<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996.
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1078297
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3724
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
175 ADMIRAL COCHRANE DRIVE
ANNAPOLIS, MARYLAND 21401
(410) 266-7333
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD H. LANGE, ESQUIRE
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
UNC INCORPORATED
175 ADMIRAL COCHRANE DRIVE
ANNAPOLIS, MARYLAND 21401
(410) 266-7333
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JOHN B. FRISCH, ESQUIRE
MILES & STOCKBRIDGE,
A PROFESSIONAL CORPORATION
10 LIGHT STREET
BALTIMORE, MARYLAND 21202
<TABLE>
<CAPTION>
NAME OF ADDITIONAL REGISTRANTS* STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO.
- ------------------------------- ---------------------- ----------------------------------
<S> <C> <C>
UNC Holdings, Inc. Delaware 51-0308654
UNC/Lear Services, Inc. Delaware 13-3386715
UNC All Fab, Inc. Delaware 52-1839339
UNC Metcalf Servicing,
Inc. Delaware 52-1839336
UNC Johnson Technology,
Inc. Delaware 52-1834578
UNC Artex, Inc. Delaware 52-1817999
UNC CAMCO Incorporated Delaware 52-1633412
UNC Texas CAMCO Incorpo-
rated Delaware 52-1633408
UNC ARDCO Incorporated Delaware 52-1633418
UNC Engine & Engine
Parts, Inc. Delaware 52-1633414
UNC Accessory Overhaul
Group, Inc. Delaware 52-1633406
UNC Aviation Services,
Inc. Delaware 52-1605019
UNC Tri-Industries, Inc. Delaware 35-0910799
UNC Airwork Corporation Delaware 95-3751258
UNC Pacific Airmotive
Corporation, Inc. Delaware 95-3751257
UNC Parts Company Delaware 52-1913036
UNC/CFC Acquisition Co. Delaware 52-1956503
</TABLE>
- --------
* (Address and telephone numbers are in care of UNC Incorporated)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the registration statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% Senior Subordinated
Notes Due June 1, 2006... $125,000,000 100% $125,000,000 $43,104
- -------------------------------------------------------------------------------
Guarantees of Notes(2).... -- -- -- --
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(n) of Regulation C under the Securities Act of 1933.
(2) No consideration will be received by the registrant for the Guarantees.
THE REGISTRANT HEREBY AMENDS 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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION (DATED AUGUST 12, 1996)
PROSPECTUS
UNC INCORPORATED
OFFER TO EXCHANGE ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE JUNE 1,
2006, FOR 11% SENIOR SUBORDINATED NOTES DUE JUNE 1, 2006 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1996, UNLESS EXTENDED.
UNC Incorporated (the "Company") hereby offers upon the terms and subject to
the conditions set forth in the Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal" and, together with this Prospectus,
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$125,000,000 of 11% Senior Subordinated Notes Due June 1, 2006 of the Company
("New Notes") which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus is a part, for an equal principal amount of its issued and
outstanding 11% Senior Subordinated Notes Due June 1, 2006 ("Old Notes"). The
New Notes and the Old Notes are collectively referred to herein as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1996, unless the Exchange Offer is extended (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned on any
minimum principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions which may be waived
by the Company. The Company has agreed to pay the expenses of the Exchange
Offer. See "THE EXCHANGE OFFER." There will be no cash proceeds to the Company
from the Exchange Offer. See "USE OF PROCEEDS."
The New Notes are being offered in order to satisfy certain obligations of
the Company under the Registration Rights Agreement, dated May 23, 1996 (the
"Registration Rights Agreement"), among the Company and the Initial Purchasers
(as defined below). The New Notes will be obligations of the Company evidencing
the same indebtedness as the Old Notes and will be entitled to the benefits of
the same Indenture (as defined herein), which governs both the Old Notes and
the New Notes. The terms of the New Notes are identical in all material
respects to the Old Notes except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the Exchange
Offer is not consummated by November 26, 1996, the rate at which the Old Notes
bear interest will be 11 1/2% per annum from and including November 26, 1996
until but excluding the date of the consummation of the Exchange Offer. See
"THE EXCHANGE OFFER."
Prior to the Exchange Offer, there has been no established trading market for
the Old Notes or the New Notes. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market. Therefore, there can be no assurance as to the liquidity of any trading
market for the New Notes or that an active public market for the New Notes will
develop. Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered, or tendered but
unaccepted, Old Notes could be adversely affected. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to the
existing restrictions on transfer thereof and the Company will have no further
obligations to such holders to provide for the registration of the Old Notes
under the Securities Act. See "THE EXCHANGE OFFER."
(Cover continued on following page)
-----------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
ON PAGE 19.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
The Old Notes were originally issued and sold on May 30, 1996, to CS First
Boston Corporation and First Union Capital Markets Corp. (collectively, the
"Initial Purchasers") in a transaction not registered under the Securities Act
in reliance upon the exemption provided in Section 4(2) of the Securities Act
(the "Initial Offering"). Accordingly, the Old Notes may not be reoffered,
resold or otherwise pledged, hypothecated or transferred in the United States
unless so registered or unless an applicable exemption from the registration
requirements of the Securities Act and any applicable state securities laws is
available. The Company is making the Exchange Offer in reliance on the
position of the staff (the "Staff") of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can
be no assurance that the Staff would make a similar determination with respect
to the Exchange Offer. Based on interpretations by the Staff, the Company
believes that New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) an Initial Purchaser who
acquired Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act or (iii) a broker-dealer (which may include an
Initial Purchaser) who acquired Old Notes as a result of market-making or
other trading activities) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
New Notes. The Letter of Transmittal states that by so acknowledging and
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the Staff, the Company believes that broker-dealers who
acquired Old Notes as a result of market-making activities or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes with a prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale
of such New Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Notes. The Company has agreed that, for
a period of 90 days after the consummation of the Exchange Offer, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "PLAN OF DISTRIBUTION." Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction unless such sale is made pursuant to an exemption from such
requirements.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the New Notes, reference is hereby made to the
Registration Statement. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to in the Registration
Statement are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the
2
<PAGE>
Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission located
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at regional public reference facilities maintained by the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, New York, New York 10048. Copies
of such material can be obtained from the Public Reference Section of the
Commission at prescribed rates. The Commission also maintains a site on the
World Wide Web, the address of which is http://www.sec.gov, that contains
reports, proxy and information statements and other information regarding
registrants such as the Company that file electronically with the Commission.
The Company's Common Stock and 9 1/8% Senior Notes due 2003 are listed on the
New York Stock Exchange and such reports, proxy statements and other
information can also be inspected at the offices of such exchange.
The Company is required by the terms of the Indenture, dated as of May 30,
1996, between the Company and The Bank of New York, as trustee (the
"Trustee"), under which the Notes are issued, to furnish the Trustee with
annual reports containing condensed financial statements audited by their
independent certified public accountants and with quarterly reports containing
unaudited condensed financial statements for each of the first three quarters
of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to each
person to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference into the
information that this Prospectus incorporates). Requests should be directed
to: UNC Incorporated, 175 Admiral Cochrane Drive, Annapolis, Maryland 21401-
7394; Attention: Treasurer; telephone number: (410) 266-7333. In order to
ensure timely deliver of the documents prior to the Expiration Date of the
Exchange Offer, any request should be made by , 1996.
The following documents have been filed with the Commission and are
incorporated herein by reference and made a part of this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
(ii) Quarterly reports on Form 10-Q for the quarterly periods ended March
31 and June 30, 1996;
(iii) Current Report on Form 8-K dated February 7, 1996;
(iv) Current Report on Form 8-K dated May 7, 1996; and
(v) Current Report on Form 8-K dated June 11, 1996.
All reports and other documents filed with the Commission by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified, replaced, or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
----------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT
3
<PAGE>
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW
NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements of the Company and the Consolidated Financial Statements of Garrett
included elsewhere in this Prospectus. Unless the context requires otherwise,
the "Company" refers to UNC Incorporated and its subsidiaries and "Garrett"
refers to Garrett Aviation Services.
THE COMPANY
The Company is a leading supplier of products and services to the aviation
industry. The Company's primary business is the provision of services to the
aviation aftermarket, which accounts for approximately 90% of its revenues.
These operations include the overhaul and repair of aircraft engines and
accessories, the repair and remanufacturing of engine components, and the
provision of training and maintenance services to the United States and foreign
military. Approximately 10% of the Company's revenues in 1995 were derived from
manufacturing engine and airframe parts for original equipment manufacturers
("OEMs").
Prior to the Company's recently completed acquisition of Garrett, described
below (the "Acquisition"), the Company had over 8,000 customers including:
business aircraft operators; major national, regional, foreign, charter and
package/cargo airlines; engine and airframe OEMs; helicopter operators; and the
United States and foreign military. The Company operated 16 facilities,
performed services at approximately 80 government sites and had approximately
5,700 employees. The Acquisition has expanded the Company's range of services,
significantly increased its aggregate customer base, and added six primary
operating locations and approximately 1,100 employees. As a result of the
Acquisition, the Company believes it is the largest independent aviation
services company in the world, with service capabilities for almost all
business aircraft and engines, and a broad range of repair, overhaul and
remanufacturing capabilities for the commercial and military aviation markets.
BUSINESS STRATEGY
The primary element of the Company's long-term strategy has been to establish
and maintain a leading position in the aviation aftermarket, with a particular
focus on the business aviation and military services markets. The Company
believes that these markets have generally exhibited a more stable revenue base
than other portions of the aviation industry. In addition, as part of its
overall aftermarket strategy, the Company intends to continue to develop and
implement advanced technology repair services to increase customer value and
strengthen its competitive position. The Company also intends to further its
long-term strategy by expanding its presence in international markets. The
Company believes that the Acquisition will enable the Company to significantly
expand its aviation aftermarket position, particularily in the business
aviation aftermarket, and will allow the Company to leverage its strengths in
advanced repairs, military contracting and international sales.
THE GARRETT ACQUISITION
On May 30, 1996, the Company acquired Garrett, a leading provider of aviation
services to the $3.4 billion worldwide business aviation aftermarket. Garrett
provides a full range of overhaul services to approximately 2,000 business
aviation and regional airline customers, including complete engine and airframe
repair and overhaul capabilities, full interior and exterior refurbishments,
new aircraft completions, avionics installation and spare parts distribution.
Garrett specializes in providing aircraft, engine and avionics aftermarket
services to aircraft powered by AlliedSignal turbofan engines, which are the
leading engine type for the business jet aviation market. Garrett provides its
aircraft and engine maintenance and support through six "fly-in" service
centers across the United States. The Company believes that Garrett enjoys a 50
year reputation for quality and market leadership in its industry segment.
5
<PAGE>
For the year ended December 31, 1995, Garrett recorded approximately $338.1
million in total revenues and approximately $21.7 million of earnings from
continuing operations before extraordinary item, interest, taxes, depreciation
and amortization ("EBITDA"). For the year ended December 31, 1995, on a pro
forma basis assuming consummation of the Acquisition and the related
transactions described herein, the Company would have generated approximately
$865.3 million in revenues and approximately $65.5 million of EBITDA. The
Company anticipates additional operating benefits over the next three years as
a result of the Acquisition.
Garrett was sold by AlliedSignal Inc. ("AlliedSignal") in June 1994 to the
group of investors who sold Garrett to the Company. The purchase price for the
Acquisition was approximately $144.6 million in cash and the assumption of
certain Garrett liabilities (including capitalized lease obligations recorded
at approximately $5.4 million). The Garrett sellers retained approximately
$29.1 million in accounts receivable at closing. The Company financed the
Acquisition and related transaction costs by issuing $125.0 million aggregate
principal amount of the Old Notes, by issuing $25.0 million of 8.5% convertible
preferred stock (the "Preferred Stock") and with borrowings under the Company's
Revolving Credit Facility. See "Business--Terms of Garrett Acquisition Purchase
Agreement."
Pursuant to the originally executed Purchase Agreement, the cash portion of
the purchase price for the Acquisition is to be adjusted following closing
based on the net asset value of the assets and liabilities of Garrett acquired
by the Company, determined based upon a post-closing audit. Prior to
consummating the Acquisition, the Company and the Garrett sellers entered into
an amendment to the Purchase Agreement providing that the Garrett sellers would
prepare an estimate prior to closing of the net asset value of the assets and
liabilities of Garrett to be acquired by the Company. If such estimated net
asset value exceeded $47.575 million, the threshold level set in the Purchaser
Agreement, then, at the closing of the Acquisition, the Garrett sellers would
retain accounts receivable in an aggregate amount equal to such excess.
Pursuant to such amendment, the Garrett sellers retained approximately $29.1
million in accounts receivable at closing. The final net asset value of the
Garrett assets and liabilities acquired by the Company is to be determined
pursuant to a post-closing audit, following which any necessary adjustment to
the cash portion of the purchase price paid by the Company will be made in
accordance with the terms of the Purchase Agreement.
The Company also agreed with AlliedSignal, prior to consummating the
Agreement, that it would cause Garrett to pay all AlliedSignal unpaid invoices
issued on or prior to 30 days before the closing of the Acquisition, subject to
adjustment to resolve disputed invoice amounts. In accordance with this
arrangement, the Company paid AlliedSignal $2.0 million immediately following
the closing of the Acquisition. In addition, the Company and AlliedSignal
agreed to shorten the payment period with respect to the utilization of
AlliedSignal's consigned parts inventory, thereby requiring increased working
capital.
In connection with the Acquisition, the Company amended its existing
Revolving Credit Facility prior to closing the Acquisition to provide for a
revolving line of credit of up to $110 million. As of June 30, 1996, the
Company had the ability to borrow up to an additional $37.1 million under the
Revolving Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Terms of Garrett
Acquisition Purchase Agreement" and "Description of Certain Indebtedness--
Revolving Credit Facility."
BENEFITS OF THE ACQUISITION
Garrett's business strategy since becoming independent in mid-1994 has
focused on expanding its engine overhaul capability beyond AlliedSignal
engines, broadening its parts repair and accessory overhaul services and
expanding its airframe and avionics operations. The Company believes that the
Acquisition is particularly attractive because the strategies of both companies
are complementary, and believes that the joining of the companies accelerates
the fulfillment of these strategies. The complementary nature of the businesses
and
6
<PAGE>
strategies of the Company and Garrett create a range of anticipated benefits
from the Acquisition, including among others the following:
. Parts and Accessory Repairs. Other subsidiaries of the Company are able
to perform certain repair and overhaul services for Garrett which
Garrett is unable to provide, a portion of which will be performed
pursuant to an agreement the Company has reached with AlliedSignal
providing the Company with $15.0 million in annual orders for the repair
of AlliedSignal parts and components during the term of the agreement.
The Company also expects to be able to provide Garrett customers with
repairs and overhauls for accessory components and systems for all types
of business aircraft.
. Expansion of Airframe and Avionics Services. The Company intends to
expand upon Garrett's airframe and avionics maintenance business by
using the Company's established customer base to offer Garrett's
airframe and avionics services to operators of aircraft using a broader
range of engine types. The Company believes that the airframe and
avionics sectors are growing faster than the overall business aviation
market.
. Expansion of Customer Base. The Acquisition permits the Company and
Garrett to expand their base of customers. The Company will be able to
direct to Garrett a number of its customers who require Garrett's
capabilities while Garrett will direct to other subsidiaries of the
Company customers who require services on engine types for which Garrett
has no overhaul capability.
. Military Services. The Company plans to expand its military services
operations by offering Garrett's nationwide full service aviation
aftermarket capabilities to the Company's military and other
governmental customers.
. Increased Global Presence. The Company believes that there is a market
for Garrett's services overseas and intends to market these services to
foreign customers through the Company's growing network of international
sales offices.
THE EXCHANGE OFFER
Registration Rights The Old Notes were sold by the Company on
Agreement .................. May 30, 1996 to CS First Boston Corporation
and First Union Capital Markets Corp.
(collectively, the "Initial Purchasers"),
which placed the Old Notes with "qualified
institutional buyers" (as defined in Rule
144A under the Securities Act) and to a
limited number of institutions which the
Initial Purchasers reasonably believed to
be institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act). In connection
therewith, the Company executed and
delivered for the benefit of the holders of
Old Notes the Registration Rights
Agreement, providing for, among other
things, the Exchange Offer.
The Exchange Offer.......... The Company is offering to exchange up to
$125.0 million aggregate principal amount
of Old Notes for an equal principal amount
of New Notes. The New Notes will be
obligations of the Company evidencing the
same indebtedness as the Old Notes and will
be entitled to the benefits of the
Indenture, which governs both the Old Notes
and the New Notes. The terms of the New
Notes are identical in all material
respects to the Old Notes except for
certain transfer restrictions and
registration rights relating to the Old
Notes and except that, if the Exchange
7
<PAGE>
Offer is not consummated by November 26,
1996, the rate at which the Old Notes bear
interest will be 11 1/2% per annum from and
including November 26, 1996 until but
excluding the date of the consummation of
the Exchange Offer.
In addition, to comply with the securities
laws of certain states of the United
States, it may be necessary to qualify for
sale or register thereunder the New Notes
prior to offering or selling such New
Notes. The Company has agreed, pursuant to
the Registration Rights Agreement, subject
to certain limitations specified therein,
to register or qualify the New Notes for
offer or sale under the securities laws of
such states as any holder reasonably
requests in writing. Unless a holder so
requests, the Company does not intend to
register or qualify the sale of the New
Notes in any such jurisdictions.
Resales of New Notes........ The New Notes issued pursuant to the
Exchange Offer in exchange for the Old
Notes may be offered for resale, resold and
otherwise transferred by holders thereof
(other than any holder which is (i) an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act, (ii) an Initial Purchaser who acquired
Old Notes directly from the Company solely
in order to resell pursuant to Rule 144A of
the Securities Act or any other available
exemption under the Securities Act or (iii)
a broker-dealer (which may include an
Initial Purchaser) who acquired Old Notes
as a result of market-making or other
trading activities), without further
compliance with the registration and
prospectus deliver requirements of the
Securities Act; provided, that such New
Notes are acquired in the ordinary course
of such holder's business and that such
holder is not participating, and has no
arrangement or understanding with any
person to participate, in a distribution
(within the meaning of the Securities Act)
of such New Notes.
Each broker-dealer that receives New Notes
for its own account pursuant to the
Exchange Offer must acknowledge that it
acquired the Old Notes as the result of
market-making or trading activities and
must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so acknowledging
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. Based on the position
taken by the Staff, the Company believes
that Participating Broker-Dealers may
fulfill their prospectus delivery
requirements with respect to the New Notes
received upon exchange of such Old Notes
with a prospectus meeting the requirements
of the Securities Act, which may be the
prospectus prepared for an exchange offer
so long as it contains a
8
<PAGE>
description of the plan of distribution
with respect to the resale of such New
Notes. Accordingly, this Prospectus, as it
may be amended or supplemented from time to
time, may be used by a Participating
Broker-Dealer during the period referred to
below in connection with resales of such
New Notes. Subject to certain provisions
set forth in the Registration Rights
Agreement, the Company has agreed that this
Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection in connection with resales of
such New Notes for a period ending 180 days
after the effectiveness of the Registration
Statement of which this Prospectus is a
part (subject to extension under certain
limited circumstances described herein) or,
if earlier, when all such New Notes have
been disposed of by the Participating
Broker-Dealer. See "THE EXCHANGE OFFER" and
"PLAN OF DISTRIBUTION."
No Minimum Condition........ The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Old Notes being tendered for exchange.
Expiration Date............. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1996
(the "Expiration Date"), unless the
Exchange Offer is extended, in which case
the term "Expiration Date" means the latest
date and time to which the Exchange Offer
is extended.
Withdrawal Rights........... Tenders may be withdrawn at any time prior
to the Expiration Date. Any Old Notes which
have been tendered for exchange but which
are not exchanged for any reason will be
returned to the holder thereof (or credited
to the appropriate account) without cost to
such to such holder as soon as practicable
after withdrawal, rejection of tender or
termination of the Exchange Offer.
Interest on the New Notes The New Notes will bear interest at the
............................ rate of 11% per annum from the most recent
date to which interest has been paid on the
Old Notes or, if no interest has been paid
on the Old Notes, from May 30, 1996.
Interest on the New Notes is payable
semiannually on June 1 and December 1 of
each year, commencing December 1, 1996.
Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any
payment in respect of accrued and unpaid
interest on such Old Notes.
Conditions to the Exchange The obligation of the Company to consummate
Offer....................... the Exchange Offer is subject to certain
conditions. See "THE EXCHANGE OFFER--
Conditions to the Exchange Offer." The
Company may terminate, waive or amend the
Exchange Offer at any time prior to the
Expiration Date.
9
<PAGE>
Procedures for Tendering ... Tendering holders of Old Notes must
complete and sign the Letter of Transmittal
in accordance with the instructions
contained therein and forward the same by
mail, facsimile or hand delivery, together
with any other required documents, to the
Exchange Agent, either with the Old Notes
to be tendered or in compliance with the
specified procedures for guaranteed
delivery of Old Notes. Certain brokers,
dealers, commercial banks, trust companies
and other nominees may also effect tenders
by book-entry transfer. Holders of Old
Notes registered in the name of a broker-
dealer, commercial bank, trust company or
other nominee are urged to contact such
person promptly if they wish to tender Old
Notes pursuant to the Exchange Offer. See
"THE EXCHANGE OFFER--Procedures for
Tendering." Letters of Transmittal and
certificates representing Old Notes should
not be sent to the Company. Such documents
should only be sent to the Exchange Agent.
Questions regarding how to tender and
requests for information should be directed
to the Exchange Agent. See "THE EXCHANGE
OFFER--Exchange Agent."
Acceptance of Old Notes and Subject to certain conditions, the Company
Delivery of New Notes ..... will accept for exchange any and all Old
Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "THE EXCHANGE OFFER--
Terms of the Exchange Offer."
Certain Federal Income Tax The exchange of Old Notes for New Notes by
Consequences............... holders should not be a sale or exchange or
otherwise a taxable event for United States
federal income tax purposes, and holders
should not recognize any taxable gain or
loss or any interest income as a result of
such exchange.
Exchange Agent.............. The Bank of New York is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer.
Effect on Holders of Old Holders of Old Notes who do not tender
Notes ...................... their Old Notes in the Exchange Offer will
continue to hold their Old Notes and will
be entitled to all the rights and
limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be
subject to the restrictions on transfer
provided for in the Old Notes and the
Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange
Offer, the trading market, if any, for the
Old Notes could be adversely affected. See
"RISK FACTORS--Consequences of Exchange and
Failure to Exchange."
10
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
Maturity Date............... June 1, 2006
Interest Payment Dates...... June 1 and December 1 of each year,
commencing December 1, 1996.
Optional Redemption......... The New Notes will not be redeemable by the
Company prior to June 1, 2001. Thereafter,
the New Notes will be redeemable at any
time, at the option of the Company, in
whole or in part, at the redemption prices
set forth herein together with accrued
interest thereon to the date fixed for
redemption. See "Description of Notes--
Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of
New Notes will have the right to require
the Company to repurchase the New Notes at
101% of the principal amount thereof plus
accrued interest to the date of repurchase.
See "Description of Notes--Right to Require
Repurchase Upon Change of Control."
Subordination............... The New Notes will be senior subordinated
unsecured obligations of the Company and
will be subordinated in right of payment to
all Senior Debt of the Company, including
all indebtedness outstanding under the
Company's Revolving credit facility (the
"Revolving Credit Facility") and the
Company's 9 1/8% Senior Notes Due 2003 (the
"9 1/8% Notes"). Indebtedness under the
Revolving Credit Facility is collateralized
by the accounts receivable, inventory and
other assets of the Company and its
Subsidiaries (as defined herein). As of
June 30, 1996, the amount of Senior Debt of
the Company was approximately $169.5
million (including approximately $61.7
million under the Revolving Credit Facility
and $100 million of 9 1/8% Notes) and the
Company had the ability to borrow up to an
additional $37.1 million under the
Revolving Credit Facility. See "Risk
Factors--Subordination of the Notes,"
"Description of Certain Indebtedness--
Revolving Credit Facility," "Description of
Notes--Subordination" and "Description of
Notes--Certain Covenants."
Guarantees.................. The Company's obligations under the New
Notes will be guaranteed by the Company's
domestic wholly owned operating
Subsidiaries, including the Subsidiary that
acquired the assets of Garrett (the
"Guarantees"). Each Guarantee will be a
senior subordinated unsecured obligation of
the Guarantor providing such Guarantee and
will be subordinated in right of payment to
all Senior Debt of the Guarantors. The
Company's domestic wholly owned
Subsidiaries have guaranteed the
indebtedness outstanding under the
Revolving Credit Facility (the "Subsidiary
Bank Guarantees"). The Subsidiary Bank
Guarantees are collateralized by the
accounts receivable,
11
<PAGE>
inventory and other assets of the
Subsidiaries and therefore effectively rank
senior to the Guarantees. The 9 1/8% Notes
are guaranteed by the Guarantors on a
senior basis to the Guarantees of the
Notes. As of June 30, 1996, the amount of
Senior Debt of the Guarantors was
approximately $167.3 million (including the
Subsidiary Bank Guarantees and the
Guarantors' guarantees of the 9 1/8%
Notes). The Guarantees (and the Guarantors'
guarantees of the 9 1/8% Notes) will be in
effect only for as long as the Subsidiary
Bank Guarantees remain in effect. If the
Guarantees are terminated, the New Notes
will be obligations solely of the Company
and will be effectively subordinated to all
existing and future indebtedness of the
Subsidiaries. See "Description of Notes--
Guarantees."
Restrictive Covenants....... The indenture under which the Old Notes
were and the New Notes will be issued (the
"Indenture") limits, among other things,
(i) the issuance of additional Indebtedness
(as defined herein) by the Company; (ii)
the issuance of debt and preferred stock by
the Company's Subsidiaries; (iii) the
incurrence of liens on assets of the
Company and its Subsidiaries; (iv) the
payment of dividends on, and redemption of,
capital stock of the Company and its
Subsidiaries and the redemption of certain
subordinated obligations of the Company;
(v) investments in certain affiliates; (vi)
sales of assets, including Subsidiary
stock; (vii) transactions with affiliates;
(viii) consolidations, mergers, and
transfers of all or substantially all
assets. The Indenture also prohibits
certain restrictions on distributions from
Subsidiaries. However, all of these
limitations and prohibitions are subject to
a number of important qualifications. See
"Description of Notes--Certain Covenants."
RISK FACTORS
Holders should consider carefully the information set forth under the caption
"Risk Factors" as well as the other information and data set forth in this
Prospectus prior to tendering Old Notes in the Exchange Offer.
12
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following tables set forth unaudited summary pro forma combined financial
data of the Company for the fiscal year ended December 31, 1995 and the six
months ended June 30, 1996. The income statement data of Garrett set forth in
the table for the six months ended June 30, 1996 reflects Garrett's results of
operations for the period January 1, 1996 through May 30, 1996, the date on
which the Company acquired Garrett. The financial data for the six months ended
June 30, 1996 were derived from the Company's and Garrett's unaudited
Consolidated Financial Statements which, in the opinion of management, reflect
all adjustments, (consisting only of normal recurring adjustments) necessary
for a fair presentation of the interim period. The purchase price and the
related financial data may be adjusted in the future to reflect changes that
result from the completion of an audit of the Garrett balance sheet as of the
closing date of the Acquisition and related procedures. See "Business--Terms of
Garrett Acquisition Purchase Agreement." The summary pro forma combined
financial data is derived from the historical Consolidated Financial Statements
of each of the Company and Garrett included elsewhere in this Prospectus,
adjusted to give pro forma effect to the offering of the Old Notes, the
issuance of the Preferred Stock, the Acquisition, the UNC/AlliedSignal
Agreement (as defined herein) and the Company's recent divestiture of UNC
Airwork's AlliedSignal TFE731 heavy maintenance business (the "Heavy
Maintenance Business"). See "Business--Hart-Scott-Rodino Proceedings" and "--
UNC/AlliedSignal Agreement." The pro forma Income Statement Data and Other Data
is presented for the year ended December 31, 1995 and the six months ended June
30, 1996 and gives effect to the offering of the Old Notes, the issuance of
Preferred Stock, the Acquisition, the UNC/AlliedSignal Agreement and the
divestiture of the Heavy Maintenance Business as if they had occurred on
January 1, 1995. The pro forma information is provided to assist in
understanding the recent Acquisition and such other transactions and does not
necessarily reflect the actual results of operations that would have occurred
if the operations of the Company and Garrett had been combined or such other
transactions had occurred during the year ended December 31, 1995 or the six
months ended June 30, 1996 or the results of operations that will be achieved
by the combined companies in future periods. The pro forma adjustments are
based upon available information and certain assumptions that the Company's
management believes are reasonable. All information contained in the following
table should be read in conjunction with the Consolidated Financial Statements
and related notes of the Company and Garrett included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
COMBINED
UNC GARRETT ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales and operating revenues...... $536,243 $338,104 $(9,022)(a) $865,325
Costs and operating expenses...... 456,935 294,382 (7,437)(a) 736,611
-------- -------- --------
(7,269)(b)
Gross profit...................... 79,308 43,722 128,714
Selling, general and administra-
tive expenses.................... 56,952 28,261 (380)(a) 85,122
-------- -------- --------
(2,720)(b)
3,009 (c)
Operating income.................. 22,356 15,461 43,592
Interest expense.................. (19,514) (3,334) (11,071)(d) (33,919)
Other income...................... 116 315 431
-------- -------- --------
Earnings before income taxes...... $ 2,958 $ 12,442 $ 10,104
======== ======== ========
OTHER DATA:
Depreciation and amortization..... $ 12,491 $ 5,954 3,009 (c) $ 21,454
Capital expenditures.............. 6,767 5,787 12,554
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(e)...................... 34,963 21,730 8,784 (e) 65,477
Ratio of EBITDA to interest
expense(e)....................... 1.79x 1.93x
Ratio of earnings to fixed
charges(l)....................... 1.11x 1.25x
BALANCE SHEET DATA (AT END OF
PERIOD)(G):
Working capital................... $124,098 $ 17,565 $(2,654)(f) $139,009
Total assets...................... 446,261 111,867 115,828 (g) 662,222
(487)(h)
(11,247)(i)
Capitalized leases................ 5,358 5,358
Total long-term debt, including
current portion.................. 205,081 40,108 95,216 (j) 340,405
Shareholders' equity.............. 100,152 19,063 8,908 (k) 128,123
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------
COMBINED
UNC GARRETT ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales and operating revenues...... $322,801 $147,148 $(3,862)(a) $466,087
Costs and operating expenses...... 275,964 127,599 (2,989)(a) 397,545
-------- -------- --------
(3,029)(b)
Gross profit...................... 46,837 19,549 68,542
Selling, general and administra-
tive expenses.................... 32,205 12,629 (190)(a) 44,894
-------- -------- --------
(1,315)(b)
1,565 (c)
Operating income.................. 14,632 6,920 23,648
Interest expense.................. (11,145) (1,393) (5,069)(d) (17,607)
Other income...................... (737) (737)
-------- -------- --------
Earnings before income taxes...... $ 2,750 $ 5,527 $ 5,304
======== ======== ========
OTHER DATA:
Depreciation and amortization..... $ 7,270 $ 2,625 $ 1,565 (c) $11,460
Capital expenditures.............. 6,945 1,480 8,425
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(e)...................... 21,165 9,545 3,661 (e) 34,371
Ratio of EBITDA to interest
expense(e)....................... 1.90x 1.95x
Ratio of earnings to fixed
charges(l)....................... 1.19x 1.25x
</TABLE>
- --------
(a) In connection with the Acquisition, the Company sold the Heavy Maintenance
Business to Sabreliner Corporation ("Sabreliner") for approximately book
value. See "Business--Hart-Scott-Rodino Proceedings." Assuming the sale
occurred on January 1, 1995, the effect on the Company's operations as a
result of the divestiture of the Heavy Maintenance Business would have
been:
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Reduction in sales and operating revenues............... $9,022 $3,862
Reduction in costs and operating expenses............... 7,437 2,989
Reduction in selling, general and administrative
expenses............................................... 380 190
------ ------
Reduction in operating income......................... $1,205 $ 683
====== ======
</TABLE>
(b) The Company has specifically identified cost reductions and other operating
income enhancements resulting from a business integration plan which the
Company is implementing. The business integration plan contemplates: (i)
implementation of the agreement between the Company and AlliedSignal
providing the Company with $15.0 million in annual orders for the repair of
AlliedSignal parts and components during the term of the agreement, which
will include parts and components sent by Garrett to AlliedSignal for such
service; and (ii) the elimination of certain management fees and consulting
fees and reducing certain other administrative costs such as insurance and
professional fees previously paid by Garrett. See "Business--
UNC/AlliedSignal Agreement."
The Company's business integration plan provides for the events generating
these reductions to occur in phases, beginning in the initial year following
the Acquisition. The pro forma results reflect savings and operating
efficiencies the Company expects during the initial year following the
consummation of the Acquisition. The Company expects to realize other
benefits during the three years following the Acquisition. Assuming the
Acquisition occurred on January 1, 1995 and the phase-in of the business
integration plan commenced as of such date, the expected cost reductions, on
a pro forma basis, for the year ended December 31, 1995 and the six months
ended June 30, 1996 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Reduction in costs and operating expenses............... $7,269 $3,029
Reduction in selling, general and administrative
expenses............................................... 2,720 1,315
------ ------
Total cost reductions................................. $9,989 $4,344
====== ======
</TABLE>
14
<PAGE>
(c) Represents the amortization of the cost in excess of net assets acquired
from Garrett of $4,406 for the year ended December 31, 1995 and $1,836 for
the five months ended May 30, 1996, assuming the acquisition had been
consummated on January 1, 1995, offset by the elimination of $1,397 and
$271 of cost applicable to Garrett's amortization of intangible assets for
the year ended December 31, 1995 and the five months ended May 30, 1996,
respectively.
