additional premiums for control or discounts for minority interests or
restrictions on transfer, divided by (ii) the number of outstanding shares of
Common Stock, calculated on a fully-diluted basis. Except as set forth in
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subsections (b) and (c) of this Section 6.2, the Fair Market Value of any share
of Common Stock shall be calculated with reference to the most recent Appraisal
and as of the most recent Appraisal Date prior to the termination of the
relevant Management Stockholder's employment (or as of the first Appraisal and
the first Appraisal Date in the event that such termination occurs prior to
September 30, 1999).
(b) For the purposes of Section 8.3, the Fair Market Value of any
share of Common Stock shall be calculated with reference to the most recent
Appraisal and as of the most recent Appraisal Date prior to the date of the
Involuntary Transfer.
(c) Beginning with the fiscal year commencing October 1, 1999, if the
effective date of termination of the relevant Management Stockholder's
employment is on or after the first day of the seventh month of any fiscal year,
the Fair Market Value of any share of Common Stock shall equal the Appraisal
determined as of the most recent Appraisal Date prior to the effective date of
such termination of employment (the "Prior Appraisal Date"), plus (or minus) the
product of (A) the increase (or decrease) in the Fair Market Value from such
Prior Appraisal Date to the Appraisal Date next following the effective date of
such termination of employment and (B) a fraction, the denominator of which is
the number of days in the period between the Appraisal Dates immediately
preceding and following the effective date of such termination of employment and
the numerator of which is the number of days elapsed from the Prior Appraisal
Date through the effective date of such termination of employment.
6.3. NOTICE TO STOCKHOLDERS. Promptly after receipt of each Appraisal,
Holdings shall deliver to each Management Stockholder a copy of the letter as to
value included with the Appraisal.
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6.4. CARRYING VALUE. For the purposes of this Agreement, the "Carrying
Value" of any share of Common Stock being purchased by Holdings shall be equal
to the price paid by the selling Management Stockholder for any such share plus
simple interest at a rate per annum equal to 6% which shall be deemed to be the
carrying cost, from the date of the purchase of such share by the selling
Management Stockholder through the date of such purchase by Holdings, less the
amount of dividends paid to such Management Stockholder in respect of such share
(to the extent that the amount of such dividends does not exceed such simple
interest).
7. PROHIBITED PURCHASES. Notwithstanding anything to the contrary herein,
Holdings shall not be permitted or obligated to purchase any shares of Common
Stock from a Management Stockholder hereunder to the extent (a) Holdings is
prohibited from purchasing such shares by applicable law or by any debt
instruments or agreements, including any amendment, renewal, extension,
substitution, refinancing, replacement or other modification thereof (the
"Financing Documents") entered into by TransDigm or Holdings in connection with
the Merger or thereafter, (b) a default has occurred under any Financing
Document and is continuing, (c) the purchase of such shares would, or in the
opinion of the Committee might, result in the occurrence of an event of default
under any Financing Document or create a condition which would or might, with
notice or lapse of time or both, result in such an event of default or (d) the
purchase of such shares would, in the reasonable opinion of the Committee, be
imprudent in view of the financial condition (present or projected) of TransDigm
and/or Holdings or the anticipated impact of the purchase of such shares on
TransDigm's and/or Holdings' ability to meet their respective obligations under
any Financing Document. If shares of Common Stock which Holdings has the right
or obligation to purchase on any date exceed the total amount permitted to be
purchased on such date pursuant to the preceding sentence (the "Maximum
Amount"),
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Holdings shall purchase on such date only that number of shares of Common Stock
up to the Maximum Amount (and shall not be required to purchase more than the
Maximum Amount) in such amounts as the Committee shall determine in good faith
applying the following order of priority:
(a) First, the shares of Common Stock of all Management Stockholders
that are Roll-Over Shares, which shares are being repurchased by Holdings
by reason of the Management Stockholder's termination of employment for any
reason and, to the extent that the number of shares of Common Stock that
Holdings is obligated to purchase from such Management Stockholders (but
for this Section 7) exceeds the Maximum Amount, such shares of Common Stock
PRO RATA among such Management Stockholders on the basis of the number of
shares of Common Stock held by each of such Management Stockholders that
Holdings is obligated or has the right to purchase;
(b) Second, to the extent that the Maximum Amount is in excess of the
amount Holdings purchases pursuant to clause (a) above, the shares of
Common Stock of all Management Stockholders whose shares of Common Stock
are being purchased by Holdings by reason of termination of employment due
to death or Disability and, to the extent that the number of shares of
Common Stock that Holdings is obligated to purchase from such Management
Stockholders (but for this Section 7) exceeds the Maximum Amount, such
shares of Common Stock PRO RATA among such Management Stockholders on the
basis of the number of shares of Common Stock held by each of such
Management Stockholders that Holdings is obligated or has the right to
purchase; and
(c) Third, to the extent that the Maximum Amount is in excess of the
amount Holdings purchases pursuant to clauses (a) and (b) above, the shares
of Common Stock of
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all Management Stockholders whose shares of Common Stock are being
purchased by Holdings by reason of termination of employment without Cause
or due to Retirement or resignation for Good Reason up to the Maximum
Amount and, to the extent that the number of shares of Common Stock that
Holdings is obligated to purchase from such Management Stockholders (but
for this Section 7) exceeds the Maximum Amount, such shares of Common Stock
PRO RATA among such Management Stockholders on the basis of the number of
shares of Common Stock held by each of such Management Stockholders that
Holdings is obligated or has the right to purchase; and
(d) Fourth, to the extent the Maximum Amount is in excess of the
amounts Holdings purchases pursuant to clauses (a), (b) and (c) above, the
shares of Common Stock of all other Management Stockholders whose shares of
Common Stock are being purchased by Holdings up to the Maximum Amount and,
to the extent that the number of shares of Common Stock that Holdings is
obligated to purchase from such Management Stockholders (but for this
Section 7) exceeds the Maximum Amount, the shares of Common Stock of such
Management Stockholders in such order of priority and in such amounts as
the Committee, in its sole discretion, shall in good faith determine to be
appropriate under the circumstances.