(d) Reflects the additional interest expense of $14,019 and $6,318 (at the
actual rate of 11% on the Old Notes and New Notes) for the year ended
December 31, 1995 and the five months ended May 30, 1996, respectively,
that would have been incurred had the Acquisition, the offering of the Old
Notes, the UNC/AlliedSignal Agreement and the sale of the Heavy Maintenance
Business taken place on January 1, 1995, offset by elimination of interest
of $2,948 and $1,241 of Garrett for the year ended December 31, 1995 and
the five months ended May 30, 1996, respectively, on senior bank debt that
is not being assumed by the Company.
(e) EBITDA reflects earnings (loss) from continuing operations, before
extraordinary item, interest, taxes, depreciation and amortization. EBITDA
and the ratio of EBITDA to interest expense do not take into account
certain expenses that are reflected in the calculation of net income in
accordance with generally accepted accounting principles ("GAAP"), are not
intended to represent any measure of performance in accordance with GAAP,
and should not be considered in isolation or as a substitute for cash
provided by operating activities, net income or any other consolidated
income statement data prepared in accordance with GAAP.
The adjustments to arrive at pro forma EBITDA reflects the cumulative effect
of the previously described adjustments in notes (a), (b), (c) and (d)
above.
(f) Reflects the net effect of the various acquisition adjustments and the sale
of the Heavy Maintenance Business on working capital of the combined
companies.
(g) The Acquisition, which was consummated on May 30, 1996, will be accounted
for as a purchase pursuant to APB Opinion No. 16 "Business Combinations."
The purchase cost will be allocated to the assets and liabilities of
Garrett based on their fair values. The assets and liabilities of Garrett
are included in the Combined Pro Forma Financial Statements and the
Consolidated Financial Statements of the Company as of June 30, 1996,
appearing elsewhere in this Prospectus, at values reflecting preliminary
allocations of the purchase price. The final allocation of the purchase
price is subject to final determination based on the conclusion of an audit
of the closing balance sheet of Garrett and valuations and other studies
currently being performed by the Company. The preliminary allocation of the
purchase price over the estimated fair value of the net assets acquired is
being amortized over a period of thirty years using the straight line
method.
The Company's Consolidated Financial Statements for the six months ended
June 30, 1996 reflect the effect of the Acquisition, the offering of the Old
Notes, the issuance of the Preferred Stock, and the Company's divestiture of
UNC Airwork's AlliedSignal TFE731 heavy maintenance line. Consequently, no
pro forma balance sheet is necessary as of June 30, 1996.
(h) Represents the net effect on total assets of the sale of the Heavy
Maintenance Business to Sabreliner. See "Business--Hart-Scott-Rodino
Proceedings" included elsewhere in this Prospectus.
(i) Reflects the elimination of the cash balance of Garrett, which is an asset
that was not acquired.
(j) These adjustments reflect the issuance of $125,000 in Old Notes and an
increase of $4,966 in the Company's Revolving Credit Facility to fund
certain related costs, offset by the elimination of $34,750 of Garrett's
senior debt that was not assumed in the Acquisition.
(k) Reflects the $25,000 of the Preferred Stock issued as a part of the
Acquisition offset by the elimination of Garrett's equity, and the
adjustment related to the agreement to issue up to 225,000 shares of common
stock and the grant of options for the purchase of up to 450,000 shares of
the Company's Common Stock to certain executives of Garrett.
(l) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest expense
on continuing and discontinued operations (including amortization of
deferred debt issuance costs and discount) and the portion of operating
lease expense that is representative of the interest factor.
15
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth a summary of selected financial data of (i)
the Company for each of the periods indicated in the five years ended December
31, 1995, which were derived from the audited Consolidated Financial Statements
of the Company for such periods; (ii) the Company for each of the six month
periods ended June 30, 1996 and June 30, 1995 which were derived from the
Company's unaudited Consolidated Financial Statements which, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim period data;
(iii) Garrett for each of the periods indicated in the 18-month period ended
December 31, 1995, which were derived from the audited Consolidated Financial
Statements of Garrett for the 12-month period ended December 31, 1995 and the
six-month period ended December 31, 1994; (iv) AlliedSignal Engines-Hangar
Operations (the "Predecessor Operation") for each of the periods indicated in
the 18-month period ended June 30, 1994, which were derived from the audited
Financial Statements of AlliedSignal Engines-Hangar Operations for the six
month period ended June 30, 1994 and the 12-month period ended December 31,
1993; (v) Garrett for each of the three month periods ended March 31, 1996 and
March 31, 1995 which were derived from Garrett's unaudited Consolidated
Financial Statements which, in the opinion of Garrett's management, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the interim period data. Information presented with
respect to Garrett for the six months ended December 31, 1994 reflects the
operations of Garrett from and after July 1, 1994, the date on which Garrett
was acquired from AlliedSignal. The results of the Company and Garrett for the
interim periods are not necessarily indicative of the results to be expected
for the full year. The following tables should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the audited Consolidated Financial Statements of the Company
and Garrett included elsewhere in this Prospectus.
16
<PAGE>
UNC INCORPORATED
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales and operating
revenues............... $360,571 $365,152 $438,293 $525,833 $536,243 $257,045 $322,801
Costs and operating
expenses(a)............ 304,101 294,489 360,869 444,375 456,935 217,999 275,964
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 56,470 70,663 77,424 81,458 79,308 39,046 46,837
Selling, general and
administrative
expenses............... 49,084 45,283 53,987 69,768 56,952 27,448 32,205
Restructuring and other
charges(a)(b).......... 14,015 72,706
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss)(a)(b)........... (6,629) 25,380 23,437 (61,016) 22,356 11,598 14,632
Interest expense........ (17,531) (11,431) (13,865) (18,549) (19,514) (10,223) (11,145)
Other income (expense).. 27 (1,098) (1,821) (1,850) 116 176 (737)
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes and
extraordinary item..... $(24,133) $ 12,851 $ 7,751 $(81,415) $ 2,958 $ 1,551 $ 2,750
======== ======== ======== ======== ======== ======== ========
Earnings (loss) before
extraordinary item..... $ 8,615 $ 11,369 $ 11,594 $(67,932) $ 1,923 $ 1,008 1,925
Net earnings (loss)
applicable to common
stock.................. 6,915 11,369 11,062 (67,932) 1,923 1,008 1,738
OTHER DATA:
Depreciation and
amortization........... $ 10,196 $ 10,378 $ 11,477 $ 12,727 $ 12,491 $ 6,258 $ 7,270
Capital expenditures.... 7,280 6,602 11,250 10,299 6,767 2,720 6,945
Earnings before
interest, taxes,
depreciation and
amortization
("EBITDA")(c).......... 3,594 34,660 33,093 (50,139) 34,963 18,032 21,165
Ratio of EBITDA to
interest expense....... 0.21x 3.03x 2.39x 1.79x 1.76x 1.90x
Ratio of earnings to
fixed charges(d)....... 1.86x 1.46x 1.11x 1.11x 1.19x
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital......... $ 88,379 $128,150 $150,200 $100,174 $124,098 $140,857 $156,009
Total assets............ 455,094 391,082 506,133 468,034 446,261 457,876 677,524
Total long-term debt,
including current
portion................ 177,829 125,723 197,283 214,323 205,081 221,426 359,262
Shareholders' equity.... 143,492 155,639 165,486 98,897 100,152 100,154 131,242
</TABLE>
- --------
(a) Operating loss for the year ended December 31, 1991 included adjustments
aggregating approximately $26.0 million related to the carrying value of
certain inventories, increases in allowances for doubtful accounts
receivable related to services provided for certain commercial airlines in
liquidation or in troubled financial condition, the write-down of goodwill
related to a defense oriented business, and other operating items. Of these
charges, $14.0 million is classified as other charges and $7.0 million was
charged to cost of sales for the write-down of certain inventories.
(b) Operating loss for the year ended December 31, 1994 included a
restructuring charge of $58.7 million in connection with a strategic
program to reduce the Company's cost structure and asset base in light of
industry conditions at that time. The charge includes accruals for the cost
of closing the Company's commercial aircraft engine overhaul facility in
Burbank, California, as well as adjustments to the carrying values of
certain assets positioned for sale. The Company also accrued a $14.0
million non-cash charge for withdrawal from a multi-employer pension plan
which had been underfunded by its trustees. In addition, the 1994 results
of operations include a one-time charge of $9.6 million for adjustments
related to the carrying value of certain long-term manufacturing contracts,
and increases in allowance for doubtful accounts. See Note 2 to the
Company's Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Offering Circular.
(c) Earnings before interest, taxes, depreciation and amortization in 1991 and
1994 includes the impact of the restructuring and other charges discussed
in Notes a and b above. EBITDA reflects earnings (loss) from continuing
operations, before extraordinary item, interest, taxes, depreciation and
amortization. EBITDA and the ratio of EBITDA to interest expense do not
take into account certain expenses that are reflected in the calculation of
net income in accordance with GAAP, are not intended to represent any
measure of performance in accordance with GAAP, and should not be
considered in isolation or as a substitute for cash provided by operating
activities, net income or any other consolidated income statement data
prepared in accordance with GAAP.
(d) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest expense
of continuing and discontinued operations (including amortization of
deferred debt issuance costs and discount) and the portion of operating
lease expense that is representative of the interest factor. For the years
1991 and 1994, earnings were inadequate to cover fixed charges by $26.7
million and $81.8 million, respectively. Fixed charges in 1991 and 1994
were funded through a combination of working capital investing activities
and additional borrowings and did not result in a default in any interest
or rental payments.
17
<PAGE>
GARRETT AVIATION SERVICES
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR INFORMATION
-----------------------
SIX MONTHS THREE MONTHS ENDED
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
DECEMBER 31, ENDED JUNE DECEMBER 31, DECEMBER 31, --------------------
1993 30, 1994 1994 1995 1995 1996
------------ ---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(A):
Net sales............... $253,191 $124,144 $144,200 $338,104 $ 75,809 $ 87,688
Cost of sales........... 162,575 80,522 130,224 294,382 66,912 75,216
-------- -------- -------- -------- --------- ---------
Gross profit............ 90,616 43,622 13,976 43,722 8,897 12,472
Selling, general and
administrative
expenses............... 9,608 5,299 9,990 28,261 6,305 7,542
-------- -------- -------- -------- --------- ---------
Operating income........ 81,008 38,323 3,986 15,461 2,592 4,930
Interest expense........ (187) (93) (1,810) (3,334) (824) (846)
Other income (expense).. 47 (136) 68 315 178 117
-------- -------- -------- -------- --------- ---------
Net earnings............ $ 80,868 $ 38,094 $ 2,244 $ 12,442 $ 1,946 $ 4,201
======== ======== ======== ======== ========= =========
OTHER DATA(A):
Depreciation and
amortization........... $ 1,686 $ 882 $ 2,984 $ 5,954 $ 1,571 $ 1,576
Capital expenditures.... 471 264 2,176 5,787 2,063 764
Earnings before
interest, taxes,
depreciation and
amortization
("EBITDA")(b).......... (d) (d) 7,038 21,730 4,341 6,623
Ratio of EBITDA to
interest
expense ............... (d) (d) 3.89x 6.52x 5.27x 7.83x
Ratio of earnings to
fixed charges(c)....... (d) (d) 1.71x 3.31x 2.45x 4.51x
BALANCE SHEET DATA (AT END OF PERIOD)(A):
Working capital......... $ 56,263 $ 49,082 $ 14,900 $ 17,565 $ 11,669 $ 33,683
Total assets............ 71,358 67,799 96,394 111,867 101,448 133,519
Capitalized leases...... 5,209 5,358 5,245 5,396
Total long-term debt,
including
current portion........ 40,209 40,108 37,245 50,396
Equity/Partners'
capital................ 65,976 57,121 13,214 19,063 13,437 21,331
</TABLE>
- --------
(a) Garrett was acquired on June 30, 1994 through the owner's acquisition of
certain assets and the assumption of certain liabilities from AlliedSignal.
See Notes to Consolidated Financial Statements of Garrett included
elsewhere in this Prospectus. Management of Garrett believes that financial
statements with respect to the Hangar Operations of the business prior to
its divestiture by AlliedSignal are not comparable to the financial
statements of Garrett subsequent to its divestiture primarily because (a)
prior to July 1, 1994 the cost of sales for parts consumed in the business
was recognized on the basis of AlliedSignal's manufacturing cost while
Garrett's cost for AlliedSignal parts used in the Garrett Business
subsequent to divestiture is based on a negotiated purchase price; (b)
AlliedSignal supplies Garrett with inventory on a consigned basis, which
was not the case prior to the divestitures; (c) Garrett was not treated as
a stand-alone business by AlliedSignal and, therefore, certain cost
allocations, principally certain general and administrative costs, were not
made based upon what an independent business would incur; and (d) warranty
work was not reported as revenue but rather as an intercompany transfer of
cost.
(b) EBITDA reflects earnings (loss) from continuing operations before interest,
taxes, depreciation and amortization. EBITDA and the ratio of EBITDA do not
take into account certain expenses that are reflected in the calculation of
net income in accordance with GAAP, are not intended to represent any
measure of performance in accordance with GAAP, and should not be
considered in isolation or as a substitute for cash provided by operating
activities, net income or any other consolidated income statement data
prepared in accordance with GAAP.
(c) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net earnings (loss) from continuing operations
before income taxes, plus fixed charges. Fixed charges consist of interest
expense of continuing and discontinued operations (including amortization
of deferred debt issuance costs and discount) and the portion of operating
lease expense that is representative of the interest factor.
(d) Prior to the divestiture of the AlliedSignal Engines-Hangar Operations by
AlliedSignal, the Hangar Operations incurred only a nominal amount of
interest expense, $0.2 million in 1993 and $0.1 million in the six months
ended June 30, 1994. Consequently, because of the nominal amount of
interest expense incurred and reasons described in note (a) above, the
ratio of EBITDA to interest expense and earnings to fixed charges are not
comparable to true ratios after the divestiture by AlliedSignal.
18
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering their Old Notes in the Exchange Offer. The risk factors set forth
below (other than "Consequences of Exchange and Failure to Exchange") are
generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. In addition, upon the consummation of the Exchange Offer holders of Old
Notes which remain outstanding will not be entitled to any rights to have such
Old Notes registered under the Securities Act or to any similar rights under
the Registration Rights Agreement. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. The Old Notes
provide that if the Exchange has not been consummated by, nor a shelf
registration statement has been declared effective by, November 26, 1996, the
respective interests rates on the Old Notes will increase by 0.50% per annum
from and including November 26, 1996 until but excluding the date on which the
Exchange Offer is consummated or a shelf registration has been declared
effective.
ABSENCE OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. There is no
existing trading market for the New Notes and there can be no assurance
regarding the future development of such a market for the New Notes or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. If such a market were
to develop, future trading prices will depend on many factors, including,
among other things, prevailing interest rates, the operating results of the
Company, and the market for similar securities. The Company does not intend to
apply for listing or quotation of the New Notes on any securities exchange or
stock market.
LEVERAGE
As of June 30, 1996, the Company's consolidated indebtedness was $359.3
million and its ratio of total debt to total capitalization was 73.2% and the
Company had the ability to borrow up to an additional $37.1 million under the
Revolving Credit Facility. Subject to certain restrictions contained in the
Revolving Credit Facility and the Notes, the Company and its subsidiaries may
incur additional indebtedness in the future. See "Description of Certain
Indebtedness--Revolving Credit Facility" and "Description of Notes." In
addition, the Company anticipates a short-term need to access working capital
relating to the Acquisition, which may require the incurrence of additional
indebtedness through borrowings of available amounts under the Revolving
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Although the Acquisition is expected to
increase and diversify the Company's cash flow from operations, the aggregate
amount of Company indebtedness has been increased significantly as a result of
the Acquisition. Increased leverage will, among other things, require the
dedication of additional portions of cash flow to make interest and principal
payments and may increase the Company's vulnerability in the event that a
downturn in its business were to occur.
19
<PAGE>
RISKS RELATED TO REALIZING BENEFITS FROM THE ACQUISITION
Management expects to realize certain cost savings as a result of the
Acquisition which are summarized in the pro forma combined financial
statements included elsewhere in this Prospectus. Additional cost savings and
other business synergies are anticipated to occur over the next three years.
While the Company believes that it can improve the profitability of the
operations of Garrett and the Company on a combined basis given the cost
savings and operating synergies the Company expects to achieve, there can be
no assurance that the Company will be able to realize the cost savings
reflected in the pro forma combined financial statements or other expected
cost savings and operating synergies following the Acquisition. Realization of
such operating and economic efficiencies could also be affected by a number of
factors beyond the Company's control, such as general economic conditions,
increased operating costs, the response of competitors or customers,
regulatory developments and delays in implementation.
ALLIEDSIGNAL AGREEMENTS
The Company has succeeded to all of Garrett's rights and obligations under
the terms of an operating agreement between Garrett and AlliedSignal. The
Company believes that this Agreement will provide the Company with significant
advantages. However, the AlliedSignal operating agreement may be terminated by
AlliedSignal, among other reasons, following a material decrease in customer
satisfaction relating to Garrett's services which has a material adverse
effect on AlliedSignal's aviation business or following a significant loss in
market share by Garrett which continues beyond a specified level for four
consecutive quarters. A significant change in, or loss of, the operating
agreement could have a material adverse effect on the Company's results of
operations. See "Business--The Garrett Acquisition."
AlliedSignal and the Company have entered into a separate agreement pursuant
to which AlliedSignal has agreed to provide the Company with $15.0 million in
annual orders for the repair of AlliedSignal parts and components through
December 31, 1997. The Agreement also provides that the parties will hold
business discussions concerning all elements of the relationship among the
Company, Garrett and AlliedSignal in the near future. While the Company has no
reason to believe that these discussions will not proceed favorably, there can
be no assurance that AlliedSignal's obligation to provide the Company with
orders for parts and component repairs will be extended beyond December 31,
1997 or that it will be extended on terms as favorable to the Company as those
presently in effect. See "Business--UNC/AlliedSignal Agreement" and "Pro Forma
Combined Financial Information."
COMMERCIAL AIRLINE INDUSTRY
The Company's manufacturing operations are driven in part by the demand for
new aircraft from the commercial airline industry. As a result, a portion of
the Company's business is directly dependent upon the conditions in that
industry which are highly cyclical and competitive. The commercial airline
industry in the United States is currently experiencing an economic
turnaround. In the prior five years, the industry had suffered a severe
downturn which had resulted in record losses and the cancellation and delay of
orders for new aircraft, which impacted the Company's OEM manufacturing
operations. The recent upturn in the industry is causing increased demand for
new aircraft to meet the increasing demands for air travel. Due to the
volatility of the airline industry, there can be no assurance that the recent
profitability of the airline industry will continue or that the airlines will
maintain or increase expenditures for new aircraft. In addition, the airline
industry is undergoing a process of consolidation. Such consolidation could
result in a reduction in future aircraft orders as overlapping routes are
eliminated and airlines seek greater economies through higher aircraft
utilization.
DEFENSE SPENDING LEVELS
Many of the Company's Aviation Services Division's contracts are funded by
the operations and maintenance ("O&M") budget of the United States Department
of Defense. The O&M budget has remained stable over the last four years and is
projected to remain relatively flat through the end of the decade, despite a
decline in the Department of Defense's overall budget. The Company believes
that more maintenance work
20
<PAGE>
under the O&M budget will be outsourced in the future to lower cost private
sector suppliers, such as the Company, to meet ongoing Department of Defense
budget pressures in other budget areas, such as new or modernized weapons
systems. There can be no assurance, however, that the Department of Defense
will outsource significant amounts of additional work to entities such as the
Company or that federal budgetary pressures will not adversely affect the
Company.
LITIGATION AND CONTINGENCIES
The Company and Garrett are involved in a variety of legal proceedings and
environmental matters. Although the Company presently believes that the
resolution of these matters will not have a material adverse impact on the
operating results, liquidity or financial condition of the Company, there can
be no assurance as to the final resolution of these matters. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
Note 11 to the Company's Notes to Consolidated Financial Statements and the
Notes to the Consolidated Financial Statements of Garrett appearing elsewhere
in this Prospectus.
SUBORDINATION OF THE NEW NOTES
The New Notes and the Guarantees will be subordinated in right of payment to
all Senior Debt of the Company and the Guarantors, respectively, including all
indebtedness under the Revolving Credit Facility. As of June 30, the amount of
Senior Debt of the Company was $169.5 million (including approximately $61.7
million under the Revolving Credit Facility and $100.0 million of 9 1/8%
Notes), the amount of Senior Debt of the Guarantors was $167.3 million
(including the Guarantors' guarantees of the Revolving Credit Facility and the
9 1/8% Notes), and the Company had the ability to borrow up to an additional
$37.1 million under the Revolving Credit Facility.
Upon any payment or distribution of assets of the Company upon liquidation,
dissolution, reorganization or any similar proceeding, the holders of Senior
Debt will be entitled to receive payment in full before the Holders of New
Notes are entitled to receive any payment. In addition, the Company may not
make any payments in respect of the New Notes during the continuance of a
payment default under any Designated Senior Debt (as defined herein).
Moreover, if certain non-payment defaults exist under any Designated Senior
Debt, the Company may not make any payments in respect of the New Notes for a
specified period of time.
The obligations of the Company under the Revolving Credit Facility are,
subject to certain limitations, guaranteed by each of the Company's domestic
wholly-owned operating Subsidiaries. The obligations of the Company and its
Subsidiaries, whether as borrower or guarantor, are collateralized under the
Revolving Credit Facility by accounts receivable, inventory and other assets.
The New Notes and the Guarantees will be unsecured and, therefore, do not have
the benefit of such collateral. If the Company becomes insolvent or is
liquidated or if the indebtedness under the Revolving Credit Facility is
accelerated, the lenders under the Revolving Credit Facility will be entitled
to payment in full from the proceeds of their collateral prior to any payment
to the Holders of the New Notes. In such event, it is possible that there
would be no assets remaining from which claims of the Holders of the New Notes
could be satisfied or, if any assets remain, such assets may be insufficient
to fully satisfy such claims.
The Company is a holding company that conducts virtually all of its
operations and derives virtually all of its income through its subsidiaries.
Therefore, the Company's ability to make required principal and interest
payments with respect to the Company's indebtedness, including the New Notes,
depends on the earnings of its Subsidiaries and on its ability to receive
funds from such Subsidiaries through dividends or other payments. The
Indenture, among other things, limits the incurrence of additional
indebtedness and the issuance of preferred stock by the Company's Subsidiaries
and prohibits certain restrictions on distributions from Subsidiaries.
However, these limitations and prohibitions are subject to a number of
important qualifications. See "Description of Notes--Ranking," "--Guarantees"
and "--Certain Covenants."
The Guarantees will be in effect only for as long as the Subsidiary Bank
Guarantees remain in effect. If the Guarantees are terminated, the New Notes
shall be obligations solely of the Company, and the Subsidiaries will
21
<PAGE>
not be obligated or required to pay any amounts due pursuant to the New Notes
or to make funds available therefor in the form of dividends or advances to
the Company. If such termination occurs, the New Notes will be effectively
subordinated to all existing and future indebtedness of the Subsidiaries.
Because the Revolving Credit Facility does not provide for any specific
conditions under which the Subsidiary Bank Guarantees will be terminated
during the term of the Revolving Credit Facility, the Subsidiary Bank
Guarantees may only be terminated upon the waiver or release of some or all of
the Subsidiary Bank Guarantees by the banks under the Revolving Credit
Facility, or upon the liquidation, dissolution or disposition of the
applicable Subsidiary. Because it is possible that the Subsidiary Bank
Guarantees could be waived or released by the banks under the Revolving Credit
Facility at any time, including upon an event of default under the New Notes,
there can be no assurance that holders of the New Notes will have the right to
proceed directly against the Company's guaranteeing Subsidiaries under the
terms of the Guarantees. From time to time the interests of the banks in
maintaining the Subsidiary Bank Guarantees under the Revolving Credit Facility
may differ from the interests of the holders of the New Notes.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of the Old Notes
for the New Notes pursuant to the Exchange Offer. The Company used the net
proceeds received from the issuance of the Old Notes to the Initial Purchasers
in the Initial Offering (after deduction of certain transaction costs) to
finance a portion of its recent acquisition of Garrett.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes to the Initial Purchasers on
May 30, 1996, the Company executed and delivered for the benefit of the
holders of the Old Notes the Registration Rights Agreement. The Exchange Offer
is being made by the Company to satisfy its obligations pursuant to the
Registration Rights Agreement, which requires the Company to (i) use its
reasonable best efforts to cause the Registration Statement, of which this
Prospectus is a part, relating to the Exchange Offer to be declared effective
by the Commission prior to October 28, 1996, (ii) keep the Exchange Offer open
for a period of not less than 30 days from the date notice is mailed to
holders of the Old Notes, and (iii) maintain the Registration Statement
continuously effective for a period of not less than the longer of (A) the
period until consummation of the Exchange Offer and (B) 180 days after
effectiveness of the Registration Statement (subject to extension under
certain limited circumstances), provided that, in the event that all resales
of New Notes covered by the Registration Statement have been made, the
Registration Statement need not remain effective. The Old Notes provide that
under certain circumstances, including if the Exchange Offer has not been
consummated by, nor a shelf registration statement been declared effective by,
November 26, 1996, the respective interest rates on the Old Notes will
increase by 0.50% per annum from and including November 26, 1996 until but
excluding the date the Exchange Offer is consummated or a shelf registration
statement is declared effective.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange New Notes for a like aggregate principal amount of Old Notes,
properly tendered on or prior to the Expiration Date and not properly
withdrawn in accordance with the procedures described below. The Company will
issue, promptly after the Expiration Date, the New Notes in exchange for a
like principal amount of outstanding Old Notes tendered and accepted in
connection with the Exchange Offer. Holders may tender their Old Notes in
whole or in part in a principal amount of $1,000 and multiples thereof.
22
<PAGE>
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered. As of the date of this Prospectus $125,000,000 aggregate
principal amount of the Old Notes is outstanding.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Old Notes in connection with the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instruction in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes in connection with the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "--Solicitation of Tenders,
Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1996, unless the Company
in its sole discretion extends the period during which the Exchange Offer is
open, in which case the term "Expiration Date" means the latest time and date
to which the Exchange Offer is extended. The Company may extend the Exchange
Offer at any time and from time to time by giving oral or written notice to
the Exchange Agent and by timely public announcement. Without limiting the
manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The Company reserves the right (i) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept
Old Notes not previously accepted for any reason, including if any of the
events set forth herein under "--Conditions to the Exchange Offer" shall have
occurred and shall not have been waived by the Company, or (ii) to amend the
terms of the Exchange Offer in any manner, whether prior to or after the
tender of any of the Old Notes. If any such delay, extension, termination or
amendment occurs, the Company will give oral or written notice to the Exchange
Agent and will either issue a public announcement or give notice to the
holders of the Old Notes as promptly as practicable, such notice in the case
of any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time
that notice of such waiver or amendment is first published, sent or given to
holders of Old Notes in the manner specified above, the Exchange Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the fifth business day from, and including, the date that such notice is
first so published, sent or given, then the Exchange Offer will be extended
until the expiration of a period of five business days from the date such
notice is first published, sent or given.
23
<PAGE>
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Old Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof), have the signatures thereon guaranteed if required by the Letter of
Transmittal and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with any other required documents, to the Exchange Agent
prior to the Expiration Date, or in the case of a holder who is a participant
in the Book-Entry Transfer Facility (as defined below), the holder must by
procedures of the Book-Entry Transfer Facility acknowledge receipt of, and
agree to be bound by the terms of, the Letter of Transmittal. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal on or prior to the Expiration Date,
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent on or prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK
OF THE TENDERING HOLDER. IF DELIVERY IS BY MAIL, THEN REGISTERED MAIL (RETURN
RECEIPT REQUESTED AND PROPERLY INSURED) OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. To be tendered effectively, the Old Notes, Letter of Transmittal and
all other required documents must be received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date or, in the case of
participant in the Book-Entry Transfer Facility, a procedure of such facility
acknowledging receipt of, and agreeing to be bound by the terms of, the Letter
of Transmittal must be completed on or before the Expiration Date. Except for
such procedures, delivery of all documents must be made to the Exchange Agent
at its address set forth on the back of this Prospectus. Holders may also
request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect such tender for such holders.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. If less than all
of the Old Notes are tendered, a tendering holder should fill in the amount of
Old Notes being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
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 such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
24
<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a firm (an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the
meaning of Rule 17Ad-15 under the Exchange Act, unless the Old Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by bond powers and a proxy which authorizes such person to tender
the Old Notes on behalf of the registered holders, in each case as the name of
the registered holder or holders appears on the Old Notes. If the Letter of
Transmittal or any Old Notes 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 person should so
indicate when signing, and unless waived by the Company, evidence satisfactory
to the Company of their authority to so act must be submitted with the Letter
of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted by the Company, would be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company'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 the Company shall determine. None of the
Company, the Exchange Agent or any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of Old
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such 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 timely cured or waived will be returned without
cost to such holder by the Exchange Agent to the tendering holders of Old
Notes, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth under "--Conditions to the Exchange
Offer," to terminate the Exchange Offer and (ii) to the extent permitted by
applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The Company has no present plan to
acquire any Old Notes which are not tendered in the Exchange Offer. The terms
of any such purchases or offers could differ from the terms of the Exchange
Offer.
Book Entry Transfer. The Exchange Agent will make a request to establish an
account 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. Any financial institution that is a participant in the Book-Entry
Transfer Facility's systems may book-entry deliver Old Notes 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 such
Book-Entry Transfer Facility's procedures for transfer on or prior to the
Expiration Date. A holder who is a participant of the Book-Entry Transfer
Facility and who by procedures of the facility acknowledges receipt of, and
agrees to be bound by the terms of, the Letter of Transmittal need not
transmit the Letter of Transmittal to the Exchange Agent to consummate the
exchange.
Guaranteed Delivery Procedures. If a registered holder of the Old Notes
desires to tender such Old Notes, and the Old Notes are not immediately
available, or time will not permit such holder's Old Notes or other required
documents to reach the Exchange Agent before the Expiration Date, or the
procedure for book-entry
25
<PAGE>
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) on or prior to
the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof, or, in the case of a participant in the Book-Entry Transfer
Facility, the holder has by a procedure of such facility acknowledged receipt
of, and agreed to be bound by the terms of, the Letter of Transmittal) and
Notice of Guaranteed Delivery, substantially in the form provided by the
Company (by facsimile transmission, mail, hand delivery or, in the case of a
participant in the Book-Entry Transfer Facility, by a procedure of such
facility whereby the participant acknowledges receipt of, and agrees to be
bound by the terms of, the Notice of Guaranteed Delivery), setting forth the
name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("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, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days after the date
of execution of the Notice of Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes is received by the Exchange Agent, or in the case
of a participant in the Book-Entry Transfer Facility, as of the date when the
Book Entry Confirmation has been received by the Exchange Agent and the
participant has, by a procedure of such facility, acknowledged receipt of, and
agreed to be bound by the terms of, the Letter of Transmittal. Issuances of
New Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required
documents) and the tendered Old Notes.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The
Transferor represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire New Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The Transferor
also warrants that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes. The Transferor
further agrees that acceptance of any tendered Old Notes by the Company and
the issuance of New Notes in exchange therefor shall constitute performance in
full by the Company of its obligations under the Registration Rights Agreement
and that the Company shall have no further obligations or liabilities
thereunder (except in certain limited circumstances). All authority conferred
by the Transferor will survive the death or incapacity of the Transferor and
every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By tendering Old Notes, the Transferor certifies that (i) it is not an
"affiliate" of the Company within the meaning of Rule 406 under the Securities
Act, that it is not a broker-dealer that owns Old Notes acquired directly from
the Company, that it is acquiring the New Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no
arrangement with any person to participate in the distribution of such new
Notes or (ii) that it is an "affiliate" (as defined above) of the Company or
of the Initial Purchasers and that
26
<PAGE>
it will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable to it. Each broker-dealer that
receives New Notes for its own account in exchange for the Old Notes, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "PLAN OF DISTRIBUTION."
WITHDRAWAL RIGHTS;
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Exchange
Agent at its address set forth on the back of this Prospectus. Any such notice
of withdrawal must specify the name of the person having tendered the Old
Notes to be withdrawn, identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are registered
if different from that of the withdrawing holder, accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Old Notes being withdrawn. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an Eligible
Institution. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account of the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. If any Old Notes are tendered for exchange but are not
exchanged for any reason, or if any Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Notes will be returned to the holder thereof without cost to
such 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 pursuant to
the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender,
termination of the Exchange Offer or submission of nonexchanged Old Notes.
Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under "--
Procedures for Tendering."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at the rate of 11% per annum from the most
recent date to which interest has been paid on the Old Notes or, if no
interest has been paid on the Old Notes, from May 30, 1996. Interest on the
New Notes is payable semiannually on June 1 and December 1 of each year,
commencing December 1, 1996. Holders of Old Notes whose Old Notes are accepted
for exchange will not receive any payment in respect of accrued and unpaid
interest on such Old Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent promptly after the
Expiration Date, New Notes for Old Notes validly tendered and not withdrawn.
For the purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when and if the Company has
given oral or written notice thereof to the
27
<PAGE>
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving New Notes from the Company and
causing the Old Notes to be assigned, transferred and exchanged. Upon the
terms and subject to the conditions of the Exchange Offer, delivery of New
Notes to be issued in exchange for accepted Old Notes will be made by the
Exchange Agent 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, by procedures of the
Book-Entry Transfer Facility, a timely acknowledgement of receipt of the
Letter of Transmittal and agreement to be bound by its terms, and all other
required documents.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or
amend the Exchange Offer, if any of the following conditions has occurred or
exists or has not been satisfied: (a) the Exchange Offer, or the making of any
exchange by a holder, violates any applicable law or any applicable
interpretation of the Staff of the Commission; (b) in the reasonable judgment
of the Company, there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a
result thereof, or (iii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes
pursuant to the Exchange Offer; (c) any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer by any government, governmental authority,
domestic or foreign, or any action shall have been taken, proposed or
threatened, by any government, governmental authority, agency or court,
domestic or foreign, that in the reasonable judgment of the Company might
directly or indirectly result in any of the consequences referred to in
clauses (b)(i), (ii) or (iii) above or, in the reasonable judgment of the
Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretations of the Staff referred to in this Prospectus,
or would otherwise make it inadvisable to proceed with the Exchange Offer, (d)
there shall have occurred (i) any general suspension of trading in, or general
limitation on prices for securities on the New York Stock Exchange, (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States or any limitation by any governmental agency or
authority that adversely affects the extension of credit to the Company, or
(iii) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States; or,
in the case any of the foregoing exists at the time of commencement of the
Exchange Offer, a material acceleration or worsening thereof; or (e) a
material adverse change shall have occurred or be threatened in the business,
condition (financial or otherwise), operations, or prospects of the Company
and its subsidiaries, taken as a whole.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in their sole discretion.
The failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes tendered
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with
28
<PAGE>
respect to (i) the Registration Statement of which this Prospectus constitutes
a part or (ii) the qualifications of the Indenture under the Trust Indenture
Act of 1939.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. The Bank of New York also acts as trustee under the Indenture.
Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or the Letter of Transmittal, should be directed to the Exchange
Agent at its address and numbers set forth on the back of this Prospectus.
Except for participants in the Book-Entry Transfer Facility, who may
acknowledge receipt of and agree to the terms of the Letter of Transmittal
and/or the Notice of Guaranteed Delivery by procedures of such facility,
delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than to the Exchange Agent
as set forth herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable fees for its services
and will reimburse it for reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding copies of the Prospectus and related documents to the
beneficial owners of Old Notes, and in handling tenders for their customers.
The expenses to be incurred in connection with the Exchange Offer, including
the fees and expenses of the Exchange Agent and printing, accounting and legal
fees, will be paid by the Company and are estimated at approximately $ .
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than a
registered holder of the Old Notes tendered, or if a transfer tax is imposed
for any reason other than the exchange of Old Notes in connection with the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer will be billed directly to such tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representation should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given therein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Old Notes in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Old Notes in such jurisdiction. To comply with
the securities laws of certain states of the United States, it may be
necessary to qualify for sale or register thereunder the New Notes prior to
offering or selling such New Notes. The Company has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified
therein, to register or qualify the New Notes for offer or sale under the
securities laws of such states as any holder reasonably requests in writing.
Unless a holder so requests, the Company does not intend to register or
qualify the sale of the New Notes in any such jurisdictions.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
29
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
June 30, 1996. The amounts shown below have been derived from the unaudited
financial statements of the Company and the table should be read in
conjunction with the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30,
1996
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
SHORT-TERM DEBT:
Current portion of long-term debt................................ $ 5,317
LONG-TERM DEBT:
Revolving Credit Facility........................................ 61,675
9 1/8% Senior Notes Due 2003..................................... 100,000
Other long-term senior debt...................................... 6,670
11% Senior Subordinated Notes Due 2006........................... 125,000
7 1/2% Convertible Subordinated Debentures due 2006.............. 60,600
--------
Total long-term debt, excluding current portion................ 353,945
SHAREHOLDERS' EQUITY:
Convertible 8.5% Preferred Stock, par value $1.00 per share...... 250
Common stock, par value $0.20 per share; authorized 50,000,000
shares,
issued 18,723,868 shares........................................ 3,745
Additional paid-in-capital....................................... 149,562
Retained earnings (deficit)...................................... (13,525)
--------
Total.......................................................... 140,032
Less:
Treasury stock................................................. 5,143
Minimum pension liability adjustment........................... 1,801
Unearned compensation--restricted stock........................ 1,846
--------
Total shareholders' equity..................................... 131,242
--------
TOTAL CAPITALIZATION............................................... $490,504
========
</TABLE>
30
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth unaudited pro forma combined financial data
of the Company for the year ended December 31, 1995 and the six months ended
June 30, 1996. The statement of operations of Garrett set forth in the table
for the six months ended June 30, 1996 reflect Garrett's results of operations
for the period January 1, 1996 through May 30, 1996, the date on which the
Company acquired Garrett. The financial data for the six months ended June 30,
1996 were derived from the Company's and Garrett's unaudited Consolidated
Financial Statements which, in the opinion of management, reflect all
adjustments, (consisting only of normal recurring adjustments) necessary for a
fair presentation of the interim period. The purchase price and the related
financial data may be adjusted in the future to reflect changes that result
from the completion of an audit of the Garrett balance sheet as of the closing
date of the Acquisition and related procedures. See "Business--Terms of
Garrett Acquisition Purchase Agreement." Except as otherwise described below,
the pro forma combined financial data is derived from the historical
Consolidated Financial Statements of the Company and the historical
Consolidated Financial Statements of Garrett included elsewhere in this
Prospectus, adjusted, where applicable, to give pro forma effect to the
Acquisition, the offering of the Old Notes, the issuance of the Preferred
Stock, the UNC/AlliedSignal Agreement and the sale of the Heavy Maintenance
Business. For additional information concerning the UNC/AlliedSignal Agreement
and the sale of the Heavy Maintenance Business, see "Business--Hart-Scott-
Rodino Proceedings" and "--UNC/AlliedSignal Agreement." The pro forma balance
sheet give effect to the Acquisition, the offering of the Old Notes, the
issuance of the Preferred Stock, the UNC/AlliedSignal Agreement and the
divestiture of the Heavy Maintenance Business as if they were consummated on
December 31, 1995, and the pro forma statement of operations give effect to
the Acquisition, the offering of the Old Notes issuance of the Preferred
Stock, the UNC/AlliedSignal Agreement and the divestiture of the Heavy
Maintenance Business as if they were consummated on January 1, 1995. The
adjustments relating to the Acquisition and the related transactions are
described in the accompanying notes. The pro forma adjustments are based upon
available information and certain assumptions that management of the Company
believes are reasonable. The pro forma financial data does not purport to
represent what the Company's financial position or results of operations would
actually have been had the Acquisition and such other transactions, in fact,
occurred on such dates, or to project the Company's financial position at any
future date or results of operations for any future period. The pro forma
combined financial data should be read in conjunction with the historical
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" of the Company and Garrett
included elsewhere in this Prospectus.
31
<PAGE>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA
COMPANY GARRETT ADJUSTMENTS PRO FORMA
----------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
(A):
Sales and operating rev-
enues.................. $ 536,243 $ 338,104 $(9,022)(b) $ 865,325
Costs and operating ex-
penses................. 456,935 294,382 (7,437)(b) 736,611
----------- ----------- -----------
(7,269)(c)
Gross profit............ 79,308 43,722 128,714
Selling, general and ad-
ministrative expenses.. 56,952 28,261 (380)(b) 85,122
----------- ----------- -----------
(2,720)(c)
3,009 (d)
Operating income........ 22,356 15,461 43,592
Interest expense........ (19,514) (3,334) (11,071)(e) (33,919)
Other, net.............. 116 315 431
----------- ----------- -----------
Earnings before income
taxes.................. 2,958 12,442 10,104
Provision for income
taxes.................. 1,035 2,501 (f) 3,536
----------- ----------- -----------
Net earnings........... 1,923 12,442 6,568
Preferred dividends..... 2,125 (g) 2,125
----------- ----------- -----------
Net earnings attribut-
able to common stock... $ 1,923 $ 12,442 $ 4,443
=========== =========== ===========
Earnings per common
share.................. $ .11 $ .25
Weighted average number
of common shares....... 17,666 17,891
</TABLE>
32
<PAGE>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA
COMPANY GARRETT ADJUSTMENTS PRO FORMA
----------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
(A):
Sales and operating rev-
enues.................. $ 322,801 $ 147,148 $(3,862)(b) $ 466,087
Costs and operating ex-
penses................. 275,964 127,599 (2,989)(b) 397,545
----------- ----------- -----------
(3,029)(c)
Gross profit............ 46,837 19,549 68,542
Selling, general and ad-
ministrative expenses.. 32,205 12,629 (190)(b) 44,894
----------- ----------- -----------
(1,315)(c)
1,565 (d)
Operating income........ 14,632 6,920 23,648
Interest expense........ (11,145) (1,393) (5,069)(e) (17,607)
Other, net.............. (737) (737)
----------- ----------- -----------
Earnings before income
taxes.................. 2,750 5,527 5,304
Provision for income
taxes.................. 825 766 (f) 1,591
----------- ----------- -----------
Net earnings........... 1,925 5,527 3,713
Preferred dividends..... 187 876 (g) 1,063
----------- ----------- -----------
Net earnings attribut-
able to common stock... $ 1,738 $ 5,527 $ 2,650
=========== =========== ===========
Earnings per common
share.................. $ .10 $ .15
Weighted average number
of common shares....... 17,859 17,946
</TABLE>
33
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA
UNC GARRETT ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash.............................. $ 1,671 $ 11,247 $(11,247)(h) $ 1,671
Accounts receivable............... 102,462 44,649 1,513 (i) 148,624
Unbilled costs and accrued profits
on contracts in progress......... 11,128 11,128
Inventories....................... 91,130 21,281 343 (j) 111,211
(1,543)(k)
Assets held for sale.............. 5,099 5,099
Other............................. 10,156 1,334 11,490
-------- -------- --------
Total current assets............ 221,646 78,511 289,223
Assets held for sale--noncurrent.... 12,796 12,796
Property, plant and equipment, net.. 48,068 28,402 6,619 (j) 82,632
(457)(k)
Cost in excess of net assets of
acquired companies, net(a)......... 136,298 4,954 108,866 (j) 250,118
Other noncurrent assets............. 27,453 27,453
-------- -------- --------
Total assets.................... $446,261 $111,867 $662,222
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUI-
TY:
Current liabilities:
Current portion of long-term
debt............................. $ 1,748 $ 8,250 $ (8,250)(l) $ 1,748
Accounts payable.................. 39,614 39,321 78,935
Accrued expenses.................. 54,794 13,375 (30)(k) 68,139
Income taxes payable.............. 1,392 1,392
-------- -------- --------
Total current liabilities....... 97,548 60,946 150,214
Long-term Bank Revolving Credit Fa-
cility............................. 37,181 10,000 (5,034)(l) 42,147
9 1/8% Senior Notes................. 100,000 100,000
Other Long-term Senior Debt......... 1,352 21,858 (16,500)(l) 6,710
11% Senior Subordinated Notes....... 125,000 (l) 125,000
7 1/2% Convertible Subordinated
Debentures Due 2006................ 64,800 64,800
Other noncurrent liabilities........ 45,228 45,228
SHAREHOLDERS' EQUITY:
Convertible preferred stock......... 250 (m) 250
Partners' capital................... 19,063 (19,063)(n)
Common stock........................ 3,679 3,679
Additional paid-in capital.......... 123,717 (787)(o) 147,680
24,750 (m)
Retained earnings (deficit)......... (15,450) (15,450)
-------- -------- --------
Total............................... 111,946 19,063 136,159
Less:
Treasury stock.................... 8,750 (3,758)(o) 4,992
Minimum pension liability
adjustment....................... 1,801 1,801
Unearned compensation--restricted
stock............................ 1,243 1,243
-------- -------- --------
Total shareholders' equity.......... 100,152 19,063 128,123
-------- -------- --------
Total liabilities and shareholders'
equity............................. $446,261 $111,867 $662,222
======== ======== ========
</TABLE>
34
<PAGE>
- --------
(a) The Acquisition, which was consummated on May 30, 1996, will be accounted
for as a purchase pursuant to APB Opinion No. 16 "Business Combinations."
The purchase cost will be allocated to the assets and liabilities of
Garrett based on their fair values. The assets and liabilities of Garrett
are included in the Combined Pro Forma Financial Statements and the
Consolidated Financial Statements of the Company as of June 30, 1996,
appearing elsewhere in this Prospectus, at values reflecting preliminary
allocations of the purchase price. The final allocation of the purchase
price is subject to final determination based on the conclusion of an
audit of the closing balance sheet of Garrett and valuations and other
studies currently being performed by the Company. The preliminary
allocation of the purchase price over the estimated fair value of the net
assets acquired is being amortized over a period of thirty years using the
straight line method.
The Company's Consolidated Financial Statements for the six months ended
June 30, 1996 reflect the effect of the Acquisition, the offering of the Old
Notes, the issuance of the Preferred Stock, and the Company's divestiture of
UNC Airwork's AlliedSignal TFE731 heavy maintenance line. Consequently, no
pro forma adjustments are necessary for the balance sheet data as of June
30, 1996.
(b) In connection with the Acquisition, the Company sold the Heavy Maintenance
Business to Sabreliner at approximately book value. See "Business--Hart-
Scott-Rodino Proceedings." Assuming the sale occurred on January 1, 1995,
the effect on the Company's operations as a result of the divestiture of
the Heavy Maintenance Business would have been:
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Reduction in sales and operating revenues.......... $9,022 $3,862
Reduction in costs and operating expenses.......... 7,437 2,989
Reduction in selling, general and administrative
expenses.......................................... 380 190
------ ------
Reduction in operating income..................... $1,205 $ 683
====== ======
</TABLE>
(c) The Company has specifically identified cost reductions and other
operating income enhancements resulting from a business integration plan
which the Company is implementing. The business integration plan
contemplates: (i) implementation of an agreement between the Company and
AlliedSignal providing the Company with $15.0 million in annual orders for
the repair of AlliedSignal parts and components during the term of the
agreement, which will include parts and components sent by Garrett to
AlliedSignal for such service; and (ii) eliminating certain management
fees and consulting fees and reducing certain other administrative costs
such as insurance and professional fees previously paid by Garrett. For a
description of the Company's agreement with AlliedSignal, see "Business--
UNC/AlliedSignal Agreement."
The Company's business integration plan provides for the events generating
these reductions to occur in phases, beginning in the initial year. The pro
forma expected cost savings for the year ended December 31, 1995 and the six
months ended June 30, 1996 reflect savings and operating efficiencies the
Company expects during the initial year following the consummation of the
Acquisition. The Company expects to realize other benefits during the three
years following the Acquisition. Assuming the Acquisition occurred on
January 1, 1995 and the phase-in of the business integration plan commenced
as of such date, the expected cost reductions, on a pro forma basis, for the
year ended December 31, 1995 and the six months ended June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Reduction in costs and operating expenses.......... $7,269 $3,029
Reduction in selling, general and administrative
expenses.......................................... 2,720 1,315
------ ------
Total cost reductions............................. $9,989 $4,344
====== ======
</TABLE>
(d) Represents the amortization of the cost in excess of net assets acquired
from Garrett of $4,406 for the year ended December 31, 1995 and $1,836 for
the five months ended May 30, 1996, assuming the acquisition had been
consummated on January 1, 1995, offset by the elimination of $1,397 and
$271 of cost applicable to Garrett's amortization of intangible assets for
the year ended December 31, 1995 and the five months ended May 30, 1996,
respectively.
(e) Reflects the additional interest expense of $14,019 and $6,310 (at the
actual rate of 11% on the Old Notes and the New Note), for the year ended
December 31, 1995 and the five months ended May 30, 1996, respectively,
that would have been incurred had the Acquisition, the Offering, the
UNC/AlliedSignal Agreement and the sale of the Heavy Maintenance Business
taken place on January 1, 1995, offset by elimination of interest of
$2,948 and $1,241 of Garrett for the year ended December 31, 1995 and the
five months ended May 30, 1996, respectively, on senior debt that was not
assumed by the Company.
(f) Represents the accrual of estimated income taxes on pro forma earnings at
effective income tax rates of 35% for 1995 and 30% for the 1996 period.
(g) Reflects the cumulative preferred dividends at the rate of 8.5% on the
Preferred Stock.
(h) Reflects the elimination of the cash balance of Garrett, which is an asset
that was not acquired.
(i) Represents a $1,513 note received in connection with the Company's
divestiture of the Heavy Maintenance Business.
(j) These adjustments reflect the preliminary allocation of the purchase price
for Garrett to present the inventory, property, plant and equipment and
intangibles at their estimated fair market value.
(k) Reflects the sale of inventory and equipment, net of related engine
overhaul reserves, to Sabreliner in connection with the Company's
divestiture of the Heavy Maintenance Business.
(l) These adjustments reflect the issuance of $125,000 of Old Notes and an
increase of $4,966 in the Company's Revolving Credit Facility to fund
certain related costs, offset by the elimination of $34,750 of Garrett's
senior debt that was not assumed in the Acquisition. The senior debt of
Garrett includes $10,000 of revolving credit and $24,750 of senior term
loans of which $8,250 is classified as a current liability.
(m) Reflects the issuance of 250,000 shares of $1 par value Preferred Stock as
a part of the Acquisition.
(n) Reflects the elimination of partner's capital which was not assumed in the
Acquisition of Garrett.
(o) In connection with the Acquisition, UNC agreed to sell of up to an
aggregate of 225,000 shares of its Common Stock to certain Garrett
executives the Company employed following closing at a purchase price of
$5.75 per share, the closing price on the date the Purchase Agreement was
executed. These executives were also granted options to purchase up to an
aggregate of 450,000 shares of the Company's Common Stock at a purchase
price of $6.90 per share. These options are to vest in three equal
installments on each of the first three anniversary dates of Closing. This
adjustment reflects the sale of treasury stock and the granting of these
options.
35
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY
The following table sets forth selected historical data of the Company for
each year in the five-year period ended December 31, 1995, which were derived
from the audited Consolidated Financial Statements of the Company for such
periods. The audited Consolidated Financial Statements of the Company for each
of the periods in the three-year period ended December 31, 1995 are included
elsewhere in this Prospectus. The selected unaudited data presented below for,
and as of the end of, the six-month periods ended June 30, 1996 and 1995 were
derived from the Company's unaudited Consolidated Financial Statements which,
in the opinion of management, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the interim
period data. The results for any such interim period are not necessarily
indicative of the results to be expected for the full year. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Company" and the audited and
unaudited Consolidated Financial Statements of the Company included elsewhere
in this Prospectus. The operations for the six months ended June 30, 1996
include the operations of Garrett for the period subsequent to May 30, 1996,
the date of the Acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(A):
Sales and operating rev-
enues.................. $360,571 $365,152 $438,293 $525,833 $536,243 $257,045 $322,801
Costs and expenses:
Costs and operating
expenses............. 304,101 294,489 360,869 444,375 456,935 217,999 275,964
Selling, general and
administrative
expenses............. 49,084 45,283 53,987 69,768 56,952 27,448 32,205
Restructuring charge.. 58,706
Multi-employer pension
plan withdrawal
charge............... 14,000
Other operating
expenses............. 14,015
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. (6,629)(b) 25,380 23,437 (61,016)(c) 22,356 11,598 14,632
Other income (expense):
Interest expense...... (17,531) (11,431) (13,865) (18,549) (19,514) (10,223) (11,145)
Other, net............ 27 (1,098) (1,821) (1,850) 116 176 (737)
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes and
extraordinary item..... (24,133) 12,851 7,751 (81,415) 2,958 1,551 2,750
Income tax benefit
(provision)............ (1,352) (1,482) 3,843 13,483 (1,035) (543) (825)
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations,
before extraordinary
item................... (25,485) 11,369 11,594 (67,932) 1,923 1,008 1,925
Earnings from
discontinued
operations, net of
income taxes........... 34,100
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary item..... 8,615 11,369 11,594 (67,932) 1,923 1,008 1,925
Extraordinary item--
early retirement of
debt, net of income
taxes.................. (1,700) (532)
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)..... 6,915 11,369 11,062 (67,932) 1,923 1,008 1,925
Preferred dividends..... (187)
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) ap-
plicable to common
stock.................. $ 6,915 $ 11,369 $ 11,062 $(67,932) $ 1,923 $ 1,008 $ 1,738
======== ======== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER COM-
MON SHARE:
Continuing operations
before extraordinary
item................... $ (1.49) $ .66 $ .67 $ (3.89) $ .11 $ .05 $ .10
Discontinued
operations............. 1.99
Extraordinary item...... (.10) (.03)
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)
applicable to common
stock.................. $ .40 $ .66 $ .64 $ (3.89) $ .11 $ .05 $ .10
======== ======== ======== ======== ======== ======== ========
Weighted average number
of shares
outstanding............ 17,128 17,279 17,356 17,474 17,666 17,645 17,859
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation and
amortization........... $ 10,196 $ 10,378 $ 11,477 $ 12,727 $ 12,491 $ 6,258 $ 7,270
Capital Expenditures.... 7,280 6,602 11,250 10,299 6,767 2,720 6,945
Earnings before
interest, taxes,
depreciation and
amortization
("EBITDA")(d).......... 3,594 34,660 33,093 (50,139) 34,963 18,032 21,165
Ratio of EBITDA to in-
terest expense(d)...... 0.21x 3.03x 2.39x 1.79x 1.76x 1.90x
Ratio of earnings to
fixed charges(e)....... 1.86x 1.46x 1.11x 1.11x 1.19x
BALANCE SHEET DATA (at
end of period):
Working capital......... $ 88,379 $128,150 $150,200 $100,174 $124,098 $140,857 $156,009
Total assets............ 455,094 391,082 506,133 468,034 446,261 457,876 677,524
Total long-term debt,
including current por-
tion................... 177,829 125,723 197,283 214,323 205,081 221,426 359,262
Shareholders' equity.... 143,492 155,639 165,486 98,897 100,152 100,154 131,242
</TABLE>
- --------
(a) See Note 3 of the Notes to Consolidated Financial Statements included
elsewhere in this Offering Circular for a description of acquisitions by
the Company.
(b) Operating loss for the year ended December 31, 1991 included adjustments
aggregating approximately $26.0 million related to the carrying value of
certain inventories, increases in allowances for doubtful accounts
receivable related to services provided for certain commercial airlines in
liquidation or in troubled financial condition, the write-down of goodwill
related to a defense oriented business, and other operating items. Of
these charges $14.0 million is classified as other charges and $7.0
million for the write-down of certain inventories was charged to cost of
sales.
(c) Operating loss for the year ended December 31, 1994 included a
restructuring charge of $58.7 million in connection with a strategic
program to reduce the Company's cost structure and asset base in light of
industry conditions at that time. The charge includes accruals for the
cost of closing the Company's commercial aircraft engine overhaul facility
in Burbank, California, as well as adjustments to the carrying values of
certain assets positioned for sale. The Company also accrued a $14.0
million non-cash charge for withdrawal from a multi-employer pension plan
which had been underfunded by its trustees. In addition, the 1994 results
of operations include a one-time charge of $9.6 million for adjustments
related to the carrying value of certain long-term manufacturing
contracts, and increases in allowance for doubtful accounts. See Note 2 to
the Company's Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Offering Circular.
(d) Earnings before interest, taxes, depreciation and amortization in 1991 and
1994 includes the impact of the restructuring and other charges discussed
in Notes (b) and (c) above. EBITDA reflects earnings (loss) from
continuing operations, before extraordinary item, interest, taxes,
depreciation and amortization. EBITDA and the ratio of EBITDA to interest
expense do not take into account certain expenses that are reflected in
the calculation of net income in accordance with GAAP, are not intended to
represent any measure of performance in accordance with GAAP, and should
not be considered in isolation or as a substitute for cash provided by
operating activities, net income or any other consolidated income
statement data prepared in accordance with GAAP.
(e) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest
expense of continuing and discontinued operations (including amortization
of deferred debt issuance costs and discount) and the portion of operating
lease expense that is representative of the interest factor. For the years
1991 and 1994, earnings were inadequate to cover fixed charges by $26.7
million and $81.8 million, respectively. Fixed charges in 1991 and 1994
were funded through a combination of working capital investing activities
and additional borrowings and did not result in a default in any interest
or rental payments.
37
<PAGE>
GARRETT
The following table sets forth selected historical data of Garrett for each
of the periods indicated in the 36-month period ended December 31, 1995, which
were derived from the audited consolidated financial statements of Garrett for
the 12-month period ended December 31, 1995 and the six-month period ended
December 31, 1994 and the audited financial statements of AlliedSignal Engines
Hangar Operations ("the Predecessor Operations") for the six-month period
ended June 30, 1994 and the 12-month period ended December 31, 1993. The
selected unaudited data presented below for, and as of the end of, the three
months ended March 31, 1996 and 1995 was derived from Garrett's unaudited
Consolidated Financial Statements which, in the opinion of Garrett management,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim period data. The results of
any such interim period are not necessarily indicative of the results to be
expected for the full year. Information presented with respect to Garrett for
the six months ended December 31, 1994 represents information after June 30,
1994, the date on which Garrett was acquired from AlliedSignal. Financial
statements with respect to the Predecessor Operations prior to its divestiture
by AlliedSignal are included elsewhere in this Prospectus. Management of
Garrett believes that those financial statements are not comparable to the
financial statements of Garrett subsequent to its divestiture primarily
because (a) prior to July 1, 1994 the cost of sales for parts used in the
business was recognized on the basis of AlliedSignal's manufacturing cost
while Garrett's cost for AlliedSignal parts consumed in the Garrett business
subsequent to divestiture is based on a negotiated purchase price; (b)
AlliedSignal supplies Garrett with inventory on a consigned basis, which was
not the case prior to divestiture; (c) Garrett was not treated as a stand-
alone business by AlliedSignal and, therefore, certain cost allocations,
principally certain general and administrative costs, were not made based upon
what an independent business would incur; and (d) warranty work was not
reported as revenue but rather as an intercompany transfer of cost. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Garrett" and the audited and
unaudited Consolidated Financial Statements of Garrett included elsewhere in
this Offering Circular. Information for Garrett with respect to the period
January 1, 1995 through May 30, 1996 (the date on which the Company acquired
Garrett), and the corresponding period ended May 30, 1995 is not readily
available and the Company does not believe that such information would be
material to an investor's decision to exchange Old Notes for the New Notes.
<TABLE>
<CAPTION>
PREDECESSOR INFORMATION
-----------------------
THREE
TWELVE SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED
MONTHS ENDED ENDED ENDED MONTHS ENDED MARCH 31,
DECEMBER 13, JUNE 30, DECEMBER 31, DECEMBER 31, ----------------
1993 1994 1994 1995 1995 1996
------------ ---------- ------------ ------------ ------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(A):
Net sales............... $253,191 $124,144 $144,200 $338,104 $75,809 $87,688
Cost of sales .......... 162,575 80,522 130,224 294,382 66,912 75,216
-------- -------- -------- -------- ------- -------
Gross profit............ 90,616 43,622 13,976 43,722 8,897 12,472
Selling, general and
administrative
expenses............... 9,608 5,299 9,990 28,261 6,305 7,542
-------- -------- -------- -------- ------- -------
Operating income........ 81,008 38,323 3,986 15,461 2,592 4,930
Other income (expense):
Interest expense....... (187) (93) (1,810) (3,334) (824) (846)
Other, net............. 47 (136) 68 315 178 117
-------- -------- -------- -------- ------- -------
Net earnings(a)......... $ 80,868 $ 38,094 $ 2,244 $ 12,442 $ 1,946 $ 4,201
======== ======== ======== ======== ======= =======
OTHER DATA:
Depreciation and
amortization........... $ 1,686 $ 882 $ 2,984 $ 5,954 $ 1,571 $ 1,576
Capital expenditures.... 471 264 2,176 5,787 2,063 764
Earnings before
interest, taxes,
depreciation and
amortization
("EBITDA")(b).......... (e) (e) 7,038 21,730 4,341 6,623
Ratio of EBITDA to
interest expense(b).... (e) (e) 3.89x 6.52x 5.27x 7.83x
Ratio of earnings to
fixed charges(c)....... (e) (e) 1.71x 3.31x 2.45x 4.51x
BALANCE SHEET DATA (AT
END OF PERIODS):
Working capital......... $ 56,263 $ 49,082 $ 14,900 $ 17,565 $11,669 $33,683
Total assets............ 71,358 67,799 96,394 111,867 101,448 133,519
Capitalized leases...... 5,209 5,358 5,245 5,396
Long-term debt,
including current
portion(d)............. 40,209 40,108 37,245 50,396
Equity/Partners'
capital................ 65,976 57,121 13,214 19,063 13,437 21,331
</TABLE>
- -------
(a) Garrett was a limited partnership formed as of June 30, 1994. Under the
Internal Revenue Code, a partnership is not a taxable entity, therefore,
no provision for income taxes has been included in the determination of
net earnings.
(b) EBITDA reflects earnings (loss) from continuing operations, before
extraordinary item, interest, taxes, depreciation and amortization. EBITDA
and the ratio of EBITDA to interest expense do not take into account
certain expenses that are reflected in the calculation of net income in
accordance with generally accepted accounting principles, are not intended
to represent any measure of performance in accordance with GAAP, and
should not be considered in isolation or as a substitute for cash provided
by operating activities, net income or any other consolidated income
statement data prepared in accordance with GAAP.
(c) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest
expense of continuing and discontinued operations (including amortization
of deferred debt issuance costs and discount) and the portion of operating
lease expense that is representative of the interest factor.
(d) Long-term debt reflects the actual outstanding debt of Garrett as a stand-
alone operation. Only Garrett's capital lease obligation, in the amount of
$5,358 as of December 31, 1995 and $5,396 at March 31,1996, will be
assumed by the Company in connection with the Acquisition.
(e) Prior to the divestiture of the AlliedSignal Engines-Hangar Operations by
AlliedSignal, the Hangar Operations incurred only a nominal amount of
interest expense, $0.2 million in 1993 and $0.1 million in the six months
ended June 30, 1994. Consequently, because of the nominal amount of
interest expense incurred and reasons described in note (a) above, the
ratio of EBITDA to interest expense and earnings to fixed charges are not
comparable to these ratios after the divestiture by AlliedSignal.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNC INCORPORATED
The Company's operations are conducted in one business segment which
includes: the overhaul of aircraft engines, industrial gas turbine engines and
aircraft accessories, the manufacture and remanufacture of jet engine and
aircraft components and providing maintenance and training, repair and
logistical contract services.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995
Revenues were $322.8 million in the first half of 1996 compared with $257.0
million in the 1995 period, an increase of $65.8 million (26%). Contributing
to this increase were revenues of $30.9 million generated by Garrett, acquired
May 30, 1996, as well as increases in the volume of other engine overhaul
revenues and in Manufacturing Division and Aviation Services Divisions
revenues including a $9.2 million increase in international revenues. These
increases were partially offset by a decrease in Accessory Services revenues.
Operating income in the 1996 period increased $3.0 million (26%) to $14.6
million due to the addition of Garrett and the previously noted increases in
volume.
Concurrent with the acquisition of Garrett, the Company's Engine Overhaul
Division joined with Garrett to form a new division, the "Garrett Aviation
Services Division." Revenues for this newly formed division in the 1996 period
increased $36.8 million (59%) to $98.9 million. The higher revenues are due to
$30.9 million generated by Garrett, acquired May 30, 1996, an increase in
other small turbine engine overhauls for both domestic and international
customers, and an increase in the overhaul and repair of auxiliary power
units. These increases were partially offset by a decrease in revenues from
the sale of engine parts for small gas turbine engines, principally due to
competitive conditions in the marketplace. Operating income in the first half
of 1996 increased $3.0 million (71%) to $7.3 million, principally due to
increased volume and the addition of Garrett.
The Aviation Services Division revenues of $143.1 million increased $23.6
million (20%) in the 1996 period. The increase in the 1996 period is due to
increased activities on federal services type contracts awarded towards the
end of 1995, increased activities on contract field service contracts and
international services contracts. Operating income increased $1.0 million
(28%) to $4.6 million in the 1996 period due to these increased volumes.
The Company's Manufacturing Division revenues in the 1996 period increased
$12.6 million (26%) to $61.5 million compared with the 1995 period. The
increase in revenues is principally due to higher volume on U.S. government
spares and other commercial programs at the Company's Michigan and Indiana
component manufacturing facilities and, to a lesser extent, higher volume at
other manufacturing facilities, principally due to increased activities on
Boeing and Northrop contracts at the Aerostructures manufacturing facility and
an increase in volume at UNC Artex from specialized repairs of engine
gearboxes and cases for commercial airlines. These increases were partially
offset by the loss of revenues attributable to the Company's chemical milled
aircraft and engine component business, which was sold in June 1995. Operating
income increased $2.4 million (51%) to $7.2 million in the 1996 period
principally due to higher volume.
Revenues of the Accessory Services Division in the 1996 period decreased
$6.6 million (28%) to $17.5 million due to lower volume on domestic and
international business, principally due to lower volume as a result of
increased competition from OEMs. Operations for the 1996 first half resulted
in a loss of $1.2 million compared with income of $2.0 million in the 1995
period. The Company has taken certain actions in the second quarter of 1996,
to reduce costs which should have a favorable impact on future results.