Notwithstanding anything to the contrary contained in this Agreement, if
Holdings is unable to make any payment when due to any Management Stockholder
under this Agreement by reason of this Section 7, Holdings shall issue a note to
such Management Stockholder for the amount of such payment, the terms of which
note shall be acceptable to the lenders to the Financing Documents and shall not
result in a breach or violation of any of the Financing Documents. A note issued
to a Management Stockholder by Holdings under this Section 7 shall
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bear simple interest at the prime rate as published in the WALL STREET JOURNAL
on the date such payment is due and owing plus one percent (1%) from the date
such payment is due and owing to the date such payment is made and such note
will remain outstanding until the earliest practicable date on which Holdings is
able to make payment therefor. All payments of interest accrued hereunder shall
be paid only at the date of payment by Holdings for the shares of Common Stock
being purchased and Options being canceled.
8. SALES TO THIRD PARTIES.
8.1. GENERAL. At any time after the fifth anniversary of the Closing Date,
a Management Stockholder may sell his or her shares of Common Stock to a third
party, provided that such sale is made in compliance with the provisions of
Sections 8.2 and 14.4.
8.2. RIGHT OF FIRST REFUSAL.
(a) PROCEDURE. If a Management Stockholder who is entitled to sell
shares of Common Stock to third parties pursuant to Section 8.1 (the "Offering
Stockholder") shall have received a BONA FIDE offer or offers from a third party
or parties to purchase any shares of Common Stock, then prior to selling any
such shares of Common Stock to such third party or parties such Offering
Stockholder shall deliver to Holdings a letter signed by such Offering
Stockholder setting forth:
(i) the name of the third party or parties;
(ii) the prospective purchase price per share of Common Stock;
(iii) all material terms and conditions contained in the offer of the
third party or parties;
(iv) the Offering Stockholder's offer (irrevocable by its terms for 60
days following receipt) to sell to Holdings all (but not less than all) of
the shares of Common Stock covered by the offer of the third party or
parties, for a purchase price per share and
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on other terms and conditions not less favorable to Holdings than those
contained in the offer of the third party or parties (an "Offer"); and
(v) closing arrangements and a closing date (not less than 60 nor more
than 90 days following the date of such letter) for any purchase and sale
that may be effected by Holdings.
(b) EFFECTING SALES. If, upon the expiration of 60 days following
receipt by Holdings of the letter described in Section 8.2(a), Holdings shall
not have accepted the Offer, the Offering Stockholder may sell to such third
party or parties all (but not less than all) of the shares of Common Stock
covered by the Offer, for the purchase price and on the other terms and
conditions contained in the Offer. If Holdings shall have accepted such Offer,
the closing of the purchase and sale pursuant to such acceptance shall take
place as set forth in the letter of such Stockholder to Holdings pursuant to
subparagraph (v) of Section 8.2(a).
8.3. INVOLUNTARY TRANSFERS. In the case of any transfer of title or
beneficial ownership of shares of Common Stock upon default, foreclosure,
forfeit, divorce, court order or otherwise than by a voluntary decision on the
part of a Management Stockholder (each, an "Involuntary Transfer"), Holdings
shall have the right to purchase such shares pursuant to this Section 8.3. Upon
the Involuntary Transfer of any shares of Common Stock, such Management
Stockholder shall promptly (but in no event later than two days after such
Involuntary Transfer) furnish written notice (the "Notice") to Holdings
indicating that the Involuntary Transfer has occurred, specifying the name of
the person to whom such shares have been transferred (the "Involuntary
Transferee"), giving a detailed description of the circumstances giving rise to,
and stating the legal basis for, the Involuntary Transfer. Upon the receipt of
the Notice, and for 60 days thereafter, Holdings shall have the right to
purchase, and the Involuntary Transferee shall have the obligation to sell, all
(but not less than all) of the shares of Common Stock acquired by the
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Involuntary Transferee for a purchase price equal to the lesser of (a) the Fair
Market Value of such shares of Common Stock as determined pursuant to the
Appraisal as of the most recent Appraisal Date prior to the date of the
Involuntary Transfer and (b) the amount of the indebtedness or other liability
that gave rise to the Involuntary Transfer plus the excess, if any, of the
Carrying Value of such shares of Common Stock over the amount of such
indebtedness or other liability that gave rise to the Involuntary Transfer.
9. ELECTION OF DIRECTORS.
9.1. BOARD MAKE-UP. Each Management Stockholder that holds shares of Common
Stock (each, a "Voting Stockholder") agrees that from and after the Closing Date
such Voting Stockholder will use his or her best efforts to nominate and elect
and will vote all of the shares of Common Stock owned or held of record by him
or her to elect and, thereafter from such period, to continue in office each
nominee to the Board of Directors of Holdings (the "Board") designated by
Odyssey.
9.2. IRREVOCABLE PROXY. In order to effectuate Section 9.1 and, in addition
to and not in lieu of Section 9.1, each Voting Stockholder hereby grants to the
Secretary of Holdings an irrevocable proxy solely for the purpose of voting all
of the shares of Common Stock of Holdings owned by the grantor of the proxy for
the election of directors nominated in accordance with Section 9.1.
10. TERMINATION OF RIGHTS AND OBLIGATIONS UNDER CERTAIN SECTIONS. All rights
and obligations pursuant to Sections 1, 2, 3, 4, 5, 6, 8, 9, 12.1 and 14.4 of
this Agreement shall terminate upon the earlier of the tenth anniversary of the
Closing Date and the closing of a public offering pursuant to a Registration
Statement (a "Registration") that covers (together with prior Registrations) (i)
not less than 50% of the outstanding shares of Common Stock, on a
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fully-diluted basis or (ii) shares of Common Stock that, after the closing of
such public offering, will be traded on the New York Stock Exchange, the
American Stock Exchange or the National Association of Securities Dealers
Automated Quotation System.
11. STOCK CERTIFICATE LEGEND. A copy of this Agreement shall be filed with the
Secretary of Holdings and kept with the records of Holdings. Each certificate
representing shares of Common Stock owned by any Management Stockholder shall
bear upon its face the following legends, as appropriate:
(i) THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS UNLESS, IN THE OPINION OF COUNSEL TO THE
STOCKHOLDER, WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF
WHICH OPINION ARE, SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION
IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH
THE ACT, SUCH LAWS AND THE MANAGEMENT STOCKHOLDERS' AGREEMENT
DATED AS OF DECEMBER 3, 1998 BY AND AMONG TRANSDIGM HOLDING
COMPANY, ODYSSEY INVESTMENT PARTNERS FUND, LP AND THOSE EMPLOYEES
OF THE COMPANY LISTED ON SCHEDULE A ATTACHED THERETO (THE
"MANAGEMENT STOCKHOLDERS' AGREEMENT").
(ii) THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON TRANSFER AND OTHER CONDITIONS, AS SPECIFIED IN
THE MANAGEMENT STOCKHOLDERS' AGREEMENT, COPIES OF WHICH ARE ON
FILE AT THE OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER OF SUCH SHARES UPON WRITTEN REQUEST.
(iii) THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO
SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
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PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF EACH CLASS OR
SERIES OF SHARES AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND OR RIGHTS."
In addition, certificates representing shares of Common Stock owned by residents
of certain states shall bear any legends required by the laws of such states.
All Stockholders shall be bound by the requirements of such legends. Upon a
Registration that covers any shares of Common Stock held by a Management
Stockholder, the certificate representing such registered shares shall be
replaced, at the expense of Holdings, with certificates not bearing the legends
required by Sections 10(i) and 10(ii).
12. COVENANTS; REPRESENTATION AND WARRANTIES.
12.1. NEW MANAGEMENT STOCKHOLDERS. Each of the Stockholders hereby agrees
that any employee of Holdings or TransDigm who after the date of this Agreement
is offered shares of any class of Common Stock or holds stock options to
purchase shares of Common Stock shall, as a condition precedent to the
acquisition of such shares of Common Stock or the grant of such options, (i)
become a party to this Agreement by executing the same and (ii) if such employee
is a resident of a state with a community property system, cause his or her
spouse to execute a Spousal Waiver in form and substance satisfactory to the
Committee and deliver such Agreement and Spousal Waiver, if applicable, to
Holdings at its address specified in Section 20 hereof. Upon such execution and
delivery, such employee shall be a Management Stockholder for all purposes of
this Agreement.
12.2. NO OTHER ARRANGEMENTS OR AGREEMENTS. Each Management Stockholder
hereby represents and warrants to each other Stockholder that, except for (i)
any written employment agreement between such Management Stockholder and
Holdings, (ii) any Option Agreement
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between such Management Stockholder and Holdings, (iii) the Merger Agreement or
(iv) the [LLC Agreement], each as amended from time to time, he or she has not
entered into or agreed to be bound by any other arrangements or agreements of
any kind with any other party with respect to the shares of Common Stock,
including, but not limited to, arrangements or agreements with respect to the
acquisition, disposition or voting of shares of Common Stock or any interest
therein (whether or not such arrangements and agreements are with Holdings,
TransDigm, other Stockholders or holders of Common Stock that are not parties to
this Agreement). Each Management Stockholder agrees that, except as disclosed
above, he or she will not enter into any such other arrangements or agreements
as he has represented and warranted to above with any other party as long as any
of the terms of this Agreement remain in effect, except for any such agreement
with Holdings or TransDigm entered into in connection with the grant of any
stock options or restricted stock pursuant to the 1994 Plan, the 1998 Plan or
any other equity incentive plan of Holdings, TransDigm or any of their
subsidiaries.
13. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by written agreement of Holdings, Odyssey and the Majority
Management Stockholders. If Holdings, Odyssey and such Majority Management
Stockholders shall have so agreed, Holdings shall notify all other Stockholders
promptly after such amendment, modification or supplement shall take effect.
14. PARTIES.
14.1. ASSIGNMENT BY HOLDINGS. Holdings shall have the right to assign to
one or more Permitted Assignees, and/or the right to cause one or more Permitted
Assignees to assume, all or any portion of its rights and obligations under
Sections 2, 3, 8.2 and 8.3, provided that any such assignment or assumption is
accepted by the proposed assignee or assignees. If Holdings has not
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exercised its right to purchase shares of Common Stock pursuant to any such
Sections within 20 days of receipt by Holdings of the letter or notice giving
rise to such right (or, in the case of Section 3, the giving of notice by
Holdings), then Odyssey shall have the right to require Holdings to assign such
right to one or more Permitted Assignees. If such right to purchase is assigned
to a Permitted Assignee or Permitted Assignees pursuant to this Section 14.1,
such Permitted Assignee or Permitted Assignees shall be deemed to be Holdings
for purposes of such purchases under Section 2, 3, 8.2 or 8.3, as the case may
be.
14.2. ASSIGNMENT GENERALLY. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns; PROVIDED, that Holdings
shall not be permitted to assign this Agreement without the consent of Odyssey,
and no Management Stockholder shall be permitted to assign any of his or her
obligations pursuant to this Agreement without the prior written consent of
Odyssey, unless such assignment is in connection with a Transfer explicitly
permitted by this Agreement and, prior to such assignment, such assignee
complies with the requirements of Section 14.4.
14.3. TERMINATION. Any party to, or person who is subject to, this
Agreement which ceases to own shares of Common Stock or any interest therein
shall cease to be a party to, or person who is subject to, this Agreement and
thereafter shall have no rights or obligations hereunder; PROVIDED, HOWEVER,
that a Transfer of shares of Common Stock not explicitly permitted under this
Agreement shall not relieve a Management Stockholder of any of his or her
obligations hereunder.
14.4. AGREEMENTS TO BE BOUND. Notwithstanding anything to the contrary
contained in this Agreement, any Transfer of shares by a Management Stockholder
shall be permitted under
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the terms of this Agreement only if the transferee (i) shall agree in writing to
be bound by the terms and conditions of this Agreement pursuant to an instrument
of assumption reasonably satisfactory in substance and form to Holdings and (ii)
shall cause his or her spouse, if any, to execute a Spousal Waiver in form and
substance satisfactory to the Committee, if such transferee is an individual who
resides in a state with a community property system. Upon the execution of the
instrument of assumption by such transferee and, if applicable, the Spousal
Waiver by the spouse of such transferee, such transferee shall be deemed to be a
Management Stockholder for all purposes of this Agreement, PROVIDED, HOWEVER,
that Sections 2.1, 3.1 and 4.1 shall not apply to any transferee who has
acquired shares of Common Stock pursuant to Section 8.1.
15. RECAPITALIZATIONS, EXCHANGES, ETC. AFFECTING THE COMMON STOCK. Except as
otherwise provided herein, the provisions of this Agreement shall apply to the
full extent set forth herein with respect to (a) the shares of Common Stock and
(b) any and all shares of capital stock of Holdings or any successor or assign
of Holdings (whether by merger, consolidation, sale of assets or otherwise)
which may be issued in respect of, in exchange for, or in substitution for the
shares of Common Stock, by reason of any stock dividend, split, reverse split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Except as otherwise provided herein, this Agreement is not intended
to confer upon any person, except for the parties hereto, any rights or remedies
hereunder.