39
<PAGE>
Revenues of $1.8 million and operating income of $0.4 million were generated
from the sale of aircraft parts by the Company's Trading Division in the 1996
period. In the 1995 period revenues and operating income were 2.4 million and
$0.7 million, respectively.
Selling, general and administrative expenses in the first half of 1996 were
$32.2 million or 10.0% of sales compared with $27.5 million or 10.7% of sales
in the 1995 period. The increase in selling, general and administrative
expenses in the 1996 period of $4.8 million is principally due to the
acquisition of Garrett, and an increase in domestic sales and marketing
activities which includes an investment for increased international marketing
efforts by the Company's international offices located in Singapore, The
Netherlands, China and Miami, Florida, serving Latin America. International
revenues increased $9.2 million (18%) to $61.6 million in the 1996 period.
Interest expense increased $0.9 million in the first half of 1996 due to
higher average debt levels principally due to the acquisition of Garrett.
The effective income tax rate as a percent of earnings before income taxes
was 30% and 35% for the six-month period ended June 30, 1996 and 1995,
respectively. The decrease in the effective rate for 1996 compared with 1995
is due to the expected realization of certain deferred tax assets not
previously realized.
The Defense Department is continuing to close various military bases. A
portion of the workload of these bases is being relocated to bases where the
Company already performs aircraft maintenance functions. Further consolidation
of military training and maintenance contracts is expected as bases are
eliminated. The Company expects that continued pressures on defense spending
could increase the outsourcing of services currently being provided by
military and other government personnel to lower cost providers such as the
Company. Many of the Company's Aviation Services Division's contracts are
funded by the operations and maintenance ("O&M") budget of the United States
Department of Defense. The O&M budget has remained stable over the last four
years and is projected to remain relatively flat through the end of the
decade, despite a decline in the Department of Defenses' overall budget. The
Company believes that more maintenance work under the O&M budget will be
outsourced in the future to lower cost private sector suppliers, such as the
Company, to meet ongoing Department of Defense budget pressures in other
budget areas, such as new or modernized weapons systems. There can be no
assurance, however, that the Department of Defense will outsource significant
amounts of additional work to entities such as the Company or that federal
budgetary pressures will not adversely affect the Company.
The Company's Manufacturing Division continues to receive pricing pressure
from certain customers, principally OEMs. The Division has provided price
concessions to its principal OEM customers during each of the past four years
in anticipation of continuing to receive future orders and to maintain OEM
business relationships. The industry is currently experiencing an economic
turnaround after several years of depressed conditions due to increased demand
for new aircraft. The Company has recently experienced an increase in new
commercial orders as a result of this increased demand. These additional
orders, along with on-going productivity enhancements and cost reduction
programs instituted by the Company over the past several years has resulted in
increased profitability for the Division. Due to the past uncertainty within
the airline industry continuation of additional orders can not be assured. The
OEM customers continue to apply pricing pressure on all suppliers, and the
Company expects continuing pressures from certain OEM customers on future
pricing.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Revenues were $536.2 million in 1995 compared with $525.8 million in 1994,
an increase of $10.4 million (2%). This increase in revenues was a result of
an increase of $25.7 million (29%) in international sales, offset by a
reduction in revenues due primarily to the closing of an overhaul facility
located in Burbank, California and the sale of two operating divisions in
connection with the Company's restructuring program. Operating income was
$22.4 million in 1995 compared with an operating loss of $61.0 million in
1994. Included in the 1994 results were a restructuring provision of $58.7
million, a one-time charge of $9.6 million for adjustments described
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below and a $14.0 million multi-employer pension withdrawal adjustment. See
1994 Compared with 1993 and Note 2 of the Notes to the Company's Consolidated
Financial Statements appearing elsewhere in this Offering Circular for a
discussion of the Company's restructuring program. Without these adjustments
operating income would have been $21.3 million in 1994.
Revenues for the Engine Overhaul Division in 1995 increased $1.5 million
(1%) to $130.6 million. The higher revenues are due to an increase in small
engine overhauls for international customers and in the overhaul and repair of
industrial turbine engines. These revenue increases were partially offset by
the loss of revenue resulting from the closing of the engine overhaul facility
in Burbank, California, at the end of 1994, as part of the Company's
restructuring program. Operating income in 1995 was $7.6 million compared with
an operating loss of $8.0 million in 1994. Included in the 1994 results was a
$14.0 million non-recurring charge for the withdrawal from a multi-employer
pension plan (See Note 14 of the Notes to the Company's Consolidated Financial
Statements appearing elsewhere in this Offering Circular) and a one-time
charge of $1.0 million for an increase in the allowance for doubtful accounts
for receivables related to litigation and the bankruptcy of certain customers.
Without these adjustments operating income would have been $7.0 million in
1994 compared with $7.6 million in 1995.
Aviation Services Division revenues of $251.2 million increased $5.1 million
(2%) in 1995. The increase in 1995 is due in part to higher revenues generated
on United States government contracts for pilot training and contract field
teams services, and for activities on an international contract that was
awarded in the latter part of 1994. These increases in revenues were partially
offset by a reduction in aircraft maintenance activities on U.S. government
contracts and the sale of UNC Helicopter in December 1994, as part of the
Company's restructuring strategy. Operating income decreased $1.9 million
(17%) to $9.6 million in 1995 due to a reduction in volume of flying hours and
one-time increases during the previous year.
The Company's Manufacturing Division revenues in 1995 decreased $2.8 million
(3%) to $103.6 million compared with 1994. The decrease in revenues is due to
lower volume at the Company's engine components manufacturing facility in
Indiana and to a reduction in revenues generated by the Company's chemical
milled aircraft and engine components facility in Texas which was sold in June
1995, as part of the Company's restructuring strategy. These decreases were
partially offset by higher volume at the Company's Michigan engine components
manufacturing facility due to increased activities on U.S. government programs
and higher volume at other manufacturing facilities, principally due to new
orders at the aerostructures manufacturing facility in the State of
Washington. Operating income was $10.7 million in 1995 compared with $6.6
million in 1994. The 1994 period included a one-time charge of $3.5 million
for an adjustment to cost estimates on long-term manufacturing contracts. This
charge resulted from a reevaluation of total cost to be incurred under long-
term production contracts with OEM customers, necessitated by a reduced level
of orders and the impact of recent price concessions that were provided to the
OEMs under these contracts. As a result of these events, it was determined
that the increasing overhead rates, resulting in higher overhead charges to
the contracts, in conjunction with higher production costs, resulting from
these lower volumes, required an adjustment to the carrying value of inventory
under the contracts.
Revenues of the Accessory Services Division in 1995 increased $3.9 million
(9%) to $45.6 million principally due to increased volume from international
customers. Operating income decreased $1.3 million in 1995 principally due to
lower volume on domestic business which was replaced with increased
international business at lower margins due to increased competitive actions
by original equipment manufacturers ("OEMs"). The 1994 period included one-
time charges of approximately $0.2 million for an increase in the allowance
for doubtful accounts.
In December 1994, the Company's Trading Division purchased a used Boeing 767
aircraft for $5.0 million, of which $1.0 million was paid in 1994 and $4.0
million in 1995. The aircraft was disassembled and the parts are being
refurbished or repaired, as required, and are being disposed of in the
aftermarket through sale, lease or the creation of exchange pools or similar
transactions. During 1995 the Division generated revenues of $3.3 million and
operating income of $1.1 million from parts sales. Also, included in 1995
revenues and operating
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income is $2.0 million for services provided to the Mohegan Indians in
connection with the sale of property in Connecticut. The 1994 period includes
$2.6 million of revenues and operating income from the leveraged lease of a
McDonnell Douglas DC-10-30 aircraft which was sold in December 1994.
Selling, general and administrative expenses in 1995 were $57.0 million or
10.6% of sales compared with $69.8 million or 13.3% of sales in 1994. The
decrease in selling, general and administrative expenses in 1995 is due to the
closing of the Burbank engine overhaul facility, the sale of UNC Helicopter in
December 1994, the sale of the Texas chemical milled aircraft and engine
components facility in June 1995, and other cost savings resulting from the
restructuring program initiated in the second quarter of 1994. Also included
in 1994 was a one-time charge of approximately $6.1 million for an increase in
the allowance for doubtful notes and accounts (included in this amount are the
allowance adjustments described above) and the write-off of expenses incurred
in connection with an acquisition that was not consummated. Selling, general
and administrative cost also includes an investment for increased
international marketing efforts by the Company's international offices located
in Singapore, The Netherlands and Miami, Florida, serving Latin America. As a
result, international sales have increased $25.7 million (29%) and $27.9
million (47%) in 1995 and 1994, respectively. See Note 17 of Notes to
Consolidated Financial Statements.
Interest expense increased $1.0 million (5%) in 1995, principally due to
higher average debt levels.
The income tax provision for 1995 of $1.0 million results from the Company
reporting $3.0 million in earnings before income taxes and extraordinary item.
In 1994, the Company recognized an income tax benefit of $13.5 million as a
result of incurring a loss before income taxes and extraordinary item of $81.4
million. See Note 12 of the Notes to the Company's Consolidated Financial
Statements appearing elsewhere in this Offering Circular for a reconciliation
of the statutory federal income tax rate to the Company's effective tax rate.
The decrease in the deferred tax valuation allowance of $1.3 million in 1995
was due to the realization of current income tax benefits resulting from the
reversal of temporary differences against financial statement income. The
amount of deferred tax valuation allowance is determined based upon
management's evaluation of the net realizability of the future income tax
benefits, considering expiration of net operating losses, predictability of
future income, including the impact of the Company's restructuring program,
and the timing of reversal of temporary differences.
The Defense Department is continuing to close various military bases. A
portion of the workload of these bases is being relocated to bases where the
Company already performs aircraft maintenance functions. Further consolidation
of military training and maintenance contracts is expected as bases are
eliminated and other defense cuts reduce the value of individual contracts.
However, the Company expects that continued pressures on defense spending
could increase the outsourcing of services currently being provided by
military and other government personnel to lower cost providers such as the
Company. Additional opportunities for work from Army, Air Force and Navy
depots may result from the recommendations made by the Congressionally-
mandated Department of Defense Industry Depot Maintenance Task Force on which
the Company is represented. In May 1995, the Company was awarded a major
delivery order under its Contract Field Teams contract to develop the plans,
procedures and processes to implement the U.S. Army's Strategic Mobility
Logistics Program at Charleston, South Carolina. Also in May, the Company was
awarded a one year contract with four one-year options by the U.S. Army's
Communications and Electronics Command at Ft. Monmouth, N.J. with a potential
value of approximately $105 million. In July 1995, the Company was awarded a
$38 million seven year subcontract for maintenance and supply support of the
Air Force's worldwide C-20 Gulfstream VIP aircraft fleet, and in August, the
Company was awarded a one year contract with four one-year options aggregating
approximately $38 million to provide flight simulator instruction at six Air
Education and Training Command bases.
The Company's Manufacturing Division continues to receive pricing pressure
from certain customers, principally OEMs, as these OEMs continue to reduce
significantly the number of suppliers and their own procurement staffs. The
Company remains a part of the reduced OEM supplier base and has obtained new
contracts that may not have been available when the base of suppliers was
larger. The Division has provided
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price concessions to its principal OEM customers during each of the past four
years in anticipation of continuing to receive future orders and to maintain
OEM business relationships. As a result of the depressed conditions in the
industry over the past several years, the additional orders have not been
sufficient to offset the declining volume of business. The Company has
instituted on-going productivity enhancements and cost reduction programs, in
an effort to mitigate the effect of these price concessions and reduced
volumes. However, as a result of the impact that these concessions and reduced
volumes have had on the cost structure of the Division, the Company adjusted
the carrying value of certain inventories related to these long-term
manufacturing agreements by $3.5 million in 1994. The OEM customers continue
to apply pricing pressure on all suppliers, and the Company expects continuing
pressures from these OEM customers on future pricing.
Continued effort on the part of the U.S. government to reduce defense
spending is affecting the demand for military aircraft engines and could also
have an impact on the Company's manufacturing operations. This trend is being
offset by the Defense Department bypassing OEMs and placing orders directly
with subcontractors such as the Company. Recently, the Company has been
awarded contracts to produce T56, F10 and F404 High Pressure Turbine Nozzle
Segments valued at $16 million, $9 million and $7 million, respectively. The
Company's manufacturing operations intend to capitalize on the opportunities
in the military market while focusing efforts on building the commercial
market. During the second half of 1993 and the first quarter of 1994, the
Company expanded its commercial contract backlog as well as its customer base
by acquiring the contract backlog of two financially pressured competitors.
The inventory and production related to these contracts were transferred to
existing Company facilities.
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993
The Company took steps in 1994 to reduce its cost structure and asset base
in light of the continuing depressed economic conditions in the aviation
industry. The Company's analysis of industry market conditions indicated that
the soft industry cycle would continue through 1996 and that many of the
Company's markets would see little real growth during this period. As a
result, in the second quarter of 1994 the Company recorded a $58.7 million
provision for restructuring which includes the shutting down of a marginal
operation, an allowance for the sale and disposition of two other businesses,
the consolidation and downsizing of other operations, and the write down of
inventory and underutilized property, plant and equipment that had been
identified for sale to generate additional cash flow. The provision for
restructuring consists of $42.3 million to cover the closing of a facility,
the sale and disposition of two other businesses, the consolidation of two
plants and the downsizing of other facilities. The Company has closed its
engine overhaul facility in Burbank, California and consolidated its engine
overhaul business principally at its facilities in Millville, New Jersey, and
Miami, Florida. The Company positioned for sale and disposition its chemical
milled aircraft and engine components facility in Weatherford, Texas, which
was sold in 1995, and its helicopter overhaul and refurbishment facility in
Ozark, Alabama, which was sold in December 1994. These actions were taken due
to the under utilization of the Weatherford facility caused by the depressed
market conditions being experienced by OEM's in connection with the
construction of new aircraft and a sharp reduction in the number of military
helicopter overhauls that were expected in the foreseeable future at the Ozark
facility. The Company has also consolidated two of its accessory overhaul
plants located in Long Island, New York into one facility. The balance of the
provision of $16.4 million relates principally to the write down to estimated
realizable value of certain inventory and underutilized property, plant and
equipment that has been identified for sale on the open market. When fully
implemented the restructuring program is expected to generate $85.0 million of
cash, net of restructuring expenses.
During the first six months of this restructuring program the Company closed
its engine overhaul operations in Burbank, California and transferred those
operations to its Millville, New Jersey and Miami, Florida facilities and sold
its helicopter overhaul and refurbishment business. In addition, the Company
began liquidating the assets identified for sale under this program and
generated approximately $10 million of cash, net of restructuring expenses.
The Company completed the auction of certain fixed assets at its Pacific
Airmotive subsidiary in January 1995, generating approximately $2.6 million in
cash.
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At year end the Company's employee head count was 5,410, down slightly more
than 1,000 employees compared with the beginning of the year, reflecting the
results of improved cost controls and restructuring efforts.
Revenues were $525.8 million in 1994 compared with $438.3 million in 1993,
an increase of $87.5 million (20%) and operating income for 1994 reflects a
loss of $61.0 million compared with income of $23.4 million in 1993. Included
in the 1994 results were the restructuring provision of $58.7 million, a one-
time charge of $9.6 million for adjustments related to the carrying value of
certain long-term manufacturing contracts, increases in allowance for doubtful
accounts as well as other operating items described below, and a $14.0 million
fourth quarter 1994 multi-employer pension withdrawal adjustment. Without
these adjustments operating income would have been $21.3 million in 1994.
Revenues for the Engine Overhaul Division in 1994 decreased $24.9 million
(16%) to $129.1 million. The reduction in revenues is principally due to
decreases in JT8 overhauls, resulting from the Company's decision to withdraw
from the JT8 overhaul business in late 1993. The JT8 reductions were partially
offset by a revenue increase of $3.1 million generated by UNC Metcalf acquired
in the third quarter of 1993.
Operations of the Engine Overhaul Division generated a loss of $8.0 million
in 1994 compared with income of $4.2 million in 1993. Included in the 1994
results is a $14 million non-recurring charge for the withdrawal from a multi-
employer pension plan (see Note 14 of the Notes to the Company's Consolidated
Financial Statements appearing elsewhere in this Offering Circular) and a one-
time charge of $1.0 million for an increase in the allowance for doubtful
accounts for receivables related to litigation and the bankruptcy of certain
customers. Without these adjustments operating income would have been $7.0
million in 1994.
Aviation Services Division revenues of $246.1 million increased $103.9
million in 1994. The increase in revenues is due principally to revenues
contributed by UNC Lear Siegler acquired in October 1993 and consolidated into
the Aviation Services Division. Operating income increased $5.0 million after
adjusting for a $2.0 million nonrecurring claim against the U.S. government
(for costs incurred prior to 1993) which was recorded in the first quarter of
1993. The increase in operating income is principally due to earnings
contributed from the acquisition of UNC Lear Siegler and resulting savings
from the consolidation of its operations.
The Company's Manufacturing Division revenues for 1994 of $106.4 million
increased $15.6 million (17%) compared with 1993. The increase in 1994
revenues is principally due to revenues generated by UNC Johnson Technology
and UNC Aerostructures, Washington acquired in the third quarter of 1993,
offset by lower volume at the Company's other manufacturing facilities.
Operating income was $6.6 million in 1994 compared with $12.6 million in 1993.
The 1994 period includes a one-time charge of $3.5 million for an adjustment
to cost estimates on long-term manufacturing contracts. This charge resulted
from a reevaluation of total cost to be incurred under these long-term
production contracts with OEM customers, necessitated by a reduced level of
orders and the impact of recent price concessions that were provided the OEMs
under these contracts. As a result of these events, it was determined that the
increasing overhead rates, resulting in higher overhead charges to the
contracts, in conjunction with higher production cost, resulting from these
lower volumes, required an adjustment to the carrying value of inventory under
these contracts. Without this adjustment operating income would have been
$10.1 million in 1994.
Revenues for the Accessory Services Division in 1994 decreased $8.3 million
(17%) to $41.7 million, principally due to increased pricing pressures from
existing competition in the accessory services markets. Operating income was
$1.3 million in 1994 and $6.5 million in 1993. Included in the 1994 results
was a one-time charge of $0.2 million for an increase in the allowance for
doubtful accounts related to the settlement of certain receivables. Without
this adjustment income would have been $1.5 million in 1994. The decrease in
operating income in 1994 is principally due to the reduction in volume.
In December 1994, the Company's Trading Division sold its McDonnell Douglas
DC-10-30 aircraft that was acquired in September 1993 under a leveraged lease.
Revenues and operating income from the leveraged lease in 1994 and 1993 were
$2.6 million and $1.3 million, respectively.
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Selling, general and administrative expenses in 1994 were $69.8 million or
13.3% of sales compared with $54.0 million or 12.3% of sales in 1993. The
increase in selling, general and administrative expense in 1994 is due to
expenses of the companies acquired during 1993 and increased international
marketing efforts. Additionally, included in the 1994 period is a one-time
charge of approximately $6.1 million related to increases in allowances for
doubtful notes and accounts (included in this amount are the allowance
adjustments described above) and the write-off of expenses of $0.7 million
incurred in connection with an acquisition that was not consummated. Without
this one-time charge selling, general and administrative expenses would have
been approximately 12.2% of sales in 1994.
Interest expense increased $4.7 million in 1994 principally due to higher
average debt levels resulting from acquisitions made in 1993, the full year
effect of the Senior Notes issued in July 1993 and higher interest rates.
The income tax benefit for 1994 of $13.5 million was $9.7 million higher
than the $3.8 million benefit for 1993. This increase is due to the
recognition of income tax benefits, net of allowances, on the pre-tax losses
incurred in 1994. See Note 12 of Notes to Consolidated Financial Statements
for a reconciliation of the statutory federal income tax rate to the Company's
effective tax rate.
The increase in the deferred tax valuation allowance of $13.7 million in
1994 was due to the uncertainty of realizing the tax benefits from net
operating losses and certain tax assets generated by the 1994 restructuring
provision, the provision for the withdrawal from a multi-employer pension plan
and other one-time charges. The amount of deferred tax valuation allowance is
determined based upon management's evaluation of the net realizability of the
future income tax benefits considering expiration of net operating losses,
predictability of future income, including the impact of the Company's
restructuring program, and the timing of reversal of temporary differences.
Liquidity and Capital Resources
Net cash flows from operating activities used $5.2 million in the first half
of 1996, which consisted of $9.9 million generated by earnings after adjusting
for non-cash items, offset by an $11.3 million investment in additional
working capital and $3.8 million related to changes in noncurrent assets and
liabilities. Net cash flows from investing activities used $153.7 million, of
which $148.3 million relates to the purchase of Garrett, including related
transaction costs, and $6.9 million for capital expenditures, which was
partially funded by $1.5 million generated from the sale of assets. Net cash
provided by financing activities of $176.0 million includes proceeds from the
issuance of 11% Senior Subordinated Notes and Convertible Preferred Stock used
in the acquisition of Garrett and an increase in revolving credit borrowing,
which was used to pay certain transaction costs related to the Garrett
acquisition, to finance the funds used by operating activities and to fund the
additions to property, plant and equipment net of the proceeds from asset
sales.
Many of the Company's restructuring goals have been achieved since the
program was implemented in June 1994. The Company has generated $48.9 million
from the sale of assets, including $25.0 million from the sale of the
Company's Connecticut property, $12.9 million from the sale of other under
utilized property and equipment, $11.0 million from the sale of other assets,
including its helicopter overhaul and refurbishing business in Ozark, Alabama
and its chemical milled aircraft and engine component business in Weatherford,
Texas. In addition, the Company has closed its JT8 engine overhaul facility in
Burbank, California and consolidated the engine overhaul business at its
facilities in Millville, New Jersey, and Miami, Florida. Two accessory
services facilities in Long Island, New York, have also been consolidated. The
disposal of these assets and consolidation of operations, along with
implementation of productivity enhancements and staff reductions, have
resulted in a reduced cost structure for the Company.
In addition to the cash described above, since June 30, 1994 the Company
generated approximately $8.8 million of proceeds from the collection of
certain disputed receivables and notes that were written down at the time of
the restructuring in connection with efforts made by the Company to accelerate
the collection of these troubled receivables and generate additional cash.
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Since the restructuring program was implemented, the Company has incurred
$17.6 million of cash expenditures against its restructuring accrual. These
cash expenditures include employee severance and related costs of $2.5
million, $15.1 million of costs associated with the sale, closing and
consolidations of businesses and operations, including $3.8 million of third-
party costs associated with the shutdowns, consolidations and sales programs.
The Company believes that the remaining restructuring accrual of $2.9 million
should be adequate to complete the program.
Capital expenditures in the first half of 1996 amounted to $6.9 million
compared with $2.7 million in the 1995 period. It is anticipated that capital
expenditures for the full year 1996 will approximate $11 million, excluding
the impact of the acquisition of Garrett Aviation Services. Expenditures for
the balance of 1996 will be financed from internally generated funds, lease
arrangements and, if necessary, revolving credit borrowings. For the year
ended December 31, 1995, expenditures amounted to $6.8 million compared with
$10.3 million for the year ended December 31, 1994.
Prior to consummating the Acquisition, the Company reevaluated its capital
requirements as a result of several factors, including (i) the improved
operating performance for the quarter ended March 31, 1996 of both the Company
and Garrett and the anticipated growth of the combined business, (ii) an
amendment to the purchase price adjustment provisions of the Purchase
Agreement which resulted in a short-term need to access working capital
following the Acquisition, and (iii) the Company's agreements with
AlliedSignal regarding the timing of payment to AlliedSignal of Garrett's
unpaid invoices. As a result of all of the foregoing factors, on May 22, 1996,
the Company entered into an Amended and Restated Revolving Credit Facility
with First Union Commercial Corporation ("First Union Bank") providing for a
credit line through May 2000 with a borrowing capacity of up to $110 million,
subject to borrowing base limitations as defined in the agreement and reduced
by outstanding letters of credit. See "Description of Certain Indebtedness--
Revolving Credit Facility."
The Company's previous revolving credit agreement provided for a credit line
through May 2000, with a borrowing capacity of up to $90 million, subject to
borrowing base limitations as defined in the agreement and reduced by
outstanding letters of credit. The Company's unused availability under its
Revolving Credit Facility was $37.1 million at June 30, 1996 and $33.0 million
at December 31, 1995. In January 1996, the Company purchased in the open
market $0.6 million of the 7 1/2% Convertible Subordinated Debentures to
satisfy the remaining balance of the March 1996 sinking fund requirement. The
Company's debt-to-capitalization ratio at June 30, 1996, was 73.5% compared
with 67.2% at December 31, 1995 and 68.4% at December 31, 1994. At June 30,
1996, the Company's working capital was $156.0 million, with a current ratio
of 2.0 to 1 compared with $124.1 million with a current ratio of 2.3 to 1 at
December 31, 1995 and $100.2 million, with a current ratio of 1.7 to 1 at
December 31, 1994.
The Company has approximately $34.6 million of net operating loss
carryforwards at December 31, 1995 that can be applied against future taxable
income. Consequently, the Company does not expect to pay significant federal
income taxes for the next several years.
In October 1995, the Company reached an agreement with Gildea Investment
Company ("Gildea") and other investors to provide up to $25 million of equity
financing on an as needed basis to assist in financing future acquisitions.
The equity investment was to be in the form of the Preferred Stock issued by
the Company. The Company recently issued this Preferred Stock to finance a
portion of the Acquisition. The Preferred Stock was issued at $100 per share
with an annual cumulative dividend rate of 8.5%, with no mandatory redemption,
and is convertible to common stock at a price of $7 per share. The Company has
the option to pay dividends in the form of a pay-in-kind cumulative preferred
stock. See "Capitalization" and "Description of the Preferred Stock."
On May 30, 1996, the Company acquired substantially all of the assets and
certain liabilities of Garrett. The purchase price was approximately $145
million which the Company financed through the issuance of $125 million of the
Old Notes and $25 million of Preferred Stock (see above). In addition,
borrowings of
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approximately $5.6 million under the Company's Revolving Credit Facility were
necessary to fund the extent the extent to which the purchase price plus the
transaction costs exceeded the amount of funds generated from the issuance of
the Old Notes and the Preferred Stock.
The Company discontinued its minerals and offshore products and services
operations in 1984, its telecommunications operation in 1988 and its submarine
propulsion unit manufacturing operation and its environmental services
operation in 1990. In connection with these actions, the Company has
approximately $15.7 million accrued to cover the cost of certain long-term
remediation activities, wind-down and final closure of certain long-term U.S.
government contracts, resolution of certain litigation and disposition of
remaining properties. The Company anticipates that these activities will be
completed over the next three years.
Environmental
The Company's operations are subject to a variety of federal, state and
local laws and regulations relating to the environment. The Company believes
that its facilities are operated substantially in compliance with applicable
environmental laws and regulations on an overall basis. However, as described
below, some areas require remedial action.
A subsidiary of the Company, United Nuclear Corporation, has been involved
in environmental reclamation of a former uranium mill and mill tailings
facility since 1988. The reclamation plan has been approved by the U.S.
Nuclear Regulatory Commission and the U.S. Environmental Protection Agency and
reclamation activities are proceeding on schedule. Site reclamation under this
plan is scheduled to be completed by the end of 1997. The cost of this
remediation was $2.1 million in 1995, $2.2 million in 1994 and $1.7 million in
1993. It is anticipated, based on the approved reclamation plan, that the cost
of future remediation through 1997 will be approximately $4.0 million. Such
cost has been accrued as part of reserves established for the discontinued
operation.
The Company sold one of its manufacturing facilities, Chemical Dynamics,
Inc., in June 1995 to the former owner of the subsidiary. Under the terms of
the agreement, the former owner assumed, among other things, all known
environmental risks related to the operations of the business.
During 1993, the State of New Mexico passed the New Mexico Mining Act
("Act"), which imposes certain reclamation and other regulatory obligations on
operators of existing and new mining operations. A number of mines operated by
the Company's subsidiary, United Nuclear Corporation, at various times during
the period 1970 through 1982, may be covered by the Act. However, it is
impossible to determine the extent to which these mines may be covered by the
Act and, if covered, to estimate the cost of remediation or the timing and
extent of remedial action which may be required.
Lockheed-Martin Corporation ("Lockheed") began an action in United States
District Court of the Central District of California under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA") in
August 1994. In that action, Lockheed seeks to have owners and operators of
property situated above the San Fernando Valley aquifer contribute to the
costs incurred or to be incurred by Lockheed to clean up contaminated
groundwater constituting the aquifer. A subsidiary of the Company, Pacific
Airmotive Corporation ("PAC"), was made one of the defendants in the action.
The Company and a second subsidiary, Airwork Corporation, were added as
defendants in December 1995. Based on several series of soil tests conducted
on PAC's property and consultants' reports since approximately 1989, the
Company concluded, and continues to conclude, that there is no demonstration
that contaminants of concern identified in the groundwater by the U.S.
Environmental Protection Agency have been transmitted from the surface of
PAC's property to the underlying groundwater approximately 200 feet below
ground surface. PAC is also pursuing alternative remedies against Purex
Industries, Inc. which owned and operated the property prior to 1985. The
Company and Airwork filed motions to dismiss the action as to them on the
grounds, among others, that they did not own or operate PAC's property, or
control PAC's operation. These motions to dismiss the Lockheed action filed by
the Company and Airwork were denied. Whether, as alleged by Lockheed, the
Company and Airwork owned or operated
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PAC's property, or controlled its operations, and whether the Company is
subject to jurisdiction in California, remain issues for trial in the Lockheed
case. Trial of the case is to begin in early August 1996. The Company is not
able to determine whether it or a subsidiary of the Company will be held
liable as a result of the Lockheed action, or to establish a range of loss.
Based on the Company's assessment of the matters described above, the
Company believes that these and other environmental matters will not have a
material adverse impact on the Company's financial condition, results of
operations or liquidity. For further details with respect to environmental
matters, see Note 11 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Offering Circular.
Impact of Inflation
The Company believes that inflation did not have a material effect on the
results of operations or financial condition in the periods presented.
New Accounting Standards
During 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123--"Accounting for Stock-Based
Compensation." This statement becomes effective in 1996 and encourages, rather
than requires, companies to recognize compensation expense based on the
estimated fair value of employee stock options and other equity instruments
issued to employees at the date the instruments are granted. Companies that
choose to continue to follow the measurement guidance in APB Opinion No. 25--
Accounting for Stock Issued to Employees will be required to disclose pro
forma net income and earnings per share as if the accounting method in
Statement of Financial Accounting Standards No. 123 had been applied. The
Company will continue to follow the measurement guidance in APB Opinion No. 25
when accounting for stock issued to Company employees.
Also issued in 1995 was Statement of Financial Accounting Standards No.
121--"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement becomes effective in 1996 and
requires that assets to be held and used be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset in question may not be recoverable. Companies will have to estimate
future cash flows expected from using the asset and its eventual disposition.
If this amount is less than the carrying amount of the asset, there is an
impairment loss. The impairment loss is measured by the difference between the
asset's fair value and its carrying amount. Assets to be disposed of, with
certain exceptions, would be reported as the lower of cost or fair value less
the cost to sell the asset. The Company currently follows the provisions of
this Standard.
48
<PAGE>
GARRETT AVIATION SERVICES
The following is a discussion and analysis of the historical financial
condition and results of operations of Garrett, provided by the management of
Garrett. The discussion should be read in conjunction with the Consolidated
Financial Statements of Garrett included elsewhere in the Offering Circular.
Financial statements with respect to the operations of the Garrett business
prior to its divestiture by AlliedSignal are included elsewhere in this
Prospectus. Management of Garrett believes that those financial statements are
not comparable to the financial statements of Garrett subsequent to its
divestiture on June 30, 1994 primarily because (a) prior to July 1, 1994 the
cost of sales for parts used in the business was recognized on the basis of
AlliedSignal's manufacturing cost while Garrett's cost for AlliedSignal parts
used in the Garrett business subsequent to divestiture is based on a
negotiated purchase price; (b) AlliedSignal supplies Garrett with inventory on
a consigned basis, which was not the case prior to divestiture; (c) Garrett
was not treated as a stand-alone business by AlliedSignal and, therefore,
certain cost allocations, principally certain general and administrative
costs, were not made based upon what an independent business would incur; and
(d) warranty work was not reported as revenue but rather as an intercompany
transfer of cost. In order to provide comparative trend data subsequent to
July 1, 1994, the following is a discussion and analysis of the three month
periods ended March 31, 1995 and 1996 together with the three six month
periods, including a comparison of the six month period ended June 30, 1995
with the six month period ended December 31, 1994, and a comparison of the six
month period ended December 31, 1995 with the six month period ended December
31, 1994. Information for Garrett with respect to the period January 1, 1995
through May 30, 1995 is not readily available and the Company does not believe
that such information would be material to an investor's decision to exchange
Old Notes for the New Notes.