16. TRANSFER OF COMMON STOCK. If at any time Holdings purchases any shares of
Common Stock pursuant to this Agreement, Holdings may pay the purchase price
determined under this Agreement for the shares of Common Stock it purchases by
wire transfer of funds or company check in the amount of the purchase price, and
upon receipt of payment of such purchase price or, pursuant to Section 3.3 or
Section 7, any portion thereof, the selling Management Stockholder
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shall deliver the certificates representing the number of shares of Common Stock
being purchased in a form suitable for transfer, duly endorsed in blank, and
free and clear of any lien, claim or encumbrance. Notwithstanding anything in
this Agreement to the contrary, Holdings shall not be required to make any
payment for shares of Common Stock purchased hereunder until delivery to it of
the certificates representing such shares. If Holdings is purchasing less than
all the shares of Common Stock represented by a single certificate, Holdings
shall deliver to the selling Management Stockholder a certificate for any
unpurchased shares of Common Stock.
17. FURTHER ASSURANCES. Each party hereto or person subject hereto shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as any other party hereto or person subject hereto may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
18. GOVERNING LAW. This Agreement and the rights and obligations of the parties
hereunder and the persons subject hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
19. INVALIDITY OF PROVISION. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
20. NOTICES. All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, (ii)
mailed, certified or registered mail with postage pre-
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paid, (iii) sent by next-day or overnight mail or delivery or (iv) sent by
telecopy or telegram, as follows:
(a) If to Holdings, to it at:
TransDigm Holding Company
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Corporate Secretary
with a copy to:
Odyssey Investment Partners Fund, LP
280 Park Avenue
West Tower, 38th Floor
New York, New York 10017
Attention: William Hopkins
(b) If to a Management Stockholder, to him or her at the address
listed on the signature page hereto or as such Management Stockholder shall
designate to Holdings in writing, with a copy to Odyssey at its address
indicated herein.
(c) If to Odyssey, to it at:
Odyssey Investment Partners Fund, LP
280 Park Avenue
West Tower, 38th Floor
New York, New York 10017
Attention: William Hopkins
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Maureen A. Riley, Esq.
or to such other person or address as any party shall specify by notice in
writing to Holdings. All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (w) if by personal
delivery, on the day after such delivery, (x) if by certified or
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registered mail, on the fifth business day after the mailing thereof, (y) if by
next-day or overnight mail or delivery, on the day delivered, (z) if by telecopy
or telegram, on the next day following the day on which such telecopy or
telegram was sent, provided that a copy is also sent by certified or registered
mail.
21. HEADINGS; EXECUTION IN COUNTERPART. The headings and captions contained
herein are for convenience only and shall not control or affect the meaning or
construction of any provision hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
which together shall constitute one and the same instrument.
22. EFFECTIVENESS OF VOTING AGREEMENTS. Any provision contained herein which
shall be deemed to be a "Voting Trust" or "Voting Agreement" (as provided in
Section 218 of the General Corporation Law of the State of Delaware ("Section
218")) shall be effective, pursuant to this Agreement or pursuant to any
extension entered into in accordance with Section 218, only for so long a period
as provided for in Section 218.
23. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings relating to the shares of Common Stock, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings among the parties with respect to such
subject matter, and it is the understanding of all parties hereto that any such
prior agreement is hereby terminated, null and void as of the Closing Date.
24. INJUNCTIVE RELIEF. The shares of Common Stock cannot readily be purchased
or sold in the open market, and for that reason, among others, Holdings, Odyssey
and the Management Stockholders will be irreparably damaged in the event this
Agreement is not specifically
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enforced. Each of the parties therefore agrees that in the event of a breach of
any provision of this Agreement, the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of this Agreement. Such remedies
shall, however, be cumulative and not exclusive, and shall be in addition to any
other remedy which Holdings or the Management Stockholders may have. Each
Management Stockholder hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts in New York for the purposes of any
suit, action or other proceeding arising out of or based upon this Agreement or
the subject matter hereof. Each Management Stockholder hereby consents to
service of process by mail made in accordance with Section 20.
25. DEFINED TERMS. As used in this Agreement, the following terms shall have
the meanings ascribed to them below:
25.1. AFFILIATE. "Affiliate" shall mean, with respect to any Person, a
Person directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with, such Person, and with respect to
Holdings, also any entity designated by the Board in which Holdings or one of
its Affiliates has an interest, and with respect to Odyssey, also any Affiliate
of any partner of Odyssey.
25.2. CARRYING VALUE. "Carrying Value" shall have the meaning set forth in
Section 6.4.
25.3. CAUSE. The term "Cause," used in connection with the termination of
employment of a Management Stockholder, shall mean a termination of such
Management Stockholder's employment by Holdings or any of its subsidiaries due
to: (i) the continued failure by the Management Stockholder, after written
notice from the Board, substantially to perform his or her duties and
responsibilities as an officer or employee of Holdings or any of its
subsidiaries (other than any such failure resulting from incapacity due to
reasonably documented physical or
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mental illness), or (ii) the engagement by the Management Stockholder in serious
misconduct which is material to the performance by the Management Stockholder of
his or her duties and obligations for Holdings or any of its subsidiaries,
including, without limitation, the disclosure of material secret or confidential
information of Holdings or any of its subsidiaries.
25.4. CHANGE IN CONTROL. "Change in Control" shall mean a change in
ownership or control of Holdings effected through a transaction or series of
transactions (other than an offering of Holdings' 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
Holdings, any of its subsidiaries, an employee benefit plan maintained by
Holdings 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, Holdings or a Principal Stockholder) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of Holdings possessing more than fifty percent
(50%) of the total combined voting power of Holdings' securities outstanding
immediately after such acquisition.
25.5. CLOSING DATE. The "Closing Date" is defined in the Recitals hereto.
25.6. DISABILITY. The termination of the employment of any Management
Stockholder by Holdings or any of its subsidiaries shall be deemed to be by
reason of a "Disability" if, as a result of such Management Stockholder's
incapacity due to reasonably documented physical or mental illness, such
Management Stockholder shall have been unable for more than six months within
any 12-month period to perform his or her duties with Holdings or such
subsidiary on a full-time basis and within 30 days after written notice of
termination has been given to such
28
<PAGE>
Management Stockholder, such Management Stockholder shall not have returned to
the full-time performance of his or her duties.