GARRETT AVIATION SERVICES
SUMMARY DATA
<TABLE>
<CAPTION>
UNAUDITED THREE
AUDITED SIX UNAUDITED SIX UNAUDITED SIX AUDITED YEAR MONTHS ENDED
MONTHS ENDED MONTHS ENDED MONTHS ENDED ENDED ----------------
12/31/94 6/30/95 12/31/95 12/31/95 3/31/95 3/31/96
------------ ------------- ------------- ------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $144,200 $154,129 $183,975 $338,104 $75,809 $87,688
Cost of sales......... 130,224 135,694 158,688 294,382 66,912 75,216
-------- -------- -------- -------- ------- -------
Gross profit.......... 13,976 18,435 25,287 43,722 8,897 12,472
Selling, general and
administrative
expenses............. 9,990 12,944 15,317 28,261 6,305 7,542
-------- -------- -------- -------- ------- -------
Operating income...... 3,986 5,491 9,970 15,461 2,592 4,930
Interest expense...... (1,810) (1,623) (1,711) (3,334) (824) (846)
Other income.......... 68 183 132 315 178 117
-------- -------- -------- -------- ------- -------
Net earnings(a)....... $2,244 $4,051 $8,391 $12,442 $1,946 $4,201
======== ======== ======== ======== ======= =======
OTHER DATA:
Depreciation and
amortization......... $2,984 $3,188 $2,766 $5,954 $1,571 $1,576
Capital expenditures.. 2,176 4,366 1,421 5,787 2,063 764
</TABLE>
- --------
(a) Garrett is a limited partnership and, as such, does not record federal
income tax liability at the partnership level. The net income shown is
equivalent to pre-tax income for a corporate taxpayer.
49
<PAGE>
RESULTS OF OPERATIONS
Overview
The Garrett business was acquired from AlliedSignal on June 30, 1994. The
following provides a comparison of the results of operations of Garrett for
the three month periods ended March 31, 1995 and 1996 and for each of the six
months ended December 31, 1995 and the six months ended June 30, 1995, with
the six months ended December 31, 1994. In connection with the expansion of
its non-engine services, on October 26, 1994 Garrett purchased certain assets
and assumed liabilities relating to an airframe maintenance, modification and
refurbishment business located in Van Nuys, California, known as "The Jet
Center." The results of operations of The Jet Center have been included in the
Garrett financial statements from the date of acquisition.
Subsequent to the acquisition of Garrett from AlliedSignal, Garrett
management implemented several changes, including an expansion of the work
force, to more adequately meet the customers' service needs. The number of
employees increased from approximately 700 at July 1, 1994 to approximately
1,100 by December 31, 1995. Garrett has also emphasized a more decentralized
approach to managing its six primary operating locations. Finally, Garrett has
increased its marketing efforts, focusing on full-service capabilities, with
an emphasis on non-engine services, including air frame maintenance and
modification. Such services were not emphasized when the business was owned by
AlliedSignal. These changes began to be reflected in the first half of 1995,
and had a more significant impact during the second half of 1995 and the first
quarter of 1996.
Three Months Ended March 31, 1996 Compared with Three Months Ended March 31,
1995
Revenues for the three month period ended March 31, 1996 of $87.7 million
for Garrett increased from $75.8 million (16%) compared to the corresponding
period of 1995. Gross profit increased during the same period from $8.9
million to $12.5 million, an increase of $3.6 million (40%). Gross profit for
the current quarter includes $1.0 million in income related to a change in
estimated cost on certain contracts.
Revenues from engine overhaul and repair operations, including parts and
services, increased in the 1996 period by $5.4 million (10%) over the first
three months of 1995 to $58.2 million. These increases are principally
attributable to increased volume of overhaul and repair services for the TFE
731 turbofan engines. Engine overhaul and repair volume is subject to
variations from period to period driven principally by engine hours flown
which determines the timing of scheduled and unscheduled engine maintenance
events. Gross profit decreased by $0.2 million (3%) over the corresponding
1995 period, to $6.0 million.
Non-engine revenues increased $6.5 million (28%) to $29.5 million for the
three months ended March 31, 1996, compared to the corresponding period for
1995. The increase is due principally to a major refurbishment at The Jet
Center and increased volume in other non-engine related sales. Gross profit
increased $3.8 million (141%) compared to the corresponding period of 1995, to
$6.5 million. The improvement in non-engine revenues and margins reflects the
results of Garrett's continued emphasis on non-engine services marketing
efforts, along with certain cost efficiencies.
Selling, general and administrative expenses increased $1.2 million (20%) to
$7.5 million during the first three months of 1996 over the first three months
of 1995. This increase is primarily due to increased personnel and systems
related costs.
Net interest expense increased $22,000 to $846,000 (3%) due to increased
borrowings under the revolving loans, offset somewhat by lower interest rates.
Six Months Ended December 31, 1995 Compared with Six Months Ended December
31, 1994
Revenues for Garrett increased from $144.2 million in the second half of
1994 to $184.0 million in the second half of 1995, an increase of $39.8
million (28%). Gross profit increased during the same period from
50
<PAGE>
$14.0 million to $25.3 million, an increase of $11.3 million (81%). Revenues
and gross margins were above those for the corresponding period in 1994 at all
six of Garrett's primary operating locations.
Revenues from engine overhaul and repair operations, including parts and
services, increased in the 1995 period by $29.1 million (30%) over the second
half of 1994 to $126.4 million. Gross profit increased by $4.3 million (42%)
over the corresponding 1994 period to $14.8 million. These increases are
principally attributable to increased volume of overhaul and repair services
for the TFE 731 turbofan engines. Engine overhaul and repair volume is subject
to variations from period to period driven principally by engine hours flown
which determines the timing of scheduled and unscheduled engine maintenance
events.
Non-engine revenues increased $10.7 million (23%) to $57.6 million for the
six months ended December 31, 1995, compared to the corresponding period for
1994. This increase is due principally to a $9.4 million increase in revenues
from The Jet Center, which was acquired in October 1994, and to increased
volume at those hangers performing non-engine services. Gross profit increased
$7.0 million (198%) to $10.5 million over the last six months of 1994. The
improvement in non-engine revenues and margins reflects the results of
Garrett's increased emphasis on non-engine services marketing efforts, started
in late 1994 and early 1995, along with certain labor and cost efficiencies.
Selling, general and administrative expenses increased $5.3 million (53%) to
$15.3 million in the last six months of 1995 over the last six months of 1994.
This increase is due to additional costs associated with The Jet Center, which
was acquired in October 1994, and increased personnel, professional services
and marketing costs.
Net interest expense decreased from $1.8 million in the 1994 period to $1.7
million in the 1995 period, primarily reflecting lower average interest rates.
Six Months Ended June 30, 1995 Compared with Six Months Ended December 31,
1994
Revenues for Garrett for the six months ended June 30, 1995 were $154.1
million, compared to $144.2 million for the six months ended December 31,
1994, an increase of $9.9 million (7%). Gross profit for the first half of
1995 was $18.4 million, compared to $14.0 million for the second half of 1994,
an increase of $4.4 million (32%).
Revenue from engine overhaul and repairs, including parts and service,
increased $11.7 million (12%) to $109.0 million in the first half of 1995.
Gross profit for engine overhaul and repairs operations increased $2.4 million
(23%) to $12.8 million. These improvements are due to increased volume in
overhaul and repair of TFE 731 turbofan and TPE 331 turboprop engines and a
higher level of spare parts sales for both engines. Engine overhaul and repair
volume is subject to variations from period to period driven principally by
engine hours flown which determines the timing of scheduled and unscheduled
engine maintenance events.
Revenues from non-engine operations, which include airframe maintenance,
avionics, repair and retrofits, and interior and exterior modification and
refurbishments, decreased $1.8 million (4%) to $45.1 million. This decrease in
revenue is attributable to an increase of $5.5 million in revenues generated
by The Jet Center, which was acquired in October 1994, offset by lower
revenues of the other Garrett service centers due to the timing of the
delivery of major airframe maintenance and modification contracts. Revenues
from the airframe maintenance and modification business are subject to
quarterly, and to a lesser extent, annual fluctuations due to the timing of
delivery of completed aircraft under these long-term contracts. In the 1994
period, Garrett delivered several major aircraft modifications, while none
were delivered during the 1995 period. Gross profit increased $2.1 million
(59%) to $5.6 million over the 1994 period due to the acquisition of The Jet
Center and improved labor efficiencies and cost reductions.
Selling, general and administrative expenses increased $3.0 million (30%)
during the first six months of 1995 compared to the last six months of 1994.
The increase in selling, general and administrative expenses in the 1995
period is due to additional costs associated with The Jet Center, which was
acquired in October 1994, and increased personnel, professional services and
marketing costs.
51
<PAGE>
Interest expense declined between the periods, reflecting primarily lower
average interest rates.
Liquidity and Capital Resources
Total debt was essentially unchanged between the two years, decreasing from
$40.2 million at December 31, 1994 to $40.1 million at December 31, 1995. Debt
to capitalization improved from 75.3% to 67.8% as a result of increased
earnings during 1995.
Total debt at March 31, 1996 was $50.4 million, an increase of $10.3 million
compared with December 31, 1995. Of this amount $3.6 million was used to fund
net operating activities (comprising $5.8 million generated from operations
adjusted for non-cash charges, offset by $9.4 million used to fund working
capital requirements), $0.8 million was used for capital expenditures, $1.5
million was distributed to Garrett's partners and the remainder was used to
increase Garrett's cash balance. Debt to capitalization at March 31, 1996 was
70.3% compared to 67.8% at December 31, 1995.
Garrett generated $14.7 million of cash from operations during 1995, of
which $5.8 million was invested in capital expenditures and $6.2 million was
distributed to partners. Cash and cash equivalents increased to $11.2 million
at the end of 1995, a portion of which is to be distributed to Garrett
partners to cover partners' income tax obligations.
Capital expenditures of $5.8 million in 1995 included the significant
investment in a new company-wide computer system which was put into operation
in October, 1995. Although it is uncertain at this time how the acquisition of
Garrett by the Company will affect future capital expenditures, on a stand
alone basis, Garrett anticipates capital expenditures for 1996 would be
approximately $8.0 million.
Environmental
Garrett's operations are subject to a variety of federal, state and local
laws and regulations relating to the environment. Several of Garrett's
facilities have potential liability resulting from past disposal of waste at
commercial disposal sites that are subject to remedial obligations under state
or federal law. Garrett's facilities also have incurred and are expected to
continue to incur environmental remedial obligations associated with past use
underground storage tanks, sumps and drains.
In the Acquisition Purchase Agreement the Garrett sellers agreed to
indemnify the Company for breaches of representations and warranties and other
matters subject to important limitations, including a $3 million aggregate
limitation on the sellers' indemnification obligations thereunder. In
connection with the purchase of the Garrett engine overhaul division from
AlliedSignal in 1994, Garrett entered into a purchase agreement with
AlliedSignal which contained representations and warranties and indemnities
from AlliedSignal (the "AlliedSignal Purchase Agreement"), including
indemnification for certain environmental matters relating to the conduct of
the business prior to the sale of the business by AlliedSignal to Garrett.
Under the terms of the Purchase Agreement, at the closing of the Acquisition
the Company will be assigned and succeed to all of Garrett's rights and
obligations under the AlliedSignal Purchase Agreement, including the right to
seek indemnification for breaches of the representations and warranties made
by AlliedSignal relating to the conduct of the business prior to its
acquisition by Garrett and related environmental matters.
Garrett believes that its facilities are operated substantially in
compliance with applicable environmental laws and regulations on an overall
basis. Garrett management believes that these and other environmental matters
will not have a material adverse impact on Garrett's financial condition,
results of operation or liquidity. See "Business--Terms of Garrett Acquisition
Purchase Agreement."
52
<PAGE>
BUSINESS
THE COMPANY
The Company is a leading supplier of products and services to the aviation
industry. The Company's primary business is the provision of services to the
aviation aftermarket, which accounts for approximately 90% of its revenues.
These operations include the overhaul and repair of aircraft engines and
accessories, the repair and remanufacturing of engine components, and the
provision of training and maintenance services to the United States and
foreign military. Approximately 10% of the Company's revenues in 1995 were
derived from manufacturing engine and airframe parts for OEMs.
Prior to the Company's acquisition of Garrett, the Company had over 8,000
customers including: business aircraft operators; major, national, regional,
foreign, charter and package/cargo airlines; engine and airframe OEMs;
helicopter operators; and the United States and foreign military. The Company
operated 16 facilities and performed services at approximately 80 government
sites. The Company had approximately 5,700 employees. The Acquisition has
expanded the Company's range of services, significantly increased the
aggregate customer base, and added six primary operating locations and
approximately 1,100 employees. The Acquisition will also enhance the Company's
focus on its business aviation aftermarket operations. As a result of the
Acquisition, the Company believes it is the largest independent aviation
services company in the world, with service capabilities for almost all
business aircraft and engines, combined with the broad range of repair,
overhaul and remanufacturing capabilities for the business, commercial and
military aviation market the Company enjoyed prior to the Acquisition.
THE GARRETT ACQUISITION
On May 30, 1996, the Company acquired Garrett, a leading provider of
aviation services to the $3.4 billion worldwide business aviation aftermarket.
Garrett provides a wide range of overhaul services to approximately 2,000
business aviation and regional airline customers, including complete engine
and airframe repair and overhaul capabilities, full interior and exterior
refurbishments, new aircraft completions, avionics installation and spare
parts distribution. Garrett provides its aircraft and engine maintenance and
support through six "fly-in" service centers across the United States. For the
year ended December 31, 1995, Garrett recorded approximately $338.1 million in
total revenues and approximately $21.7 million of EBITDA. The Company believes
that Garrett enjoys a 50-year reputation for quality and market leadership in
its industry segment.
Garrett provides aircraft, engine and avionics aftermarket services to a
wide range of aircraft and specializes in aircraft powered by AlliedSignal
turbofan engines, which are the leading engine type for the business jet
aviation market. Based on industry data, AlliedSignal engines represent
approximately 38% of the turbofan engines in the worldwide market. The leading
engine type is the TFE731 turbofan, used to power a variety of business jet
aircraft, including aircraft under the Lear, Falcon, Astra, Citation, Hawker,
Westwind and Jetstar tradenames. Garrett management estimates that it services
approximately 70% of the TFE731 powered aircraft in North America. Garrett
also services AlliedSignal turboprop engines used on business aircraft and
certain regional airlines. AlliedSignal turboprop engines represent
approximately 31% of the global turboprop market.
Garrett benefits from a 15 year services agreement with AlliedSignal (the
"AlliedSignal Operating Agreement"), which appoints Garrett as the "Exclusive
Factory-Sponsored Service and Support Center" for certain AlliedSignal engines
in specified markets. The current AlliedSignal Operating Agreement, which
extends through June 30, 2009, was assigned to the Company as part of the
Acquisition. The AlliedSignal Operating Agreement, among other things: (a)
specifies the terms on which Garrett purchases engine parts from AlliedSignal;
(b) commits Garrett to purchase its engine parts requirements from
AlliedSignal or certain approved vendors; (c) commits Garrett to provide
aftermarket support to AlliedSignal products in the market place; and (d)
defines the working relationship between the two companies in a number of
areas, including technical training, quality systems and other support,
exchange of customer and marketing information, and future programs.
53
<PAGE>
A major advantage to Garrett under the AlliedSignal Operating Agreement is
that AlliedSignal provides Garrett with its required engine parts inventory on
a consignment basis. Garrett's customers are also able to access AlliedSignal
engines from the AlliedSignal engine rental pool during the period of engine
overhauls. The consignment inventory and the engine pool availability have
allowed Garrett to reduce significantly the level of its inventory and fixed
asset investment relative to what otherwise would be required. As a result of
the agreement, AlliedSignal is the single largest billing customer of Garrett,
due to warranty and other prepaid maintenance programs, representing
approximately 37% of Garrett revenues. AlliedSignal is also the largest single
vendor of Garrett, due to the purchase of parts both for engine repair and
overhaul, and for the redistribution of spare parts.
The Acquisition furthers several of the Company's strategic objectives,
including the expansion of its business aviation operations. The table below
reflects the composition of the Company's customers on a pro forma basis for
the year ending December 31, 1995, as if the Acquisition, the UNC/AlliedSignal
Agreement and the sale of the Heavy Maintenance Business had been completed on
January 1, 1995. On a pro forma basis, over 50% of the Company's revenues
would have been attributable to the business aviation market in 1995, an
increase from approximately 22% of the Company's revenues on a historical
basis.
UNC INCORPORATED
CUSTOMER COMPOSITION
YEAR ENDING DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMPANY COMPANY PRO FORMA PRO-FORMA
STAND-ALONE STAND-ALONE COMBINED COMBINED
CUSTOMERS REVENUES % OF REVENUES REVENUES % OF REVENUES
- --------- ----------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Business Aviation........... $115,167 21.5% $444,249 51.3%
Military Aviation Services.. 277,003 51.7% 277,003 32.0%
Commercial Airlines......... 64,857 12.1% 64,857 7.5%
Original Equipment Manufac-
turers..................... 55,242 10.2% 55,242 6.4%
Industrial Turbines......... 23,974 4.5% 23,974 2.8%
-------- ----- -------- -----
Total..................... $536,243 100.0% $865,325 100.0%
======== ===== ======== =====
</TABLE>
BUSINESS STRATEGY
The primary element of the Company's long term strategy has been to
establish and maintain a leading position in the aviation aftermarket, with a
particular focus on the business aviation and military services markets. The
Company believes that these markets have generally exhibited a more stable
revenue base than other portions of the aviation industry. Approximately 51%
of the Company's revenues would have been derived from the business aviation
market in 1995 on a pro forma basis after giving effect to the Acquisition,
the UNC/AlliedSignal Agreement and the sale of the Heavy Maintenance Business.
As part of its overall aftermarket strategy, the Company will continue to
develop and implement advanced technology repair services for its customers.
The Company has pursued this strategy by investing in the expansion of its
repair and overhaul capabilities and by undertaking strategic acquisitions.
This added repair capability allows the Company to reduce its customers' costs
by using enhanced repair services in lieu of higher cost new parts and by
reducing repair times. In this way, the Company believes that it increases
value for its customers and strengthens its competitive position.
The Company intends to continue the expansion of its customer base with an
emphasis on international markets. The Company has established a sales
organization through three sales offices located in Amsterdam, Singapore and
Miami, which serves Latin America. Since the Company began its organized
overseas marketing
54
<PAGE>
effort, the portion of the Company's net sales attributable to international
customers has increased from 10% in 1992 to 21% in 1995. The Company believes
that the international market for its services will continue to offer
significant growth potential.
BENEFITS OF THE ACQUISITION
Garrett's business strategy since becoming independent in mid-1994 has
focused on expanding its engine overhaul capability beyond AlliedSignal
engines, broadening its parts repair and accessory overhaul services and
expanding its airframe and avionics operations. The Company believes that the
Acquisition is particularly attractive because the strategies of both
companies are complementary, and believes that the joining of the companies
accelerates the fulfillment of these strategies. The complementary nature of
the businesses and strategies of the Company and Garrett create a range of
anticipated benefits from the Acquisition, including the following:
. Parts and Accessory Repairs. As a result the Acquisition, the Company is
able to perform certain repair and overhaul services for Garrett which
Garrett was unable to provide prior to the Acquisition. Prior to the
Acquisition Garrett outsourced approximately $77 million per year of
these repairs and other services to third parties, including
AlliedSignal. While Garrett will continue to direct the repair of
AlliedSignal parts and components to AlliedSignal following the closing
of the Acquisition, the Company has recently entered into an agreement
with AlliedSignal under which AlliedSignal will provide the Company with
$15.0 million in annual orders for the repair of AlliedSignal parts and
components in support of Garrett and other AlliedSignal customers during
the term of the agreement. The Company also expects to be able to
provide Garrett customers with repairs and overhauls for accessory
components and systems for all types of business aircraft. This will
include items such as landing gears, constant speed drives, radar
components, generators, transponders, hydraulic system components and
anti-skid brake system components. The Company believes that the
provision of these additional repair and overhaul services will lead to
improved profitability on a consolidated basis. See "Pro Forma Combined
Financial Data" and --"UNC/AlliedSignal Agreement."
. Expansion of Airframe and Avionics Services. The Company intends to
expand upon Garrett's airframe and avionics maintenance business by
using UNC Airwork's established customer base to offer Garrett's
airframe and avionics services to operators of aircraft using a broader
range of engine types. To facilitate this expansion, one of the
Company's existing hangar facilities located at UNC Airwork may be
converted for use in providing airframe and avionics services for
Airwork customers. The Company believes that the airframe and avionics
sectors are growing faster than the overall business aviation market due
to the large number of aging aircraft, government and manufacturer
mandated airframe service on older aircraft and recent advances in
avionics technology.
. Expansion of Customer Base. The Acquisition will permit the Company and
Garrett to expand their base of customers. The Company will be able to
direct to Garrett a number of its customers who require Garrett's
capabilities while Garrett will direct to the Company customers who
require services on engine types for which Garrett has no overhaul
capability. For example, Garrett's customers will be able to utilize the
Company's overhaul services on non-AlliedSignal engines.
. Military Services. In 1995, the Company generated approximately $277.0
million in military related revenues, including approximately $24.0
million from the manufacture of military spare parts. Following the
Acquisition, the Company plans to expand its operations in this area by
offering Garrett's nationwide full service aviation aftermarket
capabilities to the Company's military and other governmental customers.
For example, the Company is currently bidding on a $100 million contract
to maintain a fleet of aircraft for the U.S. Air Force which requires
the contractor to have depot-level maintenance facilities throughout the
United States. Garrett's six service centers will provide the Company
with this capability.
. Increased Global Presence. Presently, approximately 95% of Garrett's
revenues are derived from customers in North America. The Company
believes that there is a market for Garrett's services
55
<PAGE>
overseas and intends to market these services to foreign customers
through the Company's growing network of international sales offices.
. Utilization of Used Serviceable Parts. The Company successfully utilizes
used serviceable parts in its operations, a practice increasingly
requested by customers in order to minimize maintenance costs. The
Company intends to expand its use of used serviceable parts in Garrett's
business.
. Turboprop Expansion. Garrett has approximately a 10% share of the TPE331
turboprop engine overhaul market, servicing both business and regional
airline customers. There are approximately 16,000 TPE331 engines
operating today. The Company believes that it has extensive marketing
capabilities in the regional airline market which are currently used to
promote UNC Airwork's engine overhaul operation. The Company plans to
expand the TPE331 engine overhaul business through Garrett and UNC's
combined marketing efforts and the Company's existing regional airline
market presence.
INDUSTRY FACTORS
The Company generally serves the aviation aftermarket, with a particular
emphasis on the business aviation aftermarket. The demand for services in the
aviation aftermarket is influenced primarily by the utilization levels of
aircraft in service, as measured by the number of annual hours flown. As
discussed below, utilization in both the business and commercial airline
sectors is increasing. In the military market, the demand also reflects
primarily the levels of hours flown, as well as the percentage of work that
the military outsources to private companies such as the Company. The Company
also provides products and services to the prime aerospace manufacturers. The
manufacturing sector is influenced by the number of aircraft produced for both
the commercial and military markets. Current projections of future aircraft
deliveries that impact the Company's revenues are for increased deliveries.
Business Aviation Aftermarket
According to data provided by First Equity Development, the worldwide
turbine-powered business aviation aftermarket is approximately $3.4 billion in
size, excluding the cost of fuel. First Equity Development, an aviation
industry investment banking firm, represented Garrett in connection with the
Acquisition and received a customary fee when the Acquisition was consummated.
The portions of the worldwide turbine powered business aircraft market which
are the focus of the Company and of Garrett include primarily engine
maintenance, airframe maintenance, avionics maintenance and aircraft interior
modification and refurbishment. Data supplied by First Equity Development
indicates that engine maintenance, predominantly the repair and overhaul of
turbine engines, represents in excess of $1.25 billion of the business
aviation aftermarket. Engine maintenance is especially important from a
strategic standpoint, because it is a primary determinant in the selection of
a service center by an aircraft operator. If the service center is providing
the engine maintenance, it is in an optimum position to offer other services
as well, including airframe maintenance, avionics maintenance or replacement,
and aircraft interior modifications and refurbishment.
The Company anticipates that the business aviation industry will grow over
the next several years, due to the following principal factors: (a) an
increase in the size of the world fleet of aircraft; (b) increased utilization
of the world fleet; and (c) increased maintenance requirements relating to the
average age of the fleet.
Increasing Fleet Size. There were approximately 16,500 turbine powered
aircraft (turbofan and turboprop powered) in service in the world market at
the end of 1995, according to industry sources. The size of the fleet has
grown by approximately 3,000 aircraft since 1985, representing an increase of
21%. Over the next decade, the fleet is projected, based on information from
industry sources, to grow by over 4,500 additional aircraft, to a fleet size
of over 20,000 aircraft, based on committed and projected orders.
56
<PAGE>
Approximately half of the worldwide fleet is powered by turbofan engines,
which account for a disproportionately higher percentage of maintenance and
overhaul expenditures. According to data supplied to the Company by First
Equity Development, the turbofan engine market is led by AlliedSignal engines,
with approximately a 38% worldwide market share. This is followed by Pratt &
Whitney, General Electric and Rolls Royce. The Company provides engine
overhaul services for over 40 different engine types and for all of the major
engine manufacturers. Garrett management estimates that it currently services
approximately 70% of the North American market for TFE731 turbofan engines,
which is the leading AlliedSignal turbofan engine.
In addition to the growth in fixed wing aircraft, there has been equally
steady growth in turbine powered helicopters. The current worldwide fleet is
estimated at over 14,000 aircraft and the worldwide fleet is projected to grow
by over 2,000 units during the next five years, based on information provided
by industry sources, UNC Airwork provides engine overhaul services for several
of the leading helicopter turbine engines, including the Allison 250 engine
and the Pratt & Whitney PT6T Twin Pac.
One of the contributing factors to the recent and anticipated growth of the
world business aircraft fleet is the significant increase in the popularity of
fractional ownership plans, in which small to medium sized companies can
access corporate jets through participation in nationwide jet networks with
one of several network providers. The growth in these and similar programs
substantially broadens the market of corporate aircraft customers. The
expansion of fractional plans also increases the average utilization of those
aircraft, which has a positive impact on the overall levels of maintenance and
other aftermarket expenditures.
Increasing Utilization of the World Fleet. The Federal Aviation
Administration (the "FAA") projects that hours flown by domestic turboprop and
turbojet fixed wing aircraft will increase from approximately 2.3 million
hours in 1995 to approximately 3.0 million hours in 2005, an increase of 30%
for that ten year period. These estimates are based on FAA survey reports.
This trend is based primarily on improved global economic factors, including
the expansion of long-haul international business jets being utilized and the
expansion of fractional ownership plans. The FAA estimates that the number of
corporate international flights increased over the last year, including
flights to the Pacific Rim. Gulfstream and Bombardier, the two principal
manufacturers of long range business jets, also report significant increases
in the backlog of long-haul business jets on order.
Increased Maintenance Requirements of Aging Fleet. A third factor in the
growth of this market is the increased maintenance requirements of existing
aircraft, based on the increasing age of the existing fleet. FAA and OEM
mandated maintenance requirements for engines, other aircraft components
(e.g., landing gear, power units, hydraulic systems) and the airframe itself
require an increase in the level of maintenance as an aircraft ages,
particularly after 15 years of usage. Based on a significant increase in new
aircraft deliveries between 1977 and 1982, there is an increase being
experienced currently in business aviation maintenance expenditures for these
older aircraft. Additionally, the current increase in new aircraft deliveries
is creating an expanding market for the refurbishment of used aircraft, prior
to resale. Utilizing upgraded engines and performing other refurbishments can
extend substantially the economic life of an airframe, at relatively low costs
compared to the purchase price of a new aircraft. As a result, the average age
of the fleet is increasing.
An additional factor in this area relates to the recent advances which have
been made in avionics technology. In addition to normal maintenance
expenditures for an aging aircraft, many corporate aircraft owners prefer to
have state-of-the-art avionics systems. An increasing level of Garrett's
revenues relates to the installation of partial or total replacement systems.
An individual system may range from $500,000 to as much as $1,500,000.
Military Aviation Aftermarket
The market for the Company's Aviation Services division depends primarily on
the level of funding for the O&M portion of the United States Defense
Department annual budget, as well as the percentage of O&M requirements which
are outsourced to the private sector. Although the overall Defense Department
budget has been declining over the past decade, on an inflation adjusted
basis, the O&M portion of the budget has remained
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and is forecasted to remain stable. O&M expenditures have increased as a
percentage of the total defense budget from approximately 29% in 1985 to
approximately 37% for the 1996 budget. In addition, the percentage of the O&M
budget being outsourced is increasing, resulting in a net expected increase in
the market for the Company's military aviation services.
The Secretary of Defense formed a congressionally-mandated task force in
1994, consisting of senior government and industry leaders, to examine
alternatives to improve cost efficiency, including the area of depot
maintenance services. The task force and a successor task force recommended
further expansion of private sector outsourcing, based on its lower relative
cost. As an example, one entire facility previously operated by the Air Force
is currently being privatized under a new privatization-in-place program. The
Company is in discussions with all branches of the military regarding similar
projects for other facilities.
Commercial Aviation
The industry conditions in the commercial airline market affect both the
demand for the Company's accessory services, based primarily on the levels of
commercial fleet utilization, and for the Company's OEM manufacturing, based
primarily on the level of new aircraft on order.
The commercial airline market experienced a substantial downturn from 1991
to 1993, incurring record losses during that period. This had a negative
impact on the levels and timing of new aircraft being ordered. The United
States domestic airlines began to restore their profitability in 1994 and
reached significantly improved levels of profitability in 1995. These
earnings, as well as cash generated from debt and equity placements, have
improved balance sheets throughout the industry, which has led to a
significant increase in orders for new aircraft.
Worldwide demand for air service is projected to grow in all commercial
aviation sectors, according to industry reports. According to the Current
Market Outlook published by the Boeing Commercial Airplane Group in 1995,
worldwide air traffic will grow at a compounded rate of 5.1% through the year
2014. According to the "Airline Monitor," a leading industry trade
publication, this increased demand will cause annual deliveries of new larger
commercial airliners to increase from 500 in 1995 to 900 in 2010, as well as
causing growth in the fleet of regional aircraft.
The Company believes that projected growth in revenue passenger miles and
the increase in new aircraft deliveries should both have a favorable impact on
the performance of the Company's accessory services operation, as well as its
OEM manufacturing operations. Additionally, the Company's major OEM customers
are experiencing increases in orders, particularly for engines and engine
parts reflecting improvement in the industry.
Other airline markets have grown more rapidly than the major airlines,
including a number of the low-fare airlines, certain regional airlines and the
major package and cargo airlines. The Company provides services for a number
of these companies, most of which have limited internal maintenance
capabilities.
PRODUCTS, SERVICES AND CUSTOMERS
The following summarizes the current operations of the Company and of
Garrett immediately prior to the consummation of the Acquisition and the
organization of the business subsequent to the date of the Acquisition.
Newly-Formed Aircraft and Engine Services Division. Prior to the Acquisition
the Company's Engine Overhaul Division comprised three operations, UNC
Airwork, UNC Engine & Engine Parts and UNC Metcalf. Together these three
operations performed turbine engine overhaul and maintenance, provided parts
provisioning for business and helicopter operators and regional airlines, and
provided industrial power packages for land based industrial and marine use.
Immediately following the Acquisition, UNC Airwork, UNC Engine & Engine Parts
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and UNC Metcalf joined with Garrett to form a new division, the "Garrett
Aviation Services Division." This combination of the operations is designed to
accelerate the implementation of the projected acquisition benefits and to
enhance customer service. The Company's Engine Overhaul Division recorded
revenues of $130.6 million in 1995. On a pro forma basis assuming consummation
of the Acquisition, the UNC/AlliedSignal Agreement and the sale of the Heavy
Maintenance Business, revenues for the newly-formed Aircraft and Engine
Services Division would have been approximately $459.7 million in 1995.
The new division is headed by L. David Clemons, who was President and CEO of
Garrett prior to the Acquisition. Mr. Clemons has had over 20 years of
experience in the aviation aftermarket, principally working with AlliedSignal.
All of the senior operating management of Garrett have continued with the
Company following the Acquisition.
UNC Airwork is a leading independent provider of turbine engine overhaul
services. It overhauls and repairs over 40 different engine models (including
engines manufactured by AlliedSignal, Pratt & Whitney, General Electric and
Rolls Royce) for a wide range of corporate and commercial customers. UNC
Airwork provides engine overhaul services at two main facilities in Millville,
New Jersey and Miami, Florida, as well as five satellite turbine repair
locations in Atlanta, Georgia; Wichita, Kansas; Dayton, Ohio; Milton, Florida;
and Van Nuys, California. In 1994, the APU repair capabilities of UNC
Accessory Services were transferred to UNC Airwork's operations in Millville.
Also in 1994, the small engine overhaul operations conducted at Pacific
Airmotive in Burbank, California were consolidated into UNC Airwork's
facilities in Millville and Miami. This consolidation places all major engine
overhaul capabilities in two strategic locations, making for a more cost
effective use of each unit's capabilities.
UNC Engine and Engine Parts provides parts and accessory support for small
gas turbine engines, as well as industrial packages. Specializing in the
support of the PT6 engine manufactured by Pratt & Whitney, this unit has also
expanded capabilities to meet the needs of PT6T Twin Pac, JT15D, Allison 250
and APU operators. UNC Engine and Engine Parts maintains an inventory of PT6
spare engines and APU's and also has one of the largest PT6 inventories of
parts and accessories in the industry.
Acquired in 1993, UNC Metcalf specializes in the overhaul and repair of
industrial turbine engines, particularly the Solar Centaur and Saturn models.
Metcalf provides a broad range of support services including operations
including engineering, installation, maintenance, parts repair and rebuild.
Additionally, Metcalf has developed certain proprietary repair processes which
provide customers with a low cost alternative to parts replacement. Metcalf
also provides complete "turnkey" service including on site contract
maintenance and operations.
Garrett operates six combined hangars and overhaul facilities, each offering
fly-in access, at strategic business aviation airports across the U.S.: Los
Angeles and Van Nuys, California; Houston, Texas; Augusta, Georgia;
Springfield, Illinois; and Long Island, New York. Garrett also operates an
engine repair and overhaul facility in Little Rock, Arkansas. Garrett provides
a full range of overhaul services to over 2,000 business aviation customers,
including complete engine and airframe repair and overhaul capabilities, full
interior and exterior refurbishments, new aircraft completions, avionics
installation and spare parts distribution. Garrett currently specializes in
providing these services to aircraft powered by AlliedSignal turbofan and
turboprop engines and APU's. As a result of the Acquisition, the Company is
able to offer a full range of services to business aircraft powered by a wide
range of engine types from all of the leading engine manufacturers.
Accessory Services. UNC Accessory Services provides a wide range of repair
and overhaul services for the commercial airline industry as well as for the
original equipment manufacturers. This Division was formed in 1994 in order to
combine all repair services serving the same customer base under one
management, providing a streamlined approach to the customer's needs.
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Accessory Services consists of four certified FAA repair station facilities
providing accessory overhaul, repair and test services to aircraft operators,
including business aircraft operators, major airlines, international airlines,
national airlines, regional airlines and package and freight carriers.
Services are also provided to independent aircraft engine overhaul facilities
and aftermarket distributors. Accessory Services supports over fifty
categories of aircraft accessories, covering more than thirty thousand line
items. The items serviced include landing gear, constant speed drives, radar
components, generators, transponders, pneumatic valves, cooling turbines,
flight control actuators, propellers, fuel system components, hydraulic system
components, and anti-skid brake system components. New capabilities for
regional turbo-prop aircraft and newer generation turbine aircraft continue to
be added. The Accessory Services division was founded in 1951 and acquired by
the Company in 1989. Accessory Services is an authorized service center for
leading original equipment manufacturers, including AlliedSignal Aerospace
Products, APPH, Chandler Evans and HR Textron. The Company believes it is the
largest independent supplier of aircraft accessory support. The Company's
Accessory Services Division had revenues of $45.6 million in 1995.
Aviation Services. UNC Aviation Services Division is a leader in the
provision of aircraft maintenance, overhaul, logistics support, systems
integration and aviation training services to the United States miliary, as
well as to domestic and foreign government agencies. The Division has more
than 35 years of experience in this field. The Division has three operating
units, UNC Federal Services, UNC Contract Field Services and UNC International
Services. Work is performed at military and customer sites throughout the
United States and overseas. Contracts are a combination of fixed price, time
and cost of materials, and cost plus incentive award fees with options for
multiple years. Since 1992, the Division has grown from $89.1 million in 1992
annual revenues to $251.2 million in 1995 through successful awards of
competitive contracts and through acquisitions. The Company plans a similar
pattern for future growth. This business is managed centrally at the Company's
Annapolis, Maryland headquarters with operational program offices in
Pensacola, Florida and Oklahoma City, Oklahoma.
UNC Federal Services is a leader in aircraft maintenance, contract logistics
support, systems integration and aircrew training for the United States
military. The market for these military contract services results from the
Department of Defense contracting with the private sector to obtain services
for less than they would cost if they were performed by government personnel.
Awards of these contracts are generally based on a best value criteria
established by the government. As a result, successfully competing for the
award of these contracts requires high technical ratings, a low price and
demonstrated past performance.
UNC Contract Field Services has for more than 35 years provided depot level
and below depot level maintenance, repair, modification and logistical
services for virtually every Department of Defense weapon. Through the
Contract Field Teams (CFT) program, the Company serves the United States Army,
Navy, Air Force, NASA and Coast Guard. Recently, the Field Teams began new
efforts at the United States Army Corpus Christi Aviation Depot, the Anniston
Army Depot, the Red River Army Depot, the Alameda Naval Aviation Depot and the
Coast Guard Aviation Repair and Support Depot. In addition, Field Teams have
initiated the planning, scheduling and implementation of the military's
Strategic Mobility Logistics Base program to support the global pre-positioned
ships effort.
UNC International Services provided maintenance program management and
logistical services to customers worldwide. The Company is the largest United
States service contractor to the Royal Saudi Air Force providing F-5 jet
fighter technical and logistical support, C-130 cargo aircraft logistical
support and other services. In addition, the Company provides electronic
repair and support functions to the Royal Saudi Naval Forces.
The Company has broad-based experience in aviation supply support, including
maintaining and managing in-house supply departments using networks of vendors
and major military supply systems for requisition, receipt, storage, issue,
overhaul and repair of parts and materials.
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Manufacturing. The Company's Manufacturing Division supplies turbine engine
and airframe component parts for the prime engine and aircraft original
equipment manufacturers and the military. Manufacturing provides advanced
capabilities from design to production that result in high technology, precise
tolerance and advanced alloy parts. This Division consists of UNC Johnson
Technology, UNC Tri-Manufacturing, UNC Tri-Remanufacturing, UNC Artex and UNC
Aerostructures. Manufacturing revenues for 1995 were approximately $103.6
million.
Johnson Technology, founded in 1963 and acquired by the Company in July
1993, provides high technology turbine nozzles and vane manufacturing and
repair, and specialized non-conventional machining of super alloys such as
electro-chemical deep hole drilling, laser drilling, and electrical-discharge
machining. Customers include Pratt & Whitney, the United States Department of
Defense, and General Electric. Johnson Technology enjoyed significant growth
in 1995, due to several government and OEM contracts. Johnson's backlog at
December 31, 1995 was $46.1 million.
Tri-Manufacturing, founded in 1955 and acquired by the Company in 1988, is a
leading manufacturer of precision complex fabrications, aircraft parts and
assemblies for turbine engines for commercial and military aviation
applications. Primary customers include General Electric, Pratt & Whitney and
the Department of Defense.
Tri-Remanufacturing, which was started by the Company in 1991, reconditions
engine components to serviceable condition. The remanufacturing business is
supported by customer driven development of parts repairs, to lower repair and
overhaul costs. Tri-Remanufacturing's customers are the commercial airlines
who perform their own engine overhauls, independent and OEM engine overhaul
shops and the military. These customers generally lack the expertise, the
ability to develop approved repairs, and the volume of work on each different
part to justify in-house performance of this work.
Artex, founded in 1957 and whose assets were acquired by the Company in
April 1993, expands the Company's repair and remanufacturing capabilities
through highly specialized repairs of components including engine gearboxes
and cases, as well as aircraft component housings and other engine and
aircraft parts and accessories. Artex's primary customers are the major
commercial airlines.
Aerostructures, founded in 1965 and acquired by the Company in 1993, is an
experienced manufacturer of structural components and sheet metal sub-
assemblies for major aircraft manufacturers and enjoys the status of a first-
tier supplier to Boeing. The entity provides a wide manufacturing capability
serving substantially all major airframe and aerospace companies, leading
industrial subcontractors and the U.S. Military. Customers include, Boeing,
Northrop, Vought, Bell Helicopter, Lockheed and Grumman.
Trading. During 1993, the Company established a Trading Division for the
purpose of expanding its business in the airframe and engine parts market and
generating revenues from other aircraft and engine related transactions. In
addition, the Company is consolidating its engine and accessory marketing
within this Division located in Miami, Florida. In 1993, the Division acquired
a McDonnell Douglas DC-10-30 aircraft under a leverage lease which it
subsequently sold in 1994. Also, the Division acquired a Boeing 767 aircraft
in 1994 which it has disassembled and is refurbishing or repairing, as
required, and disposing of in the aftermarket through sale, lease or the
creation of exchange pools or similar transactions.
MARKETING
The Company markets its products and services through approximately 97 sales
and marketing employees and approximately 66 agents in foreign markets.
Marketing is organized by operating unit and region. Each operating unit has a
marketing director responsible for coordinating the marketing activity of that
unit. Joint marketing efforts of products and services of different units are
coordinated by the Company's corporate marketing department, headquartered in
Annapolis. The Company conducts its international marketing efforts through
U.S. and foreign based personnel and sales managers located in Singapore,
Amsterdam and Miami.
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Garrett employs an additional professional sales force of 15 regional sales
managers, distributed geographically across the U.S. and Mexico. In addition,
Garrett employs a regional sales manager for Europe, based in Paris, and has
representative agreements with parties in Argentina, Venezuela, China and The
Middle East. Garrett's regional sales force is compensated with a base salary
and an incentive component based on company results.
In conjunction with AlliedSignal, Garrett supports and utilizes
AlliedSignal's proprietary data market forecast system which tracks
maintenance event activity by individual customer and aircraft, and provides
early visibility into future maintenance requirements. Garrett also has the
benefit of Allied Signal customer service representatives located at each of
the facilities to provide factory support to the customers, and AlliedSignal's
retrofit sales force, which markets the retrofit of Dassault's Falcon 20
aircraft with AlliedSignal engines, in which Garrett is the subcontractor to
AlliedSignal for engine installation.
Garrett is the largest outside provider to AlliedSignal under Allied's
Maintenance Service Plan ("MSP"), a program providing engine owners long-term
maintenance, funded by fixed payments per flight hour. This program levels the
maintenance cost of an engine over the engine's life. At present,
approximately 54% of all TFE731 engines are covered by the program. Garrett
provides MSP service directly to AlliedSignal, which is responsible for
administering the program, but the customer is able to access the convenience
of Garrett's nationwide service centers. Garrett's revenues under the MSP
program were approximately $101 million in 1995.
COMPETITION
The businesses and markets in which the Company operates are highly
competitive.
UNC Aircraft and Engine Services. The Company's engine overhaul operations
currently compete primarily with, and largely at the discretion of, the
aircraft OEMs including AlliedSignal, General Electric, Pratt & Whitney and
Rolls-Royce. These operations also face significant competition from a large
number of other domestic and foreign entities such as Dallas Airmotive,
Standard Aero, National Airmotive, BizJet, KC Aviation (an aviation services
subsidiary of Kimberly-Clark), Bombardier, Duncan Aviation and others. The
Company's overhaul operations also compete with sales of used engines.
UNC Accessory Services. The Company's Accessory operations compete with a
large number of smaller service facilities and with certain OEM's that provide
aftermarket services for their products. Quality and reliability of service,
prompt turn-around time, price and customer service are major competitive
factors in the engine overhaul and component services businesses.
UNC Aviation Services. In providing contract aviation services to the
military, the Company's major competitors are DynCorp, Raytheon Aerospace
Services (formerly Beech Aircraft Services and Serv-Air), Northrop-Grumman
Services, Lockheed Support Services, McDonnell Douglas Services, and
Reflectone Training Services. The Division is one of only four companies
holding the recurring Contract Field Team contract administered by the United
States Air Force. Other CFT contracts are held by DynCorp, Lockheed and
Raytheon (Serv-Air).
UNC Manufacturing. With respect to the Company's manufacturing operations,
Johnson Technology's competition exists in the form of OEM in-house
capabilities and Chromalloy, Meyer Tool, Howmet and Walbar. Tri-
Manufacturing's principal competitors are The Barnes Group, Ketema and
Chemtronics. Tri-Remanufacturing and Artex's principal competitors are Windsor
Airmotive, Chromalloy, NORDAM PSD and Pyromet. Aerostructures competes with
Ace Clearwater, Dynabil Industries, Monitor Aerospace, AeroChem and ChemFab.
Price, quality and customer service are major competitive factors in this
business.
Garrett. Garrett competes with a variety of fixed base operators, aircraft
repair and engine overhaul entities, including several outlined above,
although many of these provide some light-level engine maintenance. Primary
competitors for the servicing of AlliedSignal powered aircraft include KC
Aviation and Duncan
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Aviation. In the engine overhaul area, competitors include Alliance Engine (a
joint venture of KC Aviation and Duncan Aviation). AlliedSignal also performs
a moderate level of factory engine overhaul services.
BACKLOG
As of December 31, 1995, the total contract price of the backlog of orders
for manufactured engine and airframe parts and aviation contract services for
the military, including option years believed to be firm, was approximately
$646.1 million, and approximately 56% of the orders or services represented
thereby have been or are currently expected to be filled during 1996. As of
December 31, 1994, such total was approximately $670.2 million.
EMPLOYEES
As of June 30, 1996, the Company had approximately 6,970 employees, of whom
approximately 1,600 are subject to collective bargaining agreements.
REGULATION
All of the Company's and Garrett's facilities are licensed by the FAA in
their respective specialties and are subject to applicable FAA rules and
regulations.
PROPERTIES
The principal executive offices of the Company are located at 175 Admiral
Cochrane Drive, Annapolis, Maryland. The executive offices are subject to a
lease expiring in 1997 with renewal options and an option to purchase and are
comprised of approximately 34,000 square feet in a modern office building.
The following table sets forth certain information regarding the facilities
operated by the Company as of June 30, 1996.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE TITLE
-------- -------------- ------
<S> <C> <C>
AIRCRAFT AND ENGINE SERVICES(1)
Burbank, California (closed)......................... 120,000 Owned
Coconut Creek, Florida............................... 4,000 Leased
Miami, Florida....................................... 46,000 Leased
Millville, New Jersey................................ 260,000 Leased
Odessa, Texas........................................ 36,500 Leased
Little Rock, Arkansas................................ 6,000 Leased
Los Angeles, California.............................. 127,260 Leased
Van Nuys, California................................. 80,970 Leased
Augusta, Georgia..................................... 96,604 Leased
Springfield, Illinois................................ 241,143 Leased
Ronkonkoma, New York................................. 116,685 Leased
Houston, Texas....................................... 114,851 Leased
ACCESSORY SERVICES
Ft. Lauderdale, Florida.............................. 21,000 Leased
Millville, New Jersey................................ 20,000 Leased
Bayshore, New York................................... 41,000 Owned
Grand Prairie, Texas................................. 41,700 Owned
AVIATION SERVICES
Pensacola, Florida................................... 2,600 Leased
Annapolis, Maryland.................................. 5,100 Leased
Oklahoma City, Oklahoma.............................. 36,700 Leased
San Antonio, Texas................................... 10,000 Leased
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE TITLE
-------- -------------- ------
<S> <C> <C>
MANUFACTURING SERVICES
Terre Haute, Indiana................................. 212,000 Owned
Terre Haute, Indiana................................. 66,000 Leased
Muskegan, Michigan................................... 105,000 Owned
Addison, Texas....................................... 20,000 Leased
Everett, Washington.................................. 135,000 Leased
</TABLE>
- --------
(1) The Aircraft and Engine Services Division was formed in conjunction with
the Acquisition, to combine UNC Airwork and certain other Company
operators with Garrett. See "--Products, Services and Customers." This
division also leases satellite facilities in five states aggregating
approximately 10,000 square feet.
TERMS OF GARRETT ACQUISITION PURCHASE AGREEMENT
Under the terms of the Purchase Agreement, the Company paid Garrett
approximately $144.6 million in cash at the closing and assumed certain of the
obligations, liabilities and commitments of Garrett arising out of the Garrett
business with respect to the operation of the Garrett business prior to May
30, 1996, the date on which the closing of the Acquisition occurred.
Obligations and liabilities in respect of borrowed money and current portions
of long-term bank financing and liabilities relating to or arising from the
Acquisition were not assumed by the Company. Pursuant to the originally
executed Purchase Agreement, the cash portion of the purchase price was to be
adjusted following closing based on the net asset value of the assets and
liabilities the Company acquires and assumes on the closing date, determined
based upon post-closing audit procedures. If such net asset value was less
than $47.075 million, the purchase price would have been decreased to the
extent of the difference between such amounts. If such net asset value was
greater than $47.575 million, the purchase price would have been increased to
the extent of the difference between such amounts. The Company and Garrett
subsequently entered into an amendment to the Purchase Agreement providing
that the Garrett sellers would prepare an estimate prior to closing of the net
asset value of the assets and liabilities of Garrett to be acquired by the
Company. If such estimated net asset value exceeded $47.575 million, then at
the closing, the Garrett sellers would retain accounts receivable in an
aggregate face amount equal to such excess. The Garrett sellers retained
approximately $29.1 million in accounts receivable at closing. The final net
asset value of the Garrett assets and liabilities acquired by the Company will
continue to be determined pursuant to a post-closing audit, following which
any necessary adjustment to the cash portion of the purchase price paid by the
Company will be made in accordance with the terms of the Purchase Agreement
described above. The Purchase Agreement provides for the Garrett sellers to
deliver an audited balance sheet of the Garrett business as of the closing
date (and a related statement of the net asset value of the Garrett assets and
liabilities acquired by the Company on that date) by July 30, 1996. The
parties have subsequently agreed that the Garrett sellers shall have until
September 30, 1996 to complete the audit and deliver such information. The
agreement also contains provisions for the resolution of any disputes arising
from the audit.
In the Purchase Agreement the Garrett sellers agreed to indemnify the
Company for breaches of representations and warranties and other matters
subject to important limitations, including a $3 million aggregate limitation
on the sellers' indemnification obligations thereunder. In connection with the
purchase of the Garrett engine overhaul division from AlliedSignal in 1994,
Garrett entered into a purchase agreement with AlliedSignal which contained
representations and warranties and indemnities from AlliedSignal (the
"AlliedSignal Purchase Agreement"), including indemnification for certain
environmental matters relating to the conduct of the business prior to the
sale of the business by AlliedSignal to Garrett. Under the terms of the
Purchase Agreement, at the closing of the Acquisition the Company was assigned
and succeeded to all of Garrett's rights and obligations under the
AlliedSignal Purchase Agreement, including the right to seek indemnification
for breaches of the representations and warranties made by AlliedSignal
relating to the conduct of the business prior to its acquisition by Garrett
and related environmental matters.
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HART-SCOTT-RODINO PROCEEDINGS
UNC Airwork, a subsidiary of the Company ("Airwork"), performs overhaul and
repair services on several aircraft engines, including the AlliedSignal TFE731
engine. Prior to the time the Acquisition was consummated, Airwork was
authorized by AlliedSignal to perform, among other things, compressor zone
inspections and related repair services ("Heavy Maintenance") on the
AlliedSignal TFE731 engine. For the year ended December 31, 1995, the Heavy
Maintenance Business had revenues of approximately $10.0 million. Garrett is
also authorized to perform these services and the terms of the AlliedSignal
Operating Agreement prohibit AlliedSignal from authorizing additional heavy
maintenance service centers without Garrett's prior consent during the term of
the AlliedSignal Operating Agreement.
In connection with its review of the Acquisition under the Hart-Scott-Rodino
Antitrust Improvements Act of 1977, the United States Department of Justice
(the "Justice Department") raised certain issues concerning the Heavy
Maintenance aspects of the Garrett and Airwork businesses. Following
discussions with the Justice Department, the Justice Department agreed that it
would not object to completion of the Acquisition if the Company and Garrett
proceeded on the basis of the arrangements discussed below.
The Company, Garrett and AlliedSignal agreed that Airwork would transfer
Airwork's Heavy Maintenance Business and the related authorization from
AlliedSignal to Sabreliner, an existing provider of aircraft engine overhaul
and repair services. This transaction was consummated immediately prior to the
Acquisition. Pursuant to the terms of an asset purchase agreement, the Company
sold to Sabreliner certain assets for their approximate book value (including
tooling, inventory and test equipment which had a book value at December 31,
1995 of approximately $2.0 million). Airwork used these assets in connection
with the conduct of the Heavy Maintenance Business. Under the terms of the
Sabreliner asset purchase agreement, Airwork will perform certain Heavy
Maintenance services on behalf of Sabreliner for a transition period following
the closing. Airwork will be required to pay AlliedSignal a royalty in
connection with the performance of certain of these services after a ten month
transition period. Following the sale of the Heavy Maintenance Business,
Garrett will continue to perform heavy maintenance services. The Company does
not believe that the divestiture of the Heavy Maintenance Business to
Sabreliner will have a material effect on the financial condition, liquidity
or results of operations of the Company.
UNC/ALLIEDSIGNAL AGREEMENT
As noted above, Airwork transferred its existing AlliedSignal authorization
to conduct the Heavy Maintenance Business to Sabreliner immediately prior to
the Acquisition. This authorization was replaced by a new AlliedSignal repair
agreement (the "UNC/AlliedSignal Agreement"). Under the terms of the
UNC/AlliedSignal Agreement, the Company is authorized to perform repairs on
certain AlliedSignal parts and components. Under the terms of this agreement,
AlliedSignal will submit purchase orders to the Company totalling $15.0
million annually in parts and component repairs through December 31, 1997.
This $15.0 million annual commitment will be pro rated for any partial year
during the term of the UNC/AlliedSignal Agreement. The Company has agreed to
perform these repairs for AlliedSignal at a price which is 6% below that
offered to AlliedSignal by other authorized vendors.
Under the terms of the UNC/AlliedSignal Agreement, the Company is granted
the right for a limited period of time to perform AlliedSignal TFE731 parts
and component repair services directly for Sabreliner so that Airwork can meet
its obligations to provide Sabreliner with the transition repair services
discussed above. The Company is also authorized to continue to perform
AlliedSignal TFE731 parts and component repairs for certain specified
customers other than AlliedSignal and Sabreliner through December 31, 1997.
Airwork must pay AlliedSignal a royalty equal to 20% of the price Airwork
charges such customers, net of the costs of any parts or components used in
connection with such repairs which are purchased directly from AlliedSignal,
taxes and shipping costs.
Other than the $15.0 million in annual repairs which AlliedSignal is
required to purchase from the Company, repairs the Company may perform for
Sabreliner during the transition period and repairs the Company is authorized
to perform for the specified customers discussed above, Airwork will not be
authorized by
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<PAGE>
AlliedSignal to perform repairs on any AlliedSignal TFE731 or TPE331 parts and
components during the term of the UNC/AlliedSignal Agreement.
The UNC/AlliedSignal Agreement expires on December 31, 1997. The agreement
provides that the parties will hold good faith business discussions concerning
all elements of the relationship among the Company, Garrett and AlliedSignal.
While the Company has no reason to believe that these discussions will not
proceed favorably, there can be no assurance that the UNC/AlliedSignal
Agreement will be extended beyond December 31, 1997 or that it will be
extended on terms as favorable to the Company as those presently in effect.
However, the Operating Agreement between Garrett and AlliedSignal is to remain
in effect through June 30, 2009.
AlliedSignal, Garrett and the Company have also agreed that AlliedSignal
shall be entitled to appoint one heavy maintenance service center in addition
to the center being conveyed to Sabreliner by Airwork and to make successor
appointments in respect of such additional center.
The Company paid AlliedSignal $1.5 million in consideration of being a party
to the arrangements discussed above.
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<PAGE>
MANAGEMENT
THE COMPANY
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------------------------------------------------
<S> <C> <C>
Dan A. Colussy 65 Chairman of the Board, President and
Chief Executive Officer and Director
John J. Bonasia 63 Vice Chairman
John H. Moellering 58 President, Aviation Services Division
Ronald W. Frederick 48 President, Manufacturing Division
L. David Clemons 42 President, Garrett Aviation Services Division
Robert L. Pevenstein 49 Senior Vice President and Chief Financial Officer
Gerald J. Knapp 53 Senior Vice President, Human Resources
Richard H. Lange 63 Senior Vice President, General Counsel and Secretary
Gregory M. Bubb 45 Senior Vice President, Finance and Treasurer
Paul X. McLain 56 Vice President, Financial Controls
Robert A. Marchetti 53 Vice President, International
Berl Bernhard 67 Director
Beverly B. Byron 64 Director
John K. Castle 56 Director
John W. Gildea 52 Director
Freeman A. Hrabowski,
III 45 Director
George V. McGowan 69 Director
Jack Moseley 65 Director
Lawrence A. Skantze 68 Director
</TABLE>
Dan A. Colussy has been Chairman of the Board, Chief Executive Officer and
President of the Company since October 1995 and prior thereto served as
Chairman and Chief Executive Officer from September 1994. Mr. Colussy was
Chairman, President and Chief Executive Officer of the Company from 1989
through September 1994. From December 1984 though 1989, Mr. Colussy was
President and Chief Executive Officer of the Company. Mr. Colussy was
Chairman, President and Chief Executive Officer of Canadian Pacific Air Lines,
Limited, a commercial airline, from November 1982 until December 1984. Mr.
Colussy also served as Chairman of Columbia Air, a commercial airline, from
June 1981 to November 1982. Prior to that time, Mr. Colussy served in senior
management positions with Pan American World Airways, a commercial airline,
for more than five years, and was President and Chief Operating Officer from
1978 to December 1980. Mr. Colussy is a director of Baltimore Gas and Electric
Company, a public utility, and Blue Cross Blue Shield of Maryland, Inc., a
health insurer. Mr. Colussy has served as a Director of the Company since
1981.
John J. Bonasia has served as Vice Chairman of the Company since June 1996.
Previously he was Senior Vice President, Engine Overhaul Division from October
1994. He has served in various senior management positions since he joined the
Company in 1988. Prior to joining the Company, he served as President and
Chief Operating Officer for Elano Corporation, a subsidiary of General
Electric Company.
John H. Moellering has served as President, UNC Aviation Services Division
since June 1996. He joined the Company as Executive Vice President, UNC
Aviation Services in October 1993. Previously he was President and Chief
Executive Officer of Lear Siegler Management Services Corporation, an
international aviation maintenance service company, from 1990 to 1993. He
served as Corporate Vice President with Automatic Data Processing, Inc., a
computer operations and network services company, from 1987 to 1990.
Ronald W. Frederick has served as President Manufacturing Division since
June 1996. Previously he was Vice President Manufacturing Division. Prior to
joining UNC, he served as President of Johnson Technology and Gentz
Manufacturing Companies. He served as Director Manufacturing for Williams
International. Also he served in various management positions with General
Electric Aircraft Engine Group for 21 years.
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<PAGE>
L. David Clemons has served as President, Garrett Aviation Services Division
since June 1996. Previously he served as the President and Chief Executive
Officer of Garrett since its inception in June 1994. Prior to this he served
as General Manager of the Los Angeles facility of Garrett Aviation Services
and in various positions with AlliedSignal's aircraft services and repair
business for over 20 years.
Robert L. Pevenstein has served as Senior Vice President and Chief Financial
Officer of the Company since February 1992. He served as Vice President
Finance and Chief Financial Officer of the Company from October 1987 to
February 1992. He joined the Company as Controller in September 1987. From
1977 to 1987 he served as Vice President and Chief Financial Officer of
Radiation Systems, Inc., a manufacturer of sophisticated antenna systems.
Gerald J. Knapp has served as Senior Vice President, Human Resources since
May 1994. He joined the Company as Vice President, Human Resources in April
1991. Prior to such time, he was Manager, Human Resources Management, for
Thomason Consumer Electronics, Inc. and General Electric Company.
Richard H. Lange has served as Senior Vice President, General Counsel and
Secretary since May 1994. He was elected Vice President, General Counsel and
Secretary of the Company in July 1987. Prior to that time, Mr. Lange was Vice
President, General Counsel and Secretary for the Rorer Group, Incorporated, a
multinational pharmaceutical company.
Gregory M. Bubb has served as Senior Vice President, Finance and Treasurer
since June 1996. Previously he was Vice President and Treasurer from May 1992.
He joined the Company as Treasurer in March 1988. Prior to joining the
Company, he served as Assistant Treasurer for Figgie International, a
diversified international manufacturing and financial services company.
Paul X. McLain joined the Company as Vice President, Financial Controls in
August 1982. Prior to joining the Company, he served as a partner with KPMG
Peat Marwick, an international public accounting firm.
Robert A. Marchetti has served as Vice President, International Division
since June 1996. Previously he was Vice President Marketing from 1992. He has
been in various senior management positions since he joined the Company in
1990. Prior to joining the Company, he served as Vice President Component
Repair Division with Elano Corporation. He was Vice President Marketing and
General Manager of the Metals Division for Copperweld Corporation.
Berl Bernhard has been a Director of the Company since 1992. Since 1982, Mr.
Bernhard has been the Chairman of the law firm of Verner, Liipfert, Bernhard,
McPherson and Hand. Mr. Bernhard has been a partner in the firm since 1962.
Since 1992, Mr. Bernhard has been a Director of Uniroyal Chemical Company,
Inc., a manufacturer of specialty chemicals.
Beverly B. Byron has been a Director of the Company since 1993. Ms. Byron
has been an independent consultant since November 1993. Ms. Byron served as a
Presidential Appointee to the Commission on Base Closure & Realignment during
1993. She served as a Representative in the United States Congress from
January 1979 to January 1993. Ms. Byron presently serves as a Director of
Baltimore Gas & Electric Company; McDonnell Douglas Corporation, an aerospace
manufacturer; Farmers & Mechanics National Bank of Frederick, a banking
corporation; and Blue Cross Blue Shield of Maryland, Inc.
John K. Castle has been a Director of the Company since 1986. Mr. Castle has
been the Chief Executive Officer and a Director of Branford Castle, Inc., an
investment firm, since September 1986. He has also served as Chairman, Chief
Executive Officer and Director of Castle Harlan, Inc., a merchant banking
firm, since June 1987. During the period 1979 to 1987, he served as the
President and Chief Executive Officer of Donaldson, Lufkin & Jenrette, Inc.,
an investment banking firm. Mr. Castle is a Director of Sealed Air
Corporation, a manufacturer of protective packaging materials; Quantum
Restaurant Group, Inc., a restaurant holding company; INDSPEC Chemical
Corporation, a manufacturer of specialty chemicals; and Homestead National
Corporation, an insurance holding company.
John W. Gildea has been a director of the Company since June 1996. Mr Gildea
serves in a capacity as the initial nominee designated by holders of the
Preferred Stock. See "Description of Preferred Stock." Mr. Gildea is Managing
Director of Gildea Management Company a position he has held for over 25
years. He presently
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<PAGE>
serves as a director for Factory Stores of America, America Service Group,
Hain Food Group, American Opportunity Trust, PLC.
Freeman A. Hrabowski, III has been a director of the Company since April 26,
1996. Mr. Hrabowski has been the President of the University of Maryland
Baltimore County ("UMBC") since 1993. He served as interim President of UMBC
from 1992 to 1993 and Executive Vice President of UMBC from 1990 to 1993. Mr.
Hrabowski serves as a director of Baltimore Gas & Electric Company, the Joint
Center for Political and Economic Studies, Loyola College of Maryland, the
Maryland Academy of Science, The Robert G. and Ann M. Merrick Foundation,
Inc./The Jacob and Anita Franz Foundation, Inc., a private grantmaking
foundation, Citizens Bank of Maryland/Citizens Bancorp of Maryland, the
Baltimore Equitable Society, insurance, CollegeBound, University of Maryland
Medical System and the Baltimore Community Foundation a community grantmaking
foundation.
George V. McGowan has been a Director of the Company since 1989. Mr. McGowan
served as Chairman and Chief Executive Officer of the Baltimore Gas & Electric
Company from 1988 until his retirement in 1993. He presently serves as a
Director of Baltimore Gas & Electric Company; NationsBank, a bank holding
company; and McCormick and Company, Inc., a manufacturer of spices and
specialty foods.
Jack Moseley has been a Director of the Company since 1987. Mr. Moseley
served as Chairman, President and Chief Executive Officer of USF&G
Corporation, an insurance and financial services company, from 1980 until his
retirement in 1990.
Lawrence A. Skantze has been a Director of the Company since 1989. Mr.
Skantze has been an independent industrial consultant since August 1987. He is
a retired General, U.S. Air Force and served as the Commander, U.S. Air Force
Systems Command from July 1984 to August 1987.
DESCRIPTION OF CERTAIN INDEBTEDNESS
REVOLVING CREDIT FACILITY
The Company is a party to an Amended and Restated Credit Agreement, dated as
of May 22, 1996 (the "Revolving Credit Facility"), among the Company, the
financial institutions who are parties thereto as lenders and First Union
Commercial Corporation ("First Union") as agent for the lenders and First
Union National Bank of North Carolina as the issuing bank for letters of
credit issued thereunder. The Revolving Credit Facility provides the Company
with up to a $110 million revolving line of credit. Amounts available to be
borrowed are based on a specified percentage of the value of the accounts
receivable and inventory of the Company and its subsidiaries. The Revolving
Credit Facility includes the availability of up to $20 million of letters of
credit and amounts available to be borrowed are reduced by the stated amount
of letters of credit outstanding and unreimbursed drawings thereon.
The following is a summary of certain provisions of the Revolving Credit
Facility. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Revolving Credit Facility. A
copy of the Revolving Credit Facility is available upon request to the Company
(see "Available Information").
Maturity. Unless extended with the consent of each of the lenders, the
Revolving Credit Facility is scheduled to terminate on May 31, 2000.