25.7. EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
25.8. EXERCISABLE OPTIONS. "Exercisable Options" of a Management
Stockholder, as of any date of determination, shall mean those Options (or
portions thereof ) that are then exercisable Options.
25.9. FAIR MARKET VALUE. "Fair Market Value" shall have the meaning set
forth in Section 6.2.
25.10. GOOD REASON. The termination of a Management Stockholder's
employment with Holdings or any of its subsidiaries shall be for "Good Reason"
if such Management Stockholder voluntarily terminates his or her employment with
Holdings or a subsidiary as a result of any of the following: (i) a material
diminution in such Management Stockholder's title, duties or responsibilities,
without his or her prior written consent, (ii) a reduction of such Management
Stockholder's aggregate compensation, bonus opportunities, benefits or
perquisites, without his or her prior written consent or (iii) the occurrence of
a Change in Control, or as otherwise defined in a written agreement between
Holdings and such Management Stockholder.
25.11. INVOLUNTARY TRANSFER. "Involuntary Transfer" shall have the meaning
set forth in Section 8.3.
25.12. MAJORITY MANAGEMENT STOCKHOLDERS. "Majority Management Stockholders"
as of any date of determination shall mean those Management Stockholders who
then hold 50% or more of the total combined voting power of all shares of Common
Stock then held by the Management Stockholders.
29
<PAGE>
25.13. MERGER; MERGER AGREEMENT. "Merger" shall mean the merger
contemplated pursuant to that certain Agreement and Plan of Merger, dated August
3, 1998, entered into by and between Phase II Acquisition Corp. and Holdings, as
amended (the "Merger Agreement").
25.14. PERMITTED ASSIGNEE. A "Permitted Assignee" shall mean, (i) Odyssey
and Odyssey Coinvestors, LLC (together the "Odyssey Stockholders"), (ii) any
general or limited partner or member of any Odyssey Stockholder (an "Odyssey
Partner"), (iii) any corporation, partnership, limited liability company or
other entity that is an Affiliate of any Odyssey Stockholder or of any Odyssey
Partner (collectively, the "Odyssey Affiliates"), (iv) any managing director,
member, general partner, director, limited partner, officer or employee of (a)
any Odyssey Stockholder, (b) any Odyssey Partner or (c) any Odyssey Affiliate,
or the heirs, executors, administrators, testamentary trustees, legatees or
beneficiaries of any of the foregoing Persons referred to in this clause (iv)
(collectively, the "Odyssey Associates"), (v) any trust, the beneficiaries of
which, or corporation, limited liability company or partnership, the
stockholders, members or general or limited partners of which, include only
Odyssey Stockholders, Odyssey Partners, Odyssey Affiliates, Odyssey Associates,
their spouses or their lineal descendants; and (v) a voting trustee for one or
more Odyssey Stockholders, Odyssey Affiliates, Odyssey Partners or Odyssey
Associates.
25.15. PERSON. "Person" shall mean an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
25.16. PRINCIPAL STOCKHOLDER. "Principal Stockholder" shall mean Odyssey
Investment Partners Fund, LP and any of its Permitted Assignees.
30
<PAGE>
25.17. ROLL-OVER OPTIONS. "Roll-Over Options" shall have the meaning
ascribed to such term in the Recitals hereto.
25.18. ROLL-OVER SHARES. "Roll-Over Shares" shall mean those shares of
Common Stock that are acquired by a Management Stockholder upon exercise of a
Roll-Over Option.
25.19. TRANSFER. "Transfer" (or any variation thereof used herein) shall
mean any direct or indirect sale, assignment, mortgage, transfer, pledge,
hypothecation or other disposal.
[signature pages follow]
31
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
TRANSDIGM HOLDING COMPANY
By: /s/ Peter Radekevich
--------------------------------
Title: Chief Financial Officer
Date: 12/2/98
ODYSSEY INVESTMENT PARTNERS FUND, LP
By: /s/ William Hopkins
--------------------------------
Title: Managing Principal
Date: 12/2/98
32
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Douglas Peacock
----------------------------------
Douglas W. Peacock
Address: 2736 Lake Shore Drive
--------------------------
Waco, Texas 76708
--------------------------
Date: 12/2/98
-----------
33
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Nicholas Howley
-------------------------------
W. Nicholas Howley
Address: 351 New Hudson Rd.
-------------------------------
Aurona, OH 44202
-------------------------------
Date: 12/2/98
-----------
34
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ John D. Peterson, Sr.
-------------------------------
John D. Peterson, Sr.
Address: 3036 Java Rd.
-------------------------------
Costa Mesa, CA 92626
-------------------------------
Date: 12/2/98
------------
35
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Robert S. Henderson
-------------------------------
Robert S. Henderson
Address: 9926 TOWNRIDGE DR.
-------------------------------
Waco, TX 76712
-------------------------------
Date: December 2, 1998
-------------------
36
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Raymond F. Laubenthal
-------------------------------
Raymond F. Laubenthal
Address: 9110 Oackstone Trail
-------------------------------
Cleveland, OH 44024
-------------------------------
Date: December 2, 1998
--------------------
37
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Peter Radekevich
-------------------------------
Peter B. Radekevich
Address: 407 Riverview
-------------------------------
Waco, Texas 76712
-------------------------------
Date: 12/2/98
-------------
38
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Albert Rodriguez
-------------------------------
Albert J. Rodriguez
Address: 7220 Sandtree Lane
-------------------------------
Mentor, Ohio 44060
-------------------------------
Date: 12/2/98
------------
39
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Bernt Iverson II
-------------------------------
Bernt G. Iversen, II
Address: 17 Davis
-------------------------------
Irvine, CA 92620
-------------------------------
Date: 12/2/98
--------------
40
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ James Skulina
------------------------------
James F. Skulina
Address: 7736 Ellickston
------------------------------
Mentor, OH 44060
------------------------------
Date: 12/2/98
-----------
41
<PAGE>
IN WITNESS WHEREOF, this Management Stockholders' Agreement has been signed
by each of the parties hereto on the date indicated below such party's signature
hereto, and shall be effective as of the date first above written.
/s/ Gary W. McMurtrey
-------------------------------
Gary W. McMurtrey
Address: 7694 Chesterbrook
-------------------------------
Chesterbrook Rd.