Borrowing Base. The amount of borrowings under the Revolving Credit Facility
(aggregated with the stated amount of outstanding letters of credit) is
limited to the lesser of (i) $110 million and (ii) the amount of the borrowing
base. The borrowing base at any time is calculated as the sum of (a) 85% of
the amount of accounts receivable owed to the Company and its subsidiaries by
U.S. obligors that are not an agency or department of the U.S. government, (b)
certain varying percentages of the amount of accounts receivable owed to the
Company and its subsidiaries by U.S. government agencies or departments,
foreign obligors and of certain amounts that are billable, but not yet billed,
by the Company and its subsidiaries and (c) 80% of the orderly liquidation
value of inventory of the Company and its subsidiaries (excluding certain
work-in-process), plus 50%
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<PAGE>
of the orderly liquidation value of certain work-in-process arising from the
engine overhaul operations, provided that advances against work-in-process
shall not exceed $5 million and provided that all advances against inventory
shall not exceed $36 million, and the aggregate amount of inventory value
included in the borrowing base shall never constitute more than 40% of the
total borrowing base. The accounts receivable and inventory of Garrett were
included in the borrowing base upon the completion by First Union of its
examination and appraisal of the assets on July 31, 1996. The amount available
to the Company for borrowing is reduced from each June 30 to the following
March 30 by various amounts, the greatest of which does not exceed the
Company's $4.2 million annual mandatory redemption payment with respect to its
7 1/2% Convertible Subordinated Debentures Due 2006 plus six months' interest
on those debentures. The Revolving Credit Facility provides that the advance
rate percentages with respect to the various categories of accounts receivable
and inventory may be revised from time to time by the lenders in their
discretion, exercised in good faith and in a commercially reasonable manner.
Fees. The lenders under the Revolving Credit Facility are entitled to
commitment fees at a rate of 0.5% per annum on the unused commitments. The
commitment fee is subject to reduction if the Company achieves certain
designated levels of total indebtedness for money borrowed ("Total Debt") to
earnings before interest, taxes, depreciation and amortization ("Operating
Cash Flow"). The commitment fee will not be less than 0.25% per annum.
Interest. Borrowings will bear interest at a rate per annum equal to, at the
election of the Company, either (i) the higher of the federal funds rate plus
1/2% or the agent's prime rate, in each case plus an applicable margin, or
(ii) an adjusted eurodollar rate plus an applicable margin. The applicable
margin with respect to all borrowings is determined by reference to the ratio
of the Company's Total Debt to Operating Cash Flow. The applicable margin for
base rate borrowings will not be greater than 1.5% nor less than 0% per annum.
The applicable margin with respect to Eurodollar borrowings will not be
greater than 2.75% nor less than 1.25% per annum. The applicable margin for
base rate borrowings is currently 1.5% per annum and for Eurodollar borrowings
is currently 2.75% per annum.
Guarantees. The obligations of the Company under the Revolving Credit
Facility are, subject to certain limitations, guaranteed by each of the
Company's domestic wholly-owned operating subsidiaries.
Collateral. The obligations of the Company and its subsidiaries, whether as
borrower or guarantor, in general, are secured by a pledge of their respective
accounts receivable, inventory and other tangible and intangible assets. In
addition, the obligations of the Company are secured by a pledge to the
lenders of secured promissory notes of the Company's subsidiaries evidencing
advances made by the Company to subsidiaries of proceeds of the Revolving
Credit Facility.
Financial Covenants. The following is a summary of the principal financial
covenants contained in the Revolving Credit Facility. Performance of the
financial covenants is measured by the performance of the Company and the
subsidiary guarantors on a consolidated basis.
The Company will not permit:
1. Tangible net worth at the end of any fiscal quarter to be less than the
following amounts during the following periods:
<TABLE>
<CAPTION>
MINIMUM TANGIBLE
FISCAL PERIOD NET WORTH
------------- ----------------
<S> <C>
12/31/95 to 03/30/96 $ 28,000,000
03/31/96 to 06/29/96 $(60,000,000)
06/30/96 to 09/29/96 $(60,500,000)
09/30/96 to 12/30/96 $(58,000,000)
12/31/96 to 12/30/97 $(58,000,000)
12/31/97 to 12/30/98 $(38,500,000)
12/31/98 to 12/30/99 $ 12,500,000
12/31/99 and thereafter $ 50,000,000
</TABLE>
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<PAGE>
2. The ratio of Total Debt to Operating Cash Flow (for the four fiscal
quarter period then ending), measured at the end of each fiscal quarter,
to exceed the following amounts during the following periods:
<TABLE>
<CAPTION>
FISCAL PERIOD RATIO
------------- -----
<S> <C>
12/31/95 to 03/30/96 6.0 to 1
03/31/96 to 06/29/96 10.5 to 1
06/30/96 to 09/29/96 10.5 to 1
09/30/96 to 12/30/96 9.5 to 1
12/31/96 to 03/30/97 7.0 to 1
03/31/97 to 06/29/97 6.0 to 1
06/30/97 and thereafter 5.0 to 1
</TABLE>
3. The ratio of (a) Operating Cash Flow less capital expenditures that are
not financed to (b) total debt service plus payments under capital
leases (measured at the end of the fiscal quarter and calculated on a
rolling four fiscal quarters basis) to be less than the following
amounts during the following periods:
<TABLE>
<CAPTION>
FISCAL PERIOD RATIO
------------- -----
<S> <C>
12/31/95 to 03/30/96 1.10 to 1
03/31/96 to 09/29/96 0.90 to 1
09/30/96 to 12/30/96 1.00 to 1
12/31/96 to 03/30/97 1.05 to 1
03/31/97 and thereafter 1.10 to 1
</TABLE>
9 1/8% NOTES
The Company currently has outstanding $100 million in principal amount of
its Senior Notes. The Senior Notes are senior unsecured obligations of the
Company and mature on July 15, 2003. The Senior Notes rank senior in right of
payment to the Notes and rank pari passu with the Company's outstanding
indebtedness under the Revolving Credit Facility. The Senior Notes are
guaranteed by the Guarantors on a basis senior to the Guarantees of the Notes
and on a pari passu basis with the guarantees of the Revolving Credit
Facility. The Senior Notes will be redeemable at the Company's option, at any
time on or after July 15, 1998, at declining redemption premiums.
The Senior Notes were issued pursuant to an Indenture among the Company, the
Guarantors and Chemical Bank as Trustee dated July 15, 1993 and as amended to
date.
The terms and conditions of the Senior Notes, including covenants relating
to (a) limitations on indebtedness, (b) limitations on restricted payments,
(c) limitations on dividends and other payment restrictions affecting Company
subsidiaries, (d) limitations on preferred stock of subsidiaries,
(e) limitations on liens, (f) limitations on transactions with affiliates, (g)
limitations on asset sales and (h) limitations on lines of business, are
substantially similar to the terms, conditions and covenants of the Notes
(other than provisions relating to the redemption of the Notes and the
subordination of the Notes and the guarantees of the Notes). See "Description
of the Notes."
DESCRIPTION OF THE PREFERRED STOCK
The Company has designated and authorized 250,000 shares of each of a Series
B Senior Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock") and a Series C Senior Cumulative Preferred Stock (the "Series C
Preferred Stock"), which rank with respect to dividend rights, liquidation
rights, winding up and dissolution on parity with one another and prior to any
equity securities of the Company, including any other series of preferred
stock. The Acquisition was financed, in part, through the Company's sale of
250,000 shares of Series B Preferred Stock at a purchase price of $100 per
share.
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<PAGE>
SERIES B PREFERRED STOCK
Dividends. Holders of Series B Preferred Stock are entitled to receive
cumulative dividends at an annual rate of $8.50 per share to be paid pro rata
to such holders, quarterly, in arrears. If the Company is not subject to any
restriction prohibiting the payment of dividends in cash, dividends will be
paid in cash. If any such restriction exists, dividends may be paid by issuing
fully paid and non-assessable shares of Series C Preferred Stock, which shall
be valued at $100.00 per share (a "PIK Dividend"), or in some combination of
cash and a PIK Dividend. If the Company pays a PIK Dividend at any time after
the third anniversary of the issuance of the Series B Preferred Stock, the
annual dividend rate will increase, in the case of PIK Dividends, to $9.50 per
share. If the Company pays a PIK Dividend at any time after the fourth
anniversary of the date of issuance, the annual dividend rate will increase,
in the case of PIK Dividends, to $10.50 per share. If the Company pays a PIK
Dividend at any time after the fifth anniversary of the date of issuance, the
annual dividend rate will increase, in the case of PIK Dividends, to $11.00
per share. The foregoing dividend increases relate only to dividends on the
Series B Preferred Stock paid in Series C Preferred Stock and not to cash
dividends paid on the Series B Preferred Stock.
Liquidation Preference. Upon liquidation, holders of Series B Preferred
Stock will be entitled to receive $100.00 for each outstanding share plus all
accrued but unpaid dividends thereon. In the event the Company has
insufficient funds to pay the liquidation price, the holders of shares of
Series B Preferred Stock will share ratably in the distribution of the
Company's assets.
Redemption. The Company may redeem the Series B Preferred Stock at a price
of $100.00 per share plus all accrued and unpaid dividends thereon, to the
extent funds are legally available therefor, in the event that after the
fourth anniversary of the issuance of the Series B Preferred Stock a 90-day
period passes during which the Company's common stock has traded at a price at
least equal to 200% of the conversion price then in effect. The Company may
not, however, optionally redeem any shares of Series B Preferred Stock without
first redeeming all outstanding shares of Series C Preferred Stock. Upon any
change in control of the Company, sale of all or substantially all of the
assets of the Company or reconstitution of the board of directors of the
Company, the holders of Series B Preferred Stock will have the option to
require the Company to redeem their shares for $100.00 per share plus all
accrued and unpaid dividends thereon.
Conversion. A share of Series B Preferred Stock may be converted, at the
option of the holder and at any time, into the number of fully paid and non-
assessable shares of common stock of the Company obtained by dividing $100.00
by the conversion price. The initial conversion price is $7.00 per share,
subject to certain adjustments, including a one-time five percent reduction if
the Company declares a PIK Dividend after the third anniversary of the
issuance of the Series B Preferred Stock.
Voting. There are no voting rights granted to holders of Series B Preferred
Stock other than those expressly required by law and as described below.
Whenever dividends are in arrears and remain unpaid for six or more dividend
payment dates, the holders of Series B Preferred Stock will have the exclusive
right to appoint one additional director to the board of directors of the
Company to serve until all accrued but unpaid dividends have been paid in
full. In addition, and whether or not dividends are in arrears, the
affirmative vote of the holders of a majority of the Series B Preferred Stock,
voting as a class, are required in order for the Company to (i) create,
authorize or issue any shares of any class of senior or parity dividend or
liquidation stock having class voting rights except as required by the
Delaware General Corporation Law or voting rights in excess of one vote per
share, (ii) amend, alter or repeal any provision of the certificate of
incorporation of the Company if such amendment, alteration or repeal has a
material adverse effect on the rights of the Series B Preferred Stock, or
(iii) declare any reverse stock dividend; provided that the affirmative vote
of the holders of two-thirds of the shares of Series B Preferred Stock is
required to amend, alter or repeal any provision of the certificate of
incorporation of the Company that would adversely affect the rights of the
Series B Preferred Stock holders with respect to dividends, liquidation,
conversion or voting. In all cases where the holders of Series B Preferred
Stock exercise a right to vote, each share thereof is entitled to one vote.
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<PAGE>
Board Representation. Pursuant to the terms of the agreement between the
Company and the purchasers of the Series B Preferred Stock, the Company is
obligated to take all action necessary to cause one person nominated by the
purchasers holding a majority of the Series B Preferred Stock to be nominated
for election to the Board of Directors of the Company and to recommend the
purchasers' nominee in the same manner as all other nominees of the Company,
provided that the Company shall have the right to reject certain nominees of
the purchasers. That obligation of the Company will be in effect only for so
long as the original purchasers of the Series B Preferred Stock hold shares of
Series B Preferred Stock (and/or shares of common stock of the Company
issuable upon conversion of such shares) representing 10% of the shares of the
Company's common stock issued and outstanding after giving effect to the pro
forma conversion of all outstanding Series B Preferred Stock.
SERIES C PREFERRED STOCK
The holders of Series C Preferred Stock are entitled to receive cumulative
dividends when and as declared by the board of directors of the Company at an
annual rate of $8.50 per share to be paid quarterly and pro rata to such
holders. The restrictions on redemption and repurchase of shares in the event
of an arrearage in dividends declared on Series B Preferred Stock apply as
well in the event of an arrearage in dividends on Series C Preferred Stock.
Holders of Series C Preferred Stock are entitled to the same rights upon
liquidation as the holders of Series B Preferred Stock. The Company, at its
option, may redeem the Series C Preferred Stock at any time at a price of
$100.00 per share plus all accrued but unpaid dividends thereon. Unless the
Company is subject to a restriction on the redemption of shares of Series C
Preferred Stock, the holders thereof may require the Company to redeem such
shares at a price of $100.00 per share plus accrued but unpaid dividends
thereon in the event of any change in control of the Company, sale of all or
substantially all of the assets of the Company or reconstitution of the board
of directors of the Company. Other than the right of holders of the Series B
Preferred Stock to appoint an additional board member in the event that
dividends are in arrears for six consecutive dividend payment dates, which is
not a right granted to the holders of Series C Preferred Stock, the holders of
Series C Preferred Stock are entitled to the same voting rights as the holders
of Series B Preferred Stock.
DESCRIPTION OF NOTES
The Old Notes were, and the New Notes will be, issued pursuant to an
Indenture dated as of May 30, 1996 among the Company, the Guarantors and The
Bank of New York, as Trustee (the "Trustee"). The terms of the New Notes are
identical in all material respects to the Old Notes except for certain
transfer restrictions and registration rights relating to the Old Notes and
except that, if the Exchange Offer is not consummated by November 26, 1996,
the rate at which the Old Notes bear interest will be 11 1/2% per annum from
and including November 26, 1996 until but excluding the date of the
consummation of the Exchange Offer. Old Notes and New Notes will be treated as
a single class of securities under the Indenture.
The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Indenture, including the
definitions therein of certain terms not defined in this Prospectus. A copy of
the Indenture is available upon request to the Company at the address set
forth under "Additional Information" below. Certain terms used herein are
defined below under "Certain Definitions."
GENERAL
The Notes are senior subordinated unsecured obligations of the Company, are
limited to $125,000,000 aggregate principal amount and mature on June 1, 2006.
The Notes bear interest at the rate of 11% per annum from May 30, 1996 or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on June 1 and December 1 of each year,
commencing December 1, 1996 to each Person in whose name a Note is registered
at the close of business on the preceding May 15 or November 15, as the case
may be. Principal of and premium, if any, and interest on the Notes is
payable, and the transfer of Notes
73
<PAGE>
is registrable, at the office or the agency maintained by the Company in the
City of New York. In addition, payment of interest may, at the option of the
Company, be made by check mailed to the address of the Person entitled thereto
as it appears in the Note Register. Interest is computed on the basis of a
360-day year of twelve 30-day months.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any multiple thereof. No service charge will be
made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
OPTIONAL REDEMPTION
The Notes will be redeemable at the Company's option, at any time on or
after June 1, 2001, as a whole or from time to time in part, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Notes to be
redeemed at the Holder's address appearing in the Note Register, at the
following redemption prices (expressed as percentages of principal amount) if
redeemed during the 12-month period beginning June 1 of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001............................................................ 105.500%
2002............................................................ 103.667%
2003............................................................ 101.833%
2004 and thereafter............................................. 100.000%
</TABLE>
together in the case of any such redemption with accrued interest (if any) to
the redemption date. Notwithstanding the foregoing, the Notes will not be
redeemable at the option of the Company during the continuance of certain
defaults under the Indenture. If less than all of the Notes are to be
redeemed, the Notes will be chosen for redemption by the Trustee on a pro rata
basis or by lot.
SUBORDINATION
The Notes are, to the extent set forth in the Indenture, subordinate in
right of payment to the prior payment in full of all Senior Debt of the
Company. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets or any bankruptcy, insolvency or
similar proceedings of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of such Senior Debt before the Holders of
the Notes will be entitled to receive any payment (other than payment in the
form of certain permitted equity interests or subordinated securities) in
respect of the principal of (and premium, if any) or interest on the Notes. In
the event that, notwithstanding the foregoing, the Trustee or the Holder of
any Note receives any payment or distribution of assets of the Company of any
kind or character (other than payment in the form of certain permitted equity
interests or subordinated securities), before all the Senior Debt is paid in
full, then such payment or distribution will be required to be paid over or
delivered forthwith to the trustee in bankruptcy or other Person making
payment or distribution of assets of the Company for application to the
payment of all Senior Debt remaining unpaid, to the extent necessary to pay
the Senior Debt in full.
The Company also may not make any payments (other than in the form of
certain permitted equity interests or subordinated securities) on the account
of the Notes or on account of the purchase or redemption or other acquisition
of Notes if there shall have occurred and be continuing a default in the
payment of Designated Senior Debt (a "Payment Default"). In addition, if any
default (other than a Payment Default) with respect to any Designated Senior
Debt permitting (either immediately, or after the giving of any notice, the
lapse of any time or both) the holders thereof (or a trustee or agent on
behalf thereof) to accelerate the maturity thereof (a "Nonmonetary Default")
has occurred and is continuing and the Company and the Trustee have received
written
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notice thereof from the representatives of holders of such Designated Senior
Debt, then the Company may not make any payments (other than in the form of
certain permitted equity interests or subordinated securities) on account of
the Notes or on account of the purchase or redemption or other acquisition of
Notes for a period (a "blockage period") commencing on the date the Company
and the Trustee receive such written notice and ending on the earlier of (x)
179 days after such date or (y) the date, if any, on which the Designated
Senior Debt to which such default relates is discharged or such default is
waived or otherwise cured. In any event, not more than one blockage period may
be commenced during any period of 360 consecutive days and there shall be a
period of at least 181 consecutive days in each period of 360 consecutive days
when no blockage period is in effect. No Nonmonetary Default that existed or
was continuing on the date of the commencement of any blockage period with
respect to the Designated Senior Debt initiating such blockage period will be,
or can be, made the basis for the commencement of a subsequent blockage
period, unless such default has been cured or waived for a period of not less
than 90 consecutive days. In the event that, notwithstanding the foregoing,
the Company makes any payment to the Trustee or the Holder of any Note
prohibited by the subordination provisions, then such payment will be required
to be paid over and delivered forthwith to the holders of the Senior Debt
remaining due and unpaid, to the extent necessary to pay in full all the
Senior Debt.
Each Guarantee is, to the extent set forth in the Indenture, subordinated in
right of payment to the prior payment in full of all Senior Debt of such
Guarantor and is subject to the rights of holders of Designated Senior Debt of
such Guarantor to initiate blockage periods upon terms substantially
comparable to the subordination of the Notes to all Senior Debt of the
Company.
By reason of such subordination, in the event of insolvency, creditors of
the Company or a Guarantor who are not holders of Senior Debt may recover
less, ratably, than holders of Senior Debt and may recover more, ratably, than
the Holders of the Notes.
The subordination provisions described above will cease to be applicable to
the Notes and the Guarantees upon any defeasance or covenant defeasance of the
Notes as described under "--Defeasance."
As of June 30, 1996, the amount of Senior Debt of the Company was $169.5
million (including approximately $61.7 million under the Revolving Credit
Facility and $100 million of 9 1/8% Notes) and the Company had the ability to
borrow up to an additional $37.1 million under the Revolving Credit Facility.
The indebtedness of the Company under the Revolving Credit Facility is
collateralized by the accounts receivable, inventory and other assets of the
Company and its Subsidiaries. The Subsidiary Bank Guarantees are
collateralized by the accounts receivable, inventory and other assets of the
Subsidiaries. The Indenture does not prohibit or limit the incurrence of
additional Senior Debt, provided that the incurrence of such Senior Debt is
otherwise permitted thereunder including under the limitations described under
"--Certain Covenants."
As of June 30, 1996, the amount of Indebtedness of the Company and its
Subsidiaries ranking junior in right of payment to the Notes was $167.3
million in principal amount of Convertible Subordinated Debentures.
The Company is a holding company that conducts substantially all of its
operations and derives substantially all of its income through its
subsidiaries. Therefore, the Company's ability to make required principal and
interest payments with respect to the Company's indebtedness, including the
Notes, depends on the earnings of its Subsidiaries and on its ability to
receive funds from such Subsidiaries through dividends or other payments. The
Indenture will, among other things, limit the incurrence of additional
indebtedness and the issuance of preferred stock by the Company's Subsidiaries
and prohibit certain restrictions on distributions from Subsidiaries. However,
those limitations and prohibitions are subject to a number of important
qualifications. See "Risk Factors--Subordination of the Notes" and "--Certain
Covenants."
RIGHT TO REQUIRE REPURCHASE UPON CHANGE OF CONTROL
The Indenture provides that if at any time there is a "Change of Control"
(the date of such Change of Control being the "Trigger Date"), then the
Company shall notify the Trustee in writing of such occurrence and
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shall promptly make an offer to repurchase (the "Change of Control Offer") on
the Change of Control Payment Date (defined below) all outstanding Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest, if any, to and including the Change of Control Payment Date. "Change
of Control Payment Date" means the last day of the fiscal quarter of the
Company next following the Trigger Date or (i) if such day is not a business
day, the next succeeding business day; or (ii) if such day would result in the
Change of Control Offer not remaining open for a sufficient period of time to
comply with applicable securities laws or the rules of any securities exchange
on which the Notes are then listed, the next succeeding business day on which
the consummation of such repurchase may take place without violating such
securities laws or rules. Prior to the Change of Control Payment Date, the
Company covenants to (i) repay in full all obligations under the Revolving
Credit Facility; or (ii) obtain the requisite consents under the Revolving
Credit Facility to permit the repurchase of the Notes as contemplated by this
covenant. Notice of a Change of Control Offer is required to be made by the
Company not less than 20 days before the Change of Control Payment Date or
such other period of time as is necessary for the Change of Control Offer to
remain open for a sufficient period of time to comply with all securities laws
which may then be applicable (including Rule 14e-1 under the Exchange Act). As
of the date of this Offering Circular, Rule 14e-l(a) requires that a tender
offer remain open for not less than 20 business days from the date such tender
offer is commenced.
The Indenture defines a "Change of Control" as: (i) any person or group
(within the meaning of Section 13(d)(3) of the Exchange Act), together with
any Affiliates or Associates thereof, beneficially owning or acquiring in a
single transaction or in a related series of transactions, by way of merger,
consolidation or other business combination, or otherwise purchasing or
acquiring, greater than 40% of the total voting power entitled to vote in the
election of directors of the Company; (ii) the liquidation or dissolution of
the Company; or (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of 66 2/3 percent of the directors of the Company then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the
Company then in office.
GUARANTEES
All of the Subsidiaries of the Company that are guarantors of the
obligations of the Company under the Revolving Credit Facility have guaranteed
on a joint and several basis the payment and performance by the Company of the
Obligations and will pay all expenses (including, without limitation, fees and
disbursements of counsel) paid or incurred by the Trustee or the Holders in
enforcing their rights under the Guarantees. All of the Company's domestic
wholly owned operating Subsidiaries are guarantors of the obligations of the
Company under the Revolving Credit Facility. Each of the Guarantees is a
senior subordinated unsecured obligation of the Subsidiary providing such
Guarantee. Each Guarantee is, to the extent set forth in the Indenture,
subordinated in right of payment to the prior payment in full of all Senior
Debt of such Guarantor and will be subject to the rights of holders of
Designated Senior Debt of such Guarantor to initiate blockage periods upon
terms substantially comparable to the subordination of the Notes to all Senior
Debt of the Company. As of June 30, 1996, the amount of Senior Debt of the
Guarantors was approximately $167.3 million (including the Subsidiary Bank
Guarantees and the Subsidiaries' guarantees of the 9 1/8% Notes). See "--
Subordination."
Under the terms of the Indenture for as long as the Guarantees remain in
effect, if any Subsidiary guarantees Indebtedness of the Company or any other
Subsidiary other than Senior Debt and other than the Notes at any time
subsequent to the date on which the Notes were originally issued and prior to
the termination of the Guarantees, (x) in the case of any Indebtedness that is
subordinate in right of payment to the Notes, the Company shall cause the
Notes to be guaranteed by such Subsidiary prior to such Indebtedness and (y)
in the case of any other Indebtedness, the Company shall cause the Notes to be
equally and ratably guaranteed by such Subsidiary, in each case only to the
extent that the Notes have not already been guaranteed on reasonably
comparable terms by such Subsidiary. In addition, the Indenture provides that
all wholly owned Subsidiaries created subsequent to
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the date of the Indenture and prior to the termination of the Guarantees, will
guarantee the Company's obligations to pay principal, premium, if any, and
interest with respect to the Notes. Following any sale or other disposition of
all or substantially all of the assets of a Subsidiary or all of the capital
stock of a Subsidiary permitted by and in accordance with the terms of the
Indenture, such Subsidiary will be released from its Guarantee obligations.
The obligations of each Subsidiary as guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary and after giving effect to any collections from
or payments made by or on behalf of any other Subsidiary in respect of the
obligations of such other Subsidiary under its Guarantee or pursuant to its
contribution obligations under the Indenture, result in the obligations of
such Subsidiary under its Guarantee not constituting a fraudulent conveyance
or fraudulent transfer under federal, state or foreign law. Each Subsidiary
that makes a payment or distribution of more than its proportionate share
under a Guarantee shall be entitled to a contribution from each other
Subsidiary which has not paid its share of such payment or distribution.
Although holders of the Notes will be direct creditors of the Guarantors by
virtue of the Guarantees, existing or future creditors of the Guarantors could
attempt to avoid Guarantees, in whole or in part, under fraudulent conveyance
laws. To the extent any Guarantee is avoided as a fraudulent conveyance or
held unenforceable for any other reason, the claims of the holders of the
Notes against a Subsidiary who is not a valid Guarantor would be subject to
the prior payment of all liabilities of that Subsidiary.
Under the terms of the Indenture, the Guarantee of any Subsidiary shall
terminate in the event that (i) such Subsidiary shall no longer be obligated
to guarantee any Indebtedness under the Revolving Credit Facility; and (ii) no
Default or Event of Default shall have occurred and be continuing. If the
Guarantees are terminated, the Notes shall be obligations solely of the
Company, and the Subsidiaries will not be obligated or required to pay any
amounts due pursuant to the Notes or to make funds available therefor in the
form of dividends or advances to the Company. In addition, if such termination
occurs, the Notes will be effectively subordinated to all existing and future
indebtedness of the Subsidiaries. As of June 30, 1996, the Guarantors had
outstanding Indebtedness in the amount of $292.3 million (of which $161.7
million represents the Subsidiary Bank Guarantees and the Subsidiaries'
guarantees of the 9 1/8% Notes). The Company has agreed that no Subsidiary
shall become obligated to guarantee any Indebtedness of the Company or any
other Subsidiary for a 120-day period immediately following the termination of
such Subsidiary's guarantee obligation under the Indenture.
Because the Revolving Credit Facility does not provide for any specific
conditions under which the Subsidiary Bank Guarantees will be terminated
during the term of the Revolving Credit Facility, the Subsidiary Bank
Guarantees may only be terminated upon the waiver or release of some or all of
the Subsidiary Bank Guarantees by the banks under the Revolving Credit
Facility or upon the liquidation, dissolution or disposition of the applicable
Subsidiary. Because it is possible that the Guarantees could be waived or
released by the banks under the Revolving Credit Facility at any time,
including upon an event of default under the Notes, there can be no assurance
that holders of the Notes will have the right to proceed directly against the
Company's guaranteeing Subsidiaries under the terms of the Guarantees. From
time to time the interests of the banks in maintaining the Subsidiary Bank
Guarantees under the Revolving Credit Facility may differ from the interests
of the holders of the Notes.
The 9 1/8% Senior Notes are guaranteed by the Company's Subsidiaries on a
senior basis to the Subsidiaries' Guarantees of the Notes. The Subsidiaries'
guarantees of the 9 1/8% Notes are subject to the same termination provisions
as are the Subsidiaries' Guarantees of the Notes. See "Description of the 9
1/8% Senior Notes."
The Company has guaranteed the Subsidiaries' Guarantees, which guarantee by
the Company ranks pari passu in right of payment with the Notes.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will be issued in the form of a Global Note. The Global Note
will be deposited with, or on behalf of, the Depository and registered in the
name of the Depository or its nominee. Except as set forth below,
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the Global Note may be transferred, in whole and not in part, only to the
Depository or another nominee of the Depository. Investors may hold their
beneficial interests in the Global Note directly through the Depository if
they have an account with the Depository or indirectly through organizations
which have accounts with the Depository.
New Notes that were exchanged for Old Notes that were (i) originally issued
to institutional "accredited investors" (as defined in Rule 501 (a)(1), (2),
(3) or (7) under the Securities Act) who were not qualified institutional
buyers ("QIBs") or (ii) issued as described below under "--Certificated Notes"
will be issued in definitive form. Upon the transfer of a Note in definitive
form, such Note will, unless the Global Note has previously been exchanged for
Notes in definitive form, be exchanged for an interest in the Global Note
representing the principal amount of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934 (the "Exchange Act"). The Depository was created to hold
securities of institutions that have accounts with the Depository
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in the accounts of the participants, thereby eliminating
the need for physical movement of securities certificates. The Depository's
participants include securities brokers and dealers (which may include the
Initial Purchasers), banks, trust companies, clearing corporations and certain
other organizations. Access to the Depository's book-entry system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by the Global Note to the accounts of participants. Ownership of
beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interests) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for
all purposes of such Notes and the Indenture. Except as set forth below,
owners of beneficial interests in the Global Note will not be entitled to have
the Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or holders of any
Notes under the Global Note. Accordingly, each person owning a beneficial
interest in the Global Note must rely on the procedures of the Depository and,
if such person is not a participant, on the procedures of the participant
through which such person owns its interests, to exercise any right of a
holder of Notes under the Global Note. The Company understands that under
existing industry practice, in the event an owner of a beneficial interest in
the Global Note desires to take any action that the Depository, as the holder
of the Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or
would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will
be made to the Depository or its nominee, as the case may be, as the
registered owner and holder of the Global Note.
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The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payment in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not 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 for any Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for other aspects of the relationship between the
Depository and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of
such Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by
the Depository or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated Notes in definitive form of like tenor as such New Notes in
denominations of $1,000 and multiples thereof if (i) the Depository notifies
the Company that it is unwilling or unable to continue as Depository for the
Global Note or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company in its discretion at any
time determines not to have any of the Notes represented by the Global Note or
(iii) a default entitling the holders of the Notes to accelerate the maturity
thereof has occurred and is continuing. Any New Note that is exchangeable
pursuant to the preceding sentence is exchangeable for certificated New Notes
issuable in authorized denominations and registered in such names as the
Depository shall direct. Subject to the foregoing, the Global Note is not
exchangeable, except for a Global Note of the same aggregate denomination to
be registered in the name of the Depository or its nominee.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has agreed pursuant to a registration rights agreement (the
"Registration Rights Agreement") with the Initial Purchasers, for the benefit
of the holders of the Notes, that the Company will, at its cost,(i) within 75
days after the Issue Date, file a registration statement (the "Exchange Offer
Registration Statement") with the SEC with respect to a registered offer (the
"Registered Exchange Offer") to exchange the Notes for the Exchange Notes,
which will have terms substantially identical in all material respects to the
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions) and (ii) use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days after the Issue Date. Upon the effectiveness of the Exchange
Offer Registration Statement, the Company will offer the Exchange Notes in
exchange for surrender of the Notes. The Company will keep the Registered
Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date notice of the Registered Exchange Offer is
mailed to the holders of the Notes. For each Note surrendered to the Company
pursuant to the Registered Exchange Offer, the holder of such Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Note. Interest on each Exchange Note will accrue from the last
interest payment date on which interest was paid on the Note surrendered in
exchange thereof or, if no interest has been paid on such Note, from the date
of its original issue. Under existing SEC interpretations, the Exchange Notes
would be freely transferable by holders other than affiliates of the Company
after the
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Registered Exchange Offer without further registration under the Securities
Act if the holder of the Exchange Notes represents that it is acquiring the
Exchange Notes in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the SEC; provided, however, that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in
the Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to Exchange Notes (other than a resale of an unsold
allotment from the original sale of the Notes) with the prospectus contained
in the Exchange Offer Registration Statement. Under the Registration Rights
Agreement, the Company is required to allow Participating Broker-Dealers and
other persons, if any, with similar prospectus and delivery requirements to
use the prospectus contained in the Exchange Offer Registration Statement in
connection with the resale of such Exchange Notes.
A holder of Notes (other than certain specified holders) who wishes to
exchange such Notes for Exchange Notes in the Registered Exchange Offer will
be required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect such a Registered Exchange Offer, or if for any
other reason the Registered Exchange Offer is not consummated within 180 days
of the Issue Date, or if the Initial Purchasers so request with respect to
Notes not eligible to be exchanged for Exchange Notes in the Registered
Exchange Offer, or if any holder of Notes is not eligible to participate in
the Registered Exchange Offer or does not receive freely tradeable Exchange
Notes in the Registered Exchange Offer, the Company will, at its cost, (a) as
promptly as practicable, file a shelf registration statement (the "Shelf
Registration Statement") with the SEC covering resales of the Notes or the
Exchange Notes, as the case may be, (b) use its best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
and (c) keep the Shelf Registration Statement effective until the earlier of
(i) the time when the Notes covered by the Shelf Registration Statement can be
sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f)
and (h) of Rule 144 and (ii) three years from the Issue Date. The Company
will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes or the Exchange Notes, as the case may be. A
holder selling such Notes or Exchange Notes pursuant to the Shelf Registration
Statement generally would 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 certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
If (i) by August 13, 1996, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the SEC; (ii) by
November 26, 1996, neither the Registered Exchange Offer is consummated nor
the Shelf Registration Statement is declared effective; or (iii) after either
the Exchange Offer Registration Statement or the Shelf Registration Statement
is declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Notes or Exchange Notes in accordance with and during the periods specified
in the Registration Rights Agreement (each such event referred to in clause
(i) through (iii) being herein called a "Registration Default"), interest will
accrue on the Notes at the rate of 11 1/2% per annum from and including the
date on which any such Registration Default shall occur to but excluding the
date on which all Registration Defaults have been cured. At all other times,
the Notes will bear interest at a rate of 11% per annum.