-------------------------------
Chesterland, OH 44026
-------------------------------
Date: 12/2/98
---------------
<PAGE>
Exhibit 10.7
1999 TRANSDIGM INCENTIVE PROGRAM - SUMMARY
o Annual program based on business plan parameters
o Target awards are a percentage of base salary and vary depending on
position and responsibilities
o Target awards are multiplied by a three factor formula
Annual Incentive Award = Target Award
x Corporate Performance Factor
x Group Performance Factor
x Individual Performance Factor
o Corporate Performance Factor is set at the discretion of the Board of
Directors, based on the performance of TransDigm.
o Group Performance Factor is defined by the following measurables:
Earnings Factor = Actual Earnings/Plan
Investment Factor = Actual ROI/Plan
Earnings = Group Operating Income
Group 1999 Business Plan Earnings
----- ---------------------------
AdelWiggins = $19.322 Million
AeroControlex = $24.725 Million
Marathon = $7.555 Million
TransDigm = $48.425 Million
ROI = Earnings/Average Group Investment
Group 1999 Business Plan ROI
----- ----------------------
AdelWiggins = 164%
AeroControlex = 156%
Marathon = 51%
TransDigm = 122%
For Corporate and Group Staff:
------------------------------
Group Performance Factor = .67 x Earnings Factor +
.33 x Investment Factor
o Individual Performance Factor is set at the discretion of the Office of
the Chairman
<PAGE>
Exhibit 12.1
TRANSDIGM INC.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION> Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------ ------ ------ ------ ------ --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Total earnings (loss) $(5,323) $ (261) $1,175 $3,172 $14,137 7,169 4,118 (24,824) 2,113
Income tax provision (credit) (2,307) 134 2,045 5,193 12,986 4,350 2,590 (7,566) 1,406
Extraordinary Item 1,462
---------------------------------------------------------------------------------------------
Pre-tax earnings (loss) (7,630) (127) 3,220 9,827 27,123 11,519 6,708 (32,390) 3,519
---------------------------------------------------------------------------------------------
Fixed charges:
Interest charges 4,823 5,193 4,510 3,463 3,175 25,419 1,046 2,276 5,980
Interest factor of operating
rents 198 190 188 178 197 200 50 50 50
---------------------------------------------------------------------------------------------
Total fixed charges 5,021 5,383 4,698 3,641 3,372 25,619 1,096 2,326 6,030
---------------------------------------------------------------------------------------------
Earnings as adjusted (2,609) 5,256 7,918 13,468 30,495 37,138 7,804 (30,064) 9,549
---------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges - - 1.7 3.7 9.0 1.5 7.1 -- 1.6
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 12.2
Ratio of EBITDA (as defined) to Interest Expense:
- -------------------------------------------------
<TABLE>
<CAPTION>
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA (as defined) $ 9,875 $13,168 $17,213 $24,522 $43,547 43,647 9,651 11,078 11,098
Interest expense 4,823 5,193 4,510 3,463 3,175 25,419 1,046 2,276 5,980
------- ------- ------- ------- ------- ------- ------ ------ ------
Ratio 2.1 2.5 3.8 7.1 13.7 1.7 9.2 4.9 1.9
</TABLE>
<PAGE>
Exhibit 12.3
Ratio of EBITDA (as defined) less Capital Expenditures to Interest Expense:
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $9,875 $13,168 $17,213 $24,522 $43,547 $43,647 9,651 11,078 11,098
Less - capital expenditures 1,941 1,702 2,494 2,285 5,061 5,061 628 712 712
------- ------- ------- ------- ------- ------- ------ ------ ------
7,934 11,466 14,719 22,237 38,486 38,586 9,023 10,366 10,386
Interest expense 4,823 5,193 4,510 3,463 3,175 25,419 1,046 2,276 5,980
------- ------- ------- ------- ------- ------- ------ ------ ------
Ratio 1.6 2.2 3.3 6.4 12.1 1.5 8.6 4.6 1.7
</TABLE>
<PAGE>
Exhibit 12.4
Ratio of Total Debt to EBITDA (as defined):
- -------------------------------------------
<TABLE>
<CAPTION>
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total debt $36,399 $32,074 $19,124 $50,000 $45,000 236,200 50,000 236,200 236,200
EBITDA (as defined) 9,875 13,168 17,213 24,522 43,547 43,647 9,651 11,078 11,098
------- ------- ------- ------- ------- -------- ------ ------- -------
Ratio 3.7 2.4 1.1 2.0 1.0 5.4 5.2 21.3 21.3
</TABLE>
<PAGE>
Exhibit 21.1
Subsidiaries of TransDigm Holding Company
TransDigm Holding Company
|
|
|
|
|
|
TransDigm Inc.
/ \
/ \
/ \
/ \
/ \
/ \
/ \
/ \
/ \
/ \
/ \
Marathon Power Technologies Company TransDigm Export, Inc.
|
|
|
|
|
|
Marathon Power Technologies Limited
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-71397 of TransDigm Inc. of our report dated November 9, 1998 (except for
Note 18 for which the date is December 3, 1998) relating to the consolidated
financial statements of TransDigm Holding Company appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated November
9, 1998 relating to the consolidated financial statement schedule appearing
elsewhere in the Registration Statement.
We also consent to the reference to us under the headings "Summary Historical
and Pro Forma Financial Data," "Selected Historical Consolidated Financial Data"
and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 24, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of TransDigm, Inc. of our report dated
January 17, 1997 relating to the consolidated financial statements of Marathon
Power Technologies Company for the years ended December 31, 1996 and 1995, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 23, 1999
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 Franklin Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
MARATHON POWER TECHNOLOGIES COMPANY
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3733378
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8233 IMPERIAL DRIVE
WACO, TX 76712
(Address of principal executive offices) (Zip Code)
SENIOR SUBORDINATED NOTES DUE 2008
(TITLE OF INDENTURE SECURITIES)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 29th of January 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ MICHAEL M. HOPKINS
------------------------------
NAME MICHAEL M. HOPKINS
TITLE VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by TRANSDIGM
INC.. of its SENIOR Subordinated Notes, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ MICHAEL M. HOPKINS
------------------------------
NAME MICHAEL M. HOPKINS
TITLE VICE PRESIDENT
Dated: January 29, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business SEPTEMBER 30, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ..................... 2,008,956
Interest-bearing balances .............................................. 12,286,877
Securities ...................................................................... 9,654,241
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .................................... 10,922,779
Loans and lease financing receivables:
Loans and leases, net of unearned income ............... 7,457,235
Allowance for loan and lease losses .................... 82,851
Allocated transfer risk reserve ........................ 0
Loans and leases, net of unearned income and allowances ................ 7,374,384
Assets held in trading accounts ................................................. 1,898,804
Premises and fixed assets ....................................................... 513,372
Other real estate owned ......................................................... 100
Investments in unconsolidated subsidiaries ...................................... 484
Customers' liability to this bank on acceptances outstanding .................... 48,563
Intangible assets ............................................................... 220,613
Other assets .................................................................... 1,333,210
-----------
Total assets .................................................................... 46,262,383
===========
LIABILITIES
Deposits:
In domestic offices .................................................... 9,557,938
Noninterest-bearing ........................... 7,158,356
Interest-bearing .............................. 2,399,582
In foreign offices and Edge subsidiary ................................. 18,451,054
Noninterest-bearing ........................... 429,797
Interest-bearing .............................. 18,021,257
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary .................................... 12,023,438
Demand notes issued to the U.S. Treasury ........................................ 451,424
Trading liabilities .................................................... 1,582,933
Other borrowed money ............................................................ 323,782
Subordinated notes and debentures ............................................... 0
Bank's liability on acceptances executed and outstanding ........................ 48,563
Other liabilities ............................................................... 1,226,129
Total liabilities ............................................................... 43,665,261
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................................... 0
Common stock .................................................................... 29,931
Surplus ......................................................................... 462,782
Undivided profits and capital reserves/Net unrealized holding gains (losses) .... 2,080,148
Net unrealized holding gains (losses) on available-for-sale securities . 27,376
Cumulative foreign currency translation adjustments ............................. (3,115)
Total equity capital ............................................................ 2,597,122
-----------
Total liabilities and equity capital ............................................ 46,262,383
-----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001077672
<NAME> TRANSDIGM HOLDING COMPANY
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1999
<PERIOD-END> SEP-30-1998 JAN-01-1999
<CASH> 19,486 2,103
<SECURITIES> 0 0
<RECEIVABLES> 12,795 14,681
<ALLOWANCES> 265 278
<INVENTORY> 18,280 18,180
<CURRENT-ASSETS> 54,260 46,370
<PP&E> 39,156 39,867
<DEPRECIATION> 17,205 18,158
<TOTAL-ASSETS> 115,785 118,161
<CURRENT-LIABILITIES> 37,606 19,616
<BONDS> 0 0
0 0
0 0
<COMMON> 24,281 101,424
<OTHER-SE> 12,146 (236,789)
<TOTAL-LIABILITY-AND-EQUITY> 115,785 118,161
<SALES> 110,868 28,194
<TOTAL-REVENUES> 110,868 28,194
<CGS> 59,395 14,937
<TOTAL-COSTS> 59,395 14,937
<OTHER-EXPENSES> 21,175 43,371
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,175 2,276
<INCOME-PRETAX> 27,123 (32,390)
<INCOME-TAX> 12,986 (7,566)
<INCOME-CONTINUING> 14,137 (24,824)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,137 (24,824)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 10-3/8% SENIOR SUBORDINATED NOTES DUE 2008
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
TRANSDIGM INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED _________________, 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _______________, 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE COMPANY.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK AND TRUST COMPANY
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
Attn: Kellie Mullen Fourth Floor
P.O. Box 778 Attn: Kellie Mullen
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(617) 664-5290
FOR INFORMATION OR
CONFIRMATION BY TELEPHONE:
(617) 664-5587
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 10-3/8% SENIOR SUBORDINATED NOTES
DUE 2008 (THE "OLD NOTES") FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED
10-3/8% SENIOR SUBORDINATED NOTES DUE 2008 (THE "NEW NOTES"), PURSUANT TO THE
EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT WITHDRAW) OLD NOTES TO THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE
COMPLETING THIS LETTER OF TRANSMITTAL.
<PAGE>
This Letter of Transmittal is to be completed by holders of Old Notes
either if Old Notes are to be forwarded herewith or if tenders of Old Notes are
to be made by book-entry transfer to an account maintained by State Street Bank
and Trust Company (the "Exchange Agent") at The Depository Trust Company
pursuant to the procedures set forth in "The Exchange Offer--Procedures for
Tendering" in the Prospectus (as defined).
Holders of Old Notes whose certificates for such Old Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date or
who cannot complete the procedures for book-entry transfer on a timely basis,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
DESCRIPTION OF TENDERED OLD NOTES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- -------------------- -------------------
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) CERTIFICATE PRINCIPAL AMOUNT
AS IT APPEARS ON THE 10-3/8% SENIOR SUBORDINATED NOTES DUE 2008 NUMBER(S) OF OLD NOTES
(PLEASE FILL IN, IF BLANK) OF OLD NOTE TENDERED
- ----------------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
-------------------- -------------------
-------------------- -------------------
-------------------- -------------------
-------------------- -------------------
TOTAL PRINCIPAL
AMOUNT OF OLD
NOTES TENDERED
- ----------------------------------------------------------------------------- -------------------- -------------------
</TABLE>
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------
Account Number
-------------------------------------------------------------
Transaction Code Number
----------------------------------------------------
/ / CHECK HERE AND ENCLOSE A COPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
-----------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution which Guaranteed Delivery
------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
----------------------------------------------
Account Number
-------------------------------------------------------------
Transaction Code Number
----------------------------------------------------
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON- EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
<PAGE>
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to TransDigm Inc., a Delaware
corporation (the "Company"), the Old Notes, described above pursuant to the
Company's offer of $1,000 principal amount of the New Notes, in exchange for
each $1,000 principal amount of the Old Notes, upon the terms and subject to the
conditions contained in the Prospectus dated ______________, 1999 (the
"Prospectus"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
authority to tender the Old Notes described above. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the tender of Old Notes.
3. The undersigned understands that the tender of the Old Notes
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions"
is checked, the undersigned hereby represents and warrants that:
(i) the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the undersigned,
whether or not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is
engaging in or intends to engage in a distribution of such New Notes;
(iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Notes; and
(iv) neither the holder nor any such other person is an
"affiliate," as such term is defined under Rule 405 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), of the
Company.
5. The undersigned may, IF, AND ONLY IF, UNABLE TO MAKE ALL OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN ITEM 4 ABOVE, elect to have its Old
Notes registered in the shelf registration described in the Registration Rights
Agreement, dated as of December 3, 1998, among the Company, the Guarantors and
the Initial Purchasers in the form filed as an exhibit to the Registration
Statement (the "Registration Agreement") (all terms used in this Item 5 with
their initial letters capitalized, unless otherwise defined herein, shall have
the meanings given them in the Registration Agreement). Such election may be
made by checking the box under "Special Registration Instructions" on page 5. By
making such election, the undersigned agrees, jointly and severally, as a holder
of Registrable Notes participating in a shelf registration, to indemnify and
hold harmless each of the Company and the Guarantors, their respective directors
and officers and each Person who controls any of the Company or the Guarantors
within the
<PAGE>
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any and all
losses, claims, damages and liabilities whatsoever (including, without
limitation, the reasonable legal and other expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted) caused by,
arising out of or based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Shelf Registration or the
Prospectus or in any amendment thereof or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in conformity
with information relating to the undersigned furnished to the Company in writing
by or on behalf of the undersigned expressly for use therein. Any such
indemnification shall be governed by the terms and subject to the conditions set
forth in the Registration Agreement, including, without limitation, the
provisions regarding notice, retention of counsel, contribution and payment of
expenses set forth therein. The above summary of the indemnification provision
of the Registration Agreement is not intended to be exhaustive and is qualified
in its entirety by reference to the Registration Agreement.
6. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If the undersigned is a broker-dealer and Old
Notes held for its own account were not acquired as a result of market-making or
other trading activities, such Old Notes cannot be exchanged pursuant to the
Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon
the successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery
Instructions," the certificates for the New Notes will be issued in the name of
the undersigned.
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to someone
other than the undersigned or to the undersigned at an address other than that
provided above.
Mail / / Issue / / (check appropriate boxes) certificates to:
Name:
-------------------------------------------------------------------------
(PLEASE PRINT)
Address:
----------------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------------------
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old Notes
in the Shelf Registration described in the Registration Agreement and (iii)
the undersigned agrees to indemnify certain entities and individuals as set
forth in the Registration Agreement and summarized in Item 5 above.
/ / By checking this box the undersigned hereby (i) represents that it
is unable to make all of the representations and warranties set forth in Item
4 above, (ii) elects to have its Old Notes registered pursuant to the Shelf
Registration described in the Registration Agreement and (iii) agrees to
indemnify certain entities and individuals identified in, and to the extent
provided in, the Registration Agreement and summarized in Item 5 above.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by
registered holder exactly as name appears on Old Notes. If signature is by
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
X
----------------------------------------------------------------------------
X
----------------------------------------------------------------------------
(SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE)
Dated:
------------------------------------------------------------------------
Name(s):
----------------------------------------------------------------------
----------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
---------------------------------------------------------------------
Address:
----------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone
No.:
-----------------------------------
SPECIAL GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
------------------------------------------------------------------------------
(PRINTED NAME)
------------------------------------------------------------------------------
(TITLE)
Dated:
--------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal
must be guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or by an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange
Act (an "Eligible Institution") unless the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" above has not been completed or
the Old Notes described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes,
together with a properly completed and duly executed Letter of Transmittal (or
copy thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, signed by such registered holder exactly as such registered
holder's name appears on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding on all parties. The Company reserves the absolute
right to reject any or all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities, or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and
<PAGE>
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent,
nor any other person shall be under any duty to give notification of defects in
such tenders or shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof as soon as practicable following the
Expiration Date.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 10-3/8% SENIOR SUBORDINATED NOTES DUE 2008
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
TRANSDIGM INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED _____________, 1999
As set forth in the Prospectus (as defined), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (i) if
certificates for unregistered 10-3/8% Senior Subordinated Notes due 2008 (the
"Old Notes") of TransDigm Inc., a Delaware corporation (the "Company"), are not
immediately available, (ii) time will not permit a holder's Old Notes or other
required documents to reach the Exchange Agent on or prior to the Expiration
Date (as defined) or (iii) the procedure for book-entry transfer cannot be
completed on a timely basis. This form may be delivered by facsimile
transmission, registered or certified mail, by hand or by overnight delivery
service to the Exchange Agent. See "The Exchange Offer -- Procedures for
Tendering" in the Prospectus.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ________________, 1999 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK AND TRUST COMPANY
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
Attn: Kellie Mullen Fourth Floor
P.O. Box 778 Attn: Kellie Mullen
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(617) 664-5290
FOR INFORMATION OR
CONFIRMATION BY TELEPHONE:
(617) 664-5587
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR TRANSMISSION OF
THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus dated __________________,
1999 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related Letter of Transmittal, receipt of which is hereby
acknowledged, the aggregate principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer -- Guaranteed Delivery Procedures."
- --------------------------------------------------------------------------------
Name(s) of Registered Holder(s):
-------------------------------------------
Aggregate Principal
Amount Tendered: $
---------------------------------------------------------
Certificate No.(s)
(if available):
------------------------------------------------------------
(Total Principal Amount Represented by
Old Notes Certificate(s)):
-------------------------------------------------
$
--------------------------------------------------------------------------
If Old Notes will be tendered by book-entry transfer, provide the following
information;
DTC Account Number:
--------------------------------------------------------
Date:
----------------------------------------------------------------------
-------------
* Must be in denominations of $1,000 and any integral multiple thereof.
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X
---------------------------------- --------------------------------
X
---------------------------------- --------------------------------
Signature(s) or Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
--------------------------------------------
Must be signed by the holder(s) of the Old Notes as their name(s)
appear(s) on certificates for Old Notes or on a security position listing,
or by person(s) authorized to become registered holder(s) by endorsement
and documents transmitted with this Notice of Guaranteed Delivery. If
signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
-------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capacity:
------------------------------------------------------------------
Address(es):
---------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of or participant in the Securities transfer
Agents Medallion Program, the New York Stock Exchange Signature Program or a
firm or other identity identified in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker, municipal securities dealer, government securities broker,
government securities dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or learning agency; or (v) a savings
association that is a participant in a Securities Transfer Association
recognized program (each of the foregoing being referred to as an "Eligible
Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its
addresses set forth above, either the Old Notes to the Exchange Agent's account
at The Depositary Trust Company, pursuant to the procedures for book-entry
transfer set forth in the Prospectus, within three New York Stock Exchange, Inc.
trading days after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Old Notes
tendered hereby to the Exchange Agent within the time period set forth above and
that failure to do so could result in a financial loss to the undersigned.
- --------------------------------------------------------------------------------
----------------------------------- -----------------------------------
Name of Firm Authorized Signature
----------------------------------- -----------------------------------
Address Title
----------------------------------- -----------------------------------
Zip Code (Please Type or Print)
Area Code and Telephone Dated:
No.: ------------------------------
------------
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM.