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The summary herein 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 reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
CERTAIN COVENANTS
The Indenture contains certain covenants, including the ones summarized
below, which covenants will be applicable (unless waived or amended) so long
as any of the Notes are outstanding.
Limitation on Indebtedness. The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume, or
directly or indirectly guarantee, any Indebtedness, except for:
(i) Indebtedness under the Notes and the Indenture; (ii) Indebtedness of the
Company at any time outstanding under the Revolving Credit Facility not to
exceed $110.0 million outstanding at any one time; (iii) Indebtedness of the
Company evidenced by the Convertible Subordinated Debentures in aggregate
principal amount of not more than $69.0 million outstanding at any one time;
(iv) Indebtedness of the Company (guaranteed by the Subsidiaries on the same
basis as the Notes) evidenced by the 9 1/8% Senior Notes in an aggregate
principal amount not to exceed $100.0 million; (v) surety bonds and appeal
bonds required in the ordinary course of business or in connection with the
enforcement of rights or claims of the Company or any of its Subsidiaries or
in connection with judgments that do not constitute a default under the
Indenture; (vi) guarantees of Indebtedness of Affiliates or Associates of the
Company which exist as of the date of the Indenture and guarantees by the
Company of Indebtedness that is otherwise permitted under the Indenture; (vii)
other Indebtedness in an aggregate principal amount of not more than $15.0
million outstanding at any one time; (viii) Indebtedness of any Subsidiary to
the Company, Indebtedness of the Company to any of its Subsidiaries or
Indebtedness of a Subsidiary to a Subsidiary; (ix) additional Indebtedness of
the Company and its Subsidiaries not outstanding as of the date of the
Indenture if the Consolidated EBITDA Coverage Ratio of the Company for its
four full fiscal quarters immediately preceding the date such additional
Indebtedness is created, incurred, assumed or guaranteed (the "Incurrence
Date") determined on a pro forma basis (including a pro forma application of
the net proceeds of such Indebtedness) as if such additional Indebtedness had
been created, incurred, assumed or guaranteed and any related transactions or
acquisitions had been consummated, at the beginning of such four quarter
period, for any Incurrence Date occurring during the period set forth below,
would have been at least 2.25 to 1.00; and (x) Indebtedness of the Company and
its Subsidiaries, all of the net proceeds, if any, of which (after reasonable
fees, expenses and costs related to the incurrence of such Indebtedness) are
applied entirely to repay or to refund outstanding Indebtedness permitted
under clauses (i), (ii), (iii), (iv) and (ix) above and this clause (x) and
any extensions or renewals of outstanding Indebtedness under clauses (ii),
(iii), (iv) and (ix) and this clause (x) ("Refinancing Indebtedness");
provided, however, that (A) the maximum principal amount of the Refinancing
Indebtedness permitted under this clause (x) shall not exceed the maximum
principal amount outstanding (or, in the case of clause (ii) above, available)
and accrued interest of the Indebtedness to be repaid, refunded or refinanced
plus the amount of reasonable fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness, (B) the maturity of any
Refinancing Indebtedness of Indebtedness other than Senior Debt shall not be
earlier than the maturity of the Indebtedness being so extended, renewed,
refunded or refinanced, and (C) with respect to any Refinancing Indebtedness
of Indebtedness other than Senior Debt, such Refinancing Indebtedness shall
rank no more senior, and shall be at least as subordinated, in right of
payment to the Notes as the Indebtedness being so extended, renewed, refunded
or refinanced. Notwithstanding anything in the foregoing to the contrary, the
Company will not permit any Subsidiary to, directly or indirectly, create,
incur, issue, assume or guaranty directly or indirectly any Indebtedness
except for Indebtedness permitted by clauses (i), (ii), (iv), (v), (vii) and
(viii), Indebtedness permitted by clause (ix) to the extent incurred in
connection with an acquisition and Refinancing Indebtedness of Indebtedness
permitted by any of such clauses subject to clauses (A) through (C) of the
proviso in clause (x). Notwithstanding anything in the foregoing to the
contrary, the Company may permit any Subsidiary to create, incur or assume (a)
Indebtedness incurred to purchase, or to finance the purchase of, fixed or
capital assets, including, without limitation, the deferred purchase price of
fixed or capital assets; provided that such Indebtedness is secured only as
permitted under "--Limitation on Liens" below; and (b) Indebtedness incurred
in connection with Capital Lease Obligations, provided that such Indebtedness
is secured only as permitted under "--Limitation on Liens" below.
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Limitation on Restricted Payments. The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Company's or any of its
Subsidiaries' capital stock or other Equity Interests, other than dividends or
distributions payable in Equity Interests of the Company or its Subsidiaries
and dividends or distributions payable to the Company or another Subsidiary of
the Company; (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any Subsidiary or any other Affiliate
of the Company, other than any such Equity Interests owned by the Company or
any of its Subsidiaries (except as permitted in clause (iv) below);
(iii) voluntarily prepay, purchase, redeem or otherwise acquire or retire for
value any Indebtedness of the Company or any of its Subsidiaries (other than
any Indebtedness of the Company or any of its Subsidiaries to the Company or
another Subsidiary) that is subordinated to the Notes prior to the scheduled
maturity payments, scheduled sinking fund payments or similar mandatory
requirements provided for pursuant to the terms of such Indebtedness other
than as specifically permitted by the terms of the Indenture or in connection
with any refinancing thereof permitted by the terms of the Indenture; or (iv)
make any Investment in any Affiliate of the Company other than a Subsidiary or
a person which will become a Subsidiary as a result of any such Investment
(all of the foregoing dividends, distributions, purchases, redemptions or
other acquisitions, retirements, prepayments or Investments set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), if at the time of such Restricted Payment: (i) a Default or Event
of Default shall have occurred and be continuing or shall occur as a
consequence thereof; or (ii) the Company shall not be able to incur at least
$1.00 of additional Indebtedness pursuant to the limitation on additional
Indebtedness provisions set forth in the Indenture (as described above); or
(iii) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date hereof, exceeds the sum of (x) 50% of
the amount of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
immediately after the date of the Indenture to the end of the Company's most
recently ended quarter at the time of such Restricted Payment (or, if
Consolidated Net Income for such period is negative, 100% of such accumulated
amount) plus (y) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale after the date of this Indenture of capital
stock of the Company (other than (i) the Company's Series B Preferred Stock,
(ii) Redeemable Capital Stock or Exchangeable Stock and (iii) capital stock
issued or sold to a Subsidiary of the Company) or any Indebtedness or other
security convertible into or exercisable for any such capital stock (other
than Redeemable Capital Stock or Exchangeable Stock) that has been so
converted or exercised, the sum of (x) and (y) hereinafter referred to as the
"Earned Amount"; provided, however, that if the amount of Investments made
pursuant to clause (v) below exceeds $5.0 million, the Company may not, and
may not permit any Subsidiary to, make any Restricted Payment (other than (i)
dividends on the Company's Series B Preferred Stock and the Company's Series C
Preferred Stock, in an aggregate amount not to exceed $2.125 million in any
fiscal year and (ii) other Restricted Payments in the discretion of the
Company in an aggregate amount not to exceed $1.0 million in any fiscal year)
unless the Earned Amount (less Restricted Payments made to such date) equals
the amount of Investments made pursuant to clause (v) below in excess of $5.0
million. Notwithstanding the foregoing, the requirement that the Company be
able to incur at least $1.00 of additional Indebtedness pursuant to the
limitation on additional Indebtedness provisions in the Indenture will not
apply to the Company's ability to make Restricted Payments in the form of
dividends on the Series B Preferred Stock and the Series C Preferred Stock.
Notwithstanding anything to the contrary contained herein, the provisions of
this section shall not prohibit the following (none of which will, unless
otherwise indicated, be deemed Restricted Payments for purposes of reducing
the amount that would be available for Restricted Payments under the test
described in the immediately preceding sentence): (i) the payment of cash
dividends on the Company's Series B Preferred Stock and the Company's Series C
Preferred Stock in an aggregate amount not to exceed $2.125 million in any
fiscal year, provided, however, that such express permission will terminate as
of the end of the fiscal quarter during which the Earned Amount first equals
$10.0 million; (ii) the payment of other Restricted Payments in the discretion
of the Company in an aggregate amount not to exceed $1.0 million in any fiscal
year, provided, however, that such express permission will terminate as of the
end of the fiscal quarter during which the Earned Amount first equals $10.0
million; (iii) the retirement of any shares of the Company's capital stock in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other shares of
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the Company's capital stock; provided that the retirement of any shares of
capital stock out of the net cash proceeds of the substantially concurrent
sale of other shares of the Company's capital stock pursuant to this clause
(iii) shall reduce the amount that would otherwise be available for Restricted
Payments under the test described in the immediately preceding sentence; (iv)
repurchases and redemptions of the Convertible Subordinated Debentures
required pursuant to or to be applied to the mandatory redemption provisions
of the Convertible Subordinated Debentures as in effect on the date of the
Indenture; provided that any such redemption or repurchase is consummated
during the 12-month period immediately preceding the date on which the next
such redemption or repurchase becomes mandatory; or (v) Investments in
Affiliates in an aggregate amount up to $20.0 million.
Limitation on Dividend and Other Payment Restrictions Affecting Company
Subsidiaries; Limitation on Preferred Stock of Subsidiaries. The Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create or otherwise cause to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary (i) to
pay dividends or make any other distribution on its capital stock or any other
interest or participation in, or measured by, its profits, owned by the
Company or a Subsidiary of the Company or pay any Indebtedness owed to the
Company or any Subsidiary of the Company, (ii) to make loans or advances to
the Company or any Subsidiary of the Company or (iii) to transfer any of its
property or assets to the Company or any Subsidiary of the Company, except for
such encumbrances or restrictions existing under or by reason of (a)
applicable law; (b) the Indenture and the Notes; (c) provisions restricting
the assignability of contracts in the ordinary course of business; (d)
customary lease provisions restricting subletting or assignment of any
leasehold interest; (e) any instrument governing Indebtedness of a Person
acquired by the Company or any Subsidiary of the Company at the time of such
acquisition (but not in connection with such acquisition); (f) any
Indebtedness or other contractual obligation of the Company or any of its
Subsidiaries existing on the date of the Indenture; or (g) with respect to
item (e) and item (f), any amendment, modification, renewal, extension,
replacement, refinancing or refunding thereof; provided that the restrictions
contained in any such amendment, modification, renewal, extension,
replacement, refinancing or refunding are not less favorable in any material
respect to the holders of the Notes.
The Company shall not permit any Subsidiary to issue, directly or
indirectly, any preferred stock, other than to the Company or any other
Subsidiary.
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur or assume any Lien of any kind upon any of its
property or assets, now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, without
in any case effectively providing, concurrently with the creation, incurrence
or assumption of such Lien, that (x) in the case of any Lien securing
Indebtedness that is subordinate in right of payment to the Notes, the Notes
outstanding shall be secured by a Lien on such property, assets or proceeds
that is senior in priority to, and for the same period of time as, such Lien
and (y) in the case of any other Lien, the Notes outstanding shall be secured
equally and ratably with (or prior to), and for the same period of time as,
the Indebtedness secured by the Lien; provided, however, that the foregoing
restrictions shall not apply to: (i) any Lien existing on the date hereof
securing Indebtedness and any Lien securing Senior Debt; (ii) Liens on any
property or asset acquired by the Company or a Subsidiary which are in
existence on the date of acquisition of such property or are incurred in
connection with such acquisition, including purchase money Liens, and, in the
case of a person which becomes a Subsidiary, Liens on its property or capital
stock in existence on the date such person becomes a Subsidiary; (iii) Liens
on any property or asset acquired by the Company or any of its Subsidiaries in
favor of the seller of such property or asset or construction mortgages on
property created within six months after the acquisition, construction or
improvement of such property by the Company or a Subsidiary to secure the
purchase price or other obligations of the Company to the sellers of such
property or asset or the construction cost or improvement cost of only such
property in an amount up to the total cost of such property, construction or
improvement; provided that such Lien does not extend to or cover or include
any other property or assets of the Company or any of its Subsidiaries; (iv)
Liens to secure Indebtedness of a Subsidiary to the Company or to another
Subsidiary; (v) Permitted Liens; (vi) Liens other than those set forth above
provided that the aggregate amount of outstanding
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Indebtedness secured by such other Liens shall not exceed $2.0 million at any
one time; and (vii) any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing clauses (i) through (vi);
provided that any Lien so extended, renewed or replaced shall be no more
restrictive in any material respect or extend to or cover or include any other
property or assets of the Company and its Subsidiaries.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
suffer to exist 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 or the entering into of any agreement, contract,
understanding, loan or guarantee) with or for the benefit of any Affiliate
(other than a wholly-owned Subsidiary) of the Company except for (i)
transactions the terms of which are at least as favorable as the terms that
could be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's length basis between unaffiliated
parties; provided that, with respect to any transaction or series of
transactions involving aggregate payments in excess of $3.0 million, the
Company delivers an officer's certificate to the Trustee certifying that such
transaction or transactions (x) complies with this clause (i) and (y) has
received the approval of a majority of the directors of the Board of Directors
of the Company that are not officers of the Company and otherwise have no
interest in the transaction being approved (the "Disinterested Directors"),
(ii) transactions the terms of which are not at least as favorable as the
terms that could be obtained by the Company or such Subsidiary, as the case
may be, in a comparable transaction made on an arm's length basis between
unaffiliated parties; provided that, with respect to any transaction or series
of transactions involving aggregate payments in excess of $1.0 million, the
Company delivers an officer's certificate to the Trustee certifying that such
transaction or transactions has received the approval of a majority of the
Disinterested Directors, (iii) transactions permitted by the provisions of the
Indenture described above under clause (v) of the second paragraph of
"Limitation on Restricted Payments" and (iv) payments to employees or
consultants for services rendered in the ordinary course of business.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Subsidiaries to, sell, lease, convey or otherwise dispose of in any
transaction or related series of transactions any of its assets or property
(including the stock of any Subsidiary) with a value of $3.0 million or
greater (including by way of a sale-and-leaseback) (an "Asset Sale") other
than to the Company or a Subsidiary of the Company, except that: (i) the
Company and its Subsidiaries may sell inventory and assets or property in the
ordinary course of business; (ii) the Company and its Subsidiaries may sell
property or assets at not less than fair market value thereof provided that
(a) in cases other than an Asset Sale of discontinued operations of the
Company and the Subsidiaries classified as such on the date of the Indenture,
at least 75% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash and (b) the Company shall apply 100% of the
Net Proceeds from an Asset Sale to an offer to redeem the Notes at a purchase
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, or to repay Senior Debt or, if no Senior Debt is at the time
outstanding, other Indebtedness that is not subordinate in right of payment to
the Notes; and (iii) the Company or any Subsidiary may make dispositions of
assets in order to comply with applicable law. The Company shall have no
obligation to make an offer to redeem the Notes or to repay Indebtedness
pursuant to the foregoing clause (ii)(b) if, and to the extent that the
Company has a bona fide intent to reinvest the Net Proceeds from the Asset
Sale in another asset or business in the same or similar line of business as
the Company or its Subsidiaries existing on the date of the Indenture and
controlled by the Company or its Subsidiaries, such intent to reinvest is
evidenced by a certificate of a corporate officer of the Company to such
effect delivered to the Trustee within 30 days of the occurrence of such Asset
Sale and the Net Proceeds thereof are so reinvested within 270 days of the
receipt thereof; provided, however, that any such asset or business acquired
with the Net Proceeds shall not be encumbered by Liens securing an amount of
Indebtedness that exceeds the amount of Indebtedness secured by Liens on the
asset or property that is the subject of the Asset Sale. Notwithstanding the
foregoing, (i) the Company and its Subsidiaries may make any Investment in any
Affiliate of the Company; provided that such Investment complies with "--
Limitation on Restricted Payments" above; and provided, further, that such
Investment is first applied to reduce the amounts available for Investment
pursuant to clause (v) of the second paragraph under "--Limitation on
Restricted Payments;" and (ii) any cash or Cash Equivalents received by the
Company or any Subsidiary at the time an Investment in an Affiliate is made in
exchange for such Investment shall be applied in the manner contemplated by
this paragraph.
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Limitation on Senior Subordinated Debt. The Company will not (i) incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinated or junior in right of payment to any Senior
Debt of the Company pursuant to a written subordination agreement or by the
express terms of such Indebtedness and senior in right of payment to the
Notes; or (ii) permit any Guarantor to incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinated or junior
in right of payment to its Senior Debt pursuant to a written subordination
agreement or by the express terms of such Indebtedness and senior in right of
payment to its Guarantee.
Limitation on Lines of Business. The Company will not, and will not permit
any of its Subsidiaries to, so long as any Notes are outstanding, engage,
directly or indirectly, in any business other than those that are the same as
or similar to lines of the Company's and the Subsidiaries' businesses existing
on the date of the Indenture (including aviation and aviation related
businesses).
CERTAIN DEFINITIONS
Certain terms defined in the Indenture are summarized below.
"Affiliate" of any specified person means (i) any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person; (ii) any other person who is a director or
officer (A) of such specified person, (B) of any subsidiary of such specified
person or (C) of any person described in clause (i) above; or (iii) in
connection with any proposed transaction of the Company or any Subsidiary, any
person who, upon consummation of the transaction would be an Affiliate. A
person shall be deemed to "control" (including the correlative meanings, the
terms "controlling," "controlled by," and "under common control with") another
person if the controlling person possesses, directly or indirectly, the power
to direct or cause the direction of the management or policies of the
controlled person, whether through the ownership of voting securities, by
agreement or otherwise; provided, however, that the beneficial ownership of
10% or more of the voting securities of a person shall be deemed to be
control.
"Associate" of any specified person means any corporation or organization of
which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, any trust
or other estate in which such person has a substantial beneficial interest or
as to which such person serves as trustee or in a similar fiduciary capacity,
and any relative or spouse of such person, or any relative of such spouse, who
has the same home as such person.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) certificates of deposit or acceptances with a maturity
of 180 days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500.0 million; and (iii) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate
of the Company and is organized under the laws of any state of the United
States or the District of Columbia and rated at least A-l by Standard & Poor's
Corporation or at least P-l by Moody's Investors Service, Inc.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period plus (i) an amount
equal to any net loss realized upon the sale or other disposition of any
assets or property (other than inventory or assets or property in the ordinary
course) (to the extent such
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loss was deducted in computing Consolidated Net Income), plus (ii) any
provision for taxes based on income or profits that was deducted in computing
Consolidated Net Income and any provision for taxes utilized in computing net
loss under clause (i) hereof, plus (iii) consolidated interest expense
(including, without limitation, amounts allocated to discontinued operations,
amortization of original issue discount and non-cash interest payments, all
net payments and receipts in respect of interest rate agreements and the
interest component of capital leases), plus (iv) depreciation and amortization
(including amortization of goodwill and other intangibles) included in the
calculation of Consolidated Net Income, plus (v) any effect of accumulated
post-retirement benefit obligation as a result of FAS 106, less (vi) Net
Income from discontinued operations (to the extent included in Consolidated
Net Income), and less (vii) any gain realized upon the sale, or other
disposition of any assets or property (other than inventory or assets or
property in the ordinary course) (to the extent such gain was included in
computing Consolidated Net Income), in each case determined in accordance with
generally accepted accounting principles on a consolidated basis.
"Consolidated EBITDA Coverage Ratio" means, with respect to any person, for
a given period, the ratio of (i) Consolidated EBITDA to (ii) Consolidated
Interest Expense plus the amount of all dividend payments on any series of
preferred stock (except dividends paid or payable in shares of capital stock)
that is subject to mandatory redemption, in each case, of such person and for
such period; provided, however, that if any such calculation requires the use
of any quarter prior to the date of the Indenture, such calculation for such
quarter prior to the date of the Indenture will be made on a pro forma basis
giving effect to the sale of the Notes and the application of the net proceeds
therefrom, as if such sale had occurred at the beginning of such quarter; and
provided further, however, that such calculation shall give effect on a pro
forma basis to (x) the incurrence of any Indebtedness in connection with the
simultaneous acquisition of any person, business, property or assets and in
connection with any acquisitions consummated during such period, (y) the
application of the net proceeds of such Indebtedness and (z) the Consolidated
EBITDA generated by such acquired person, business, property or asset, in each
case on a pro forma basis giving effect to such incurrence, application of
proceeds and Consolidated EBITDA as if such acquisition had occurred at the
beginning of such four-quarter period. For purposes of the foregoing proviso,
Consolidated EBITDA generated by an acquired person, business, property or
asset shall be determined based on the actual Consolidated EBITDA generated by
such person, business, property or asset during the immediately preceding four
full fiscal quarters.
"Consolidated Interest Expense" with respect to any person, means, for any
period, the aggregate interest expense in respect of Indebtedness of such
person and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with generally accepted accounting principles,
including, without limitation, (a) all net payments and receipts in respect of
interest rate agreements, (b) the interest portion of any deferred payment
obligation, (c) the interest component of Capital Lease Obligations, (d)
amortization of debt discount and debt issuance costs, (e) capitalized
interest, (f) non-cash interest payments, (g) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (h) interest in connection with discontinued operations
and (i) interest actually paid by the Company or any of its consolidated
Subsidiaries under any guarantee of Indebtedness or other obligation of any
other person.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with generally
accepted accounting principles, provided that (i) the Net Income of any person
which is not a Subsidiary or is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid to the referent person or a Subsidiary (of which at least
80% of the capital stock having ordinary voting power for the election of
directors or other governing body of such Subsidiary is owned by the referent
person directly or indirectly through one or more Subsidiaries), (ii) the Net
Income of any person which is a Subsidiary (other than a Subsidiary of which
at least 80% of the capital stock having ordinary voting power for the
election of directors or other governing body of such Subsidiary is owned by
the referent person directly or indirectly through one or more Subsidiaries)
shall be included only to the extent of the lesser of (a) the amount of
dividends or distributions paid to the referent person or a Subsidiary (of
which at least 80% of the capital stock having ordinary voting power for the
election of directors or other governing
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body of such Subsidiary is owned by the referent person directly or indirectly
through one or more Subsidiaries), or (b) the Net Income of such person, and
(iii) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded.
"Consolidated Net Worth" of any person means the total of the amounts shown
on the balance sheet of such person and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recent fiscal quarter of such
person ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding capital stock of such person plus (ii) paid in
capital or capital surplus relating to such capital stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Capital Stock and (C) any amounts
attributable to Exchangeable Stock.
"Designated Senior Debt" means the Revolving Credit Facility and any other
Senior Debt of the Company and the Guarantors permitted under the Indenture,
the principal amount of which is $20 million or more at the time of
designation and is specifically designated by the Company or a Guarantor, as
the case may be, in the instrument evidencing such Senior Debt and in a
written instrument delivered to the Trustee.
"Equity Interests" means capital stock, or other equity interests or
warrants, options or other rights to acquire, or that are measured in relation
to, capital stock or other equity interests (but excluding any debt security
that is convertible into, or exchangeable for, capital stock).
"Exchangeable Stock" means any capital stock which is exchangeable or
convertible into another security (other than capital stock of the Company
which is neither Exchangeable Stock nor Redeemable Capital Stock) prior to the
first anniversary of the Stated Maturity of the Notes.
"Guarantee" means each of the guarantees of the Notes by the Guarantors.
"Guarantor" means each of the entities set forth on Schedule I to the
Indenture until a successor replaces it and, thereafter, means that successor,
and each other person that becomes a Guarantor pursuant to the terms of the
Indenture.
"Indebtedness" of any person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such person is responsible
or liable; (ii) all Capital Lease Obligations of such person; (iii) all
obligations of such person issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such person and all obligations
of such person under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business); (iv) all
obligations of such person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such person of a demand
for reimbursement following payment on the letter of credit); (v) the amount
of all obligations of such person with respect to the redemption, repayment or
other repurchase of any Redeemable Capital Stock (but excluding any accrued
dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other persons and all dividends of other persons for the
payment of which, in either case, such person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any agreement which has the economic effect of a guarantee; and (vii) all
obligations of the type referred to in clauses (i) through (vi) of other
persons secured by any Lien on any property or asset of such person (whether
or not such obligation is assumed by such person), the amount of such
obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured.
"Investment" in any person means any loan or advance (not including
extension of trade credit in the ordinary course) to, any acquisition of
capital stock, equity interest, obligation or other security of, or capital
contribution or other investment in, such person, whether direct or indirect.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes), other than a consignor or lessor under Section 9-408
thereof, of any jurisdiction).
"Net Income" of any person means the net income (loss) of such person,
determined in accordance with generally accepted accounting principles.
"Net Proceeds" means, with respect to any Asset Sale, the aggregate proceeds
in the form of cash or Cash Equivalents received by the Company or any of its
Subsidiaries in respect of such Asset Sale, net of the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax
sharing arrangements), net of all amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets that are
the subject of such Asset Sale and net of any reserve for adjustment in
respect of the sale price of such asset or assets required by generally
accepted accounting principles.
"Obligations" means the principal of, premium, if any, and interest on the
Notes and all other amounts due and payable under the Indenture and the Notes
and all other obligations and liabilities of the Company whether direct or
indirect, absolute or contingent, due or to become due, out of or in
connection with the Indenture and the Notes or any other documents made,
delivered or given in connection therewith, whether on account of principal,
premium, if any, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including without limitation all fees and disbursements of
counsel to the Trustee or the Holders) or otherwise.
"Permitted Liens" means: (i) Liens for taxes or assessments and similar
charges either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or the relevant Subsidiary
shall have set aside on its books adequate reserves; (ii) Liens incurred or
pledges and deposits in connection with worker's compensation, unemployment
insurance and other social security benefits, leases, appeal bonds and other
obligations of like nature, incurred by the Company or any Subsidiary in the
ordinary course of business; (iii) Liens imposed by law such as mechanics',
carriers' warehousemen's, materialmen's, suppliers' and vendors' Liens,
incurred in good faith by the Company or any Subsidiary in the ordinary course
of business; (iv) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property or minor irregularities
of title incident thereto which do not in the aggregate materially impair the
use of such property in the operation of the business of the Company or any
Subsidiary; (v) Liens of landlords or mortgages of landlords, arising solely
by operation of law, on fixtures and movable property located on premises
leased by the Company or any Subsidiary in the ordinary course of business;
(vi) judgment Liens not giving rise to an Event of Default so long as
appropriate legal proceedings which may have been duly initiated for the
review of such judgment shall not have been terminated or the period within
which such proceedings may be initiated shall not have expired; (vii) Liens
securing reimbursement obligations for commercial letters of credit that
encumber goods, or documents of title covering goods, that are purchased in
transactions for which such commercial letters of credit are issued; (viii)
Liens arising from a non-recourse sale of accounts receivable; (ix) the Lien
in effect on the date of the Indenture created under that certain operating
lease agreement, dated January 4, 1993, between General Electric Capital
Corporation and the Company; and (x) Liens arising pursuant to any order of
attachment or similar legal process arising in connection with court
proceedings, provided that the execution or other enforcement thereof does not
remain unstayed for a period of more than 30 days and the claims secured
thereby are being contested in good faith by appropriate proceedings.
"Preferred Stock" as applied to the capital stock of any corporation, means
capital stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of capital stock of any other class of such corporation.
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"Redeemable Capital Stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the first
anniversary of the final Stated Maturity of the Notes or is redeemable at the
option of the holder thereof at any time prior to such anniversary, or is
convertible into or exchangeable for debt securities at any time prior to such
anniversary.
"Revolving Credit Facility" means the Amended and Restated Credit Agreement,
dated as of May 22, 1996, among the Company, the lenders who are or may become
a party thereto, First Union Commercial Corporation, as administrative agent
and as collateral agent, and First Union National Bank of North Carolina, as
the issuing bank for letters of credit issued thereunder, as the same may be
further amended, extended, replaced, modified or supplemented from time to
time (including by the addition of Subsidiaries as borrowers thereunder) and
any refinancing thereof (whether on a term loan or revolving loan basis).
"Senior Debt" means: (A) with respect to the Company, the principal of and
interest (including post-petition interest whether or not allowable as a
claim) on, and all other amounts owing in respect of, (a) Indebtedness under
the Revolving Credit Facility, and (b) any other Indebtedness permitted to be
incurred by the Company under the terms of the Indenture, unless the
instrument creating or evidencing such Indebtedness or pursuant to which such
Indebtedness is outstanding expressly provides that such Indebtedness is not
senior in right of payment to the Notes; and (B) with respect to any
Guarantor, the principal of and interest (including post-petition interest
whether or not allowable as a claim) on, and all other amounts owing in
respect of, (a) the Revolving Credit Facility, and (b) any other Indebtedness
permitted to be incurred by such Guarantor under the terms of the Indenture,
unless the instrument creating or evidencing such Indebtedness or pursuant to
which such Indebtedness is outstanding expressly provides that such
Indebtedness is not senior in right of payment to the Guarantee of such
Guarantor. Notwithstanding the foregoing, Senior Debt shall not include (i)
any Indebtedness that is represented by Redeemable Capital Stock, (ii) any
liability for federal, state, local, or other taxes, (iii) any Indebtedness
among or between the Company, any Subsidiary or any of their Affiliates, (iv)
any trade payables and any Indebtedness incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business or any
obligations in respect of any such Indebtedness, (v) Indebtedness of a person
that is subordinate or junior in any respect to any other Indebtedness of such
person, (vi) Indebtedness owed, due, or guaranteed on behalf of, any director,
officer or employee of the Company or any Subsidiary (including without
limitation amounts owed for compensation), (vii) Indebtedness of a person
which when incurred and without respect to any election under Section 1111(b)
of Title 11 United States Code, is without recourse to such person, (viii) the
Convertible Subordinated Debentures, which shall rank junior in right of
payment to the Notes or (ix) any Indebtedness that is incurred in violation of
the Indenture.
"Subsidiary" means any person of which at least a majority of the capital
stock having ordinary voting power for the election of directors or other
governing body of such person is beneficially owned by the Company directly or
through one or more Subsidiaries.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (a) failure to pay
principal of or premium, if any, on any Note when due; (b) failure to pay any
interest on any Note when due, which failure continues for 30 days after
notice; (c) failure to perform any covenants or agreements of the Company or
any Guarantor in the Indenture (other than a default in the performance of a
covenant or agreement which is specifically dealt with elsewhere in this
section), which continues for 30 days after written notice as provided in the
Indenture; (d) failure by the Company to comply with its obligations described
under "Merger, Consolidation or Sale of Assets" below; (e) failure by the
Company to comply with its obligations described under "Right to Require
Repurchase Upon Change of Control" above, which continues for 10 days after
notice; (f) default under (after giving effect to any applicable grace periods
or any extension of any maturity date), or the acceleration of the maturity
of, any other Indebtedness, under any instrument governing any other
Indebtedness of the Company or any Subsidiary of the Company, if the principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness with respect to which a default (after the expiration of any
applicable grace period
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or any extension of the maturity date) has occurred, or the maturity of which
has been so accelerated, exceeds $3.0 million in the aggregate; (g) failure by
the Company or any Subsidiary of the Company to pay certain final judgments
aggregating in excess of $3.0 million, which judgments are not rescinded,
annulled or stayed within 60 days after their entry by a competent tribunal;
(h) any Guarantee ceases to be in effect (other than in accordance with the
terms of the Indenture) or any Subsidiary denies or disaffirms its Guarantee
obligations; and (i) certain events in bankruptcy, insolvency or
reorganization. Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will 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, subject to certain
limitations contained in the Indenture.
If an Event of Default shall occur and be continuing, either the Trustee or
the holders of at least 25% in aggregate principal amount of the Outstanding
Notes may, and the Trustee upon request of the Holders of at least 25% in
aggregate principal amount of the Outstanding Notes shall, accelerate the
maturity of all Notes and thereupon the principal of and any accrued and
unpaid interest on the Outstanding Notes shall become due and payable
immediately; provided, that in the case of any bankruptcy, insolvency or
reorganization Event of Default, such amount shall become immediately due and
payable without any notice, declaration or other act on the part of the
Trustee or any Holder. At any time after such acceleration, but before a
judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal of and interest on Notes,
have been cured or waived as provided in the Indenture. The Holders of a
majority in aggregate principal amount of the Outstanding Notes may waive any
past default under the Indenture, except a default in the payment of
principal, premium or interest or default with respect to certain covenants
under the Indenture.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder unless (i) such Holder shall have previously
given to the Trustee written notice of a continuing Event of Default, (ii) the
Holders of at least 25% in aggregate principal amount of the Outstanding Notes
shall have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding as trustee, (iii) the Trustee shall have
failed to institute such proceeding within 60 days after the receipt of such
notice, and (iv) no direction inconsistent with such request shall have been
given to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Notes.
The Company is required to furnish to the Trustee annually a statement as to
the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. Upon becoming aware of
any default, officers of the Company are required to deliver an Officers
Certificate to the Trustee describing actions the Company proposes to take
with respect thereto.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby (a) reduce the rate or extend the interest
payment time of any Note, (b) alter the redemption provisions with respect to
the Notes, (c) reduce the principal amount of or extend the stated maturity of
any Note, (d) make any change in the provisions concerning waiver of Defaults
or Events of Default by Holders of the Notes or the rights of Holders to
receive payments of principal or interest, (e) change the place or currency of
payment of principal of, or premium or interest on, any Note, (f) impair the
right to institute suit for the enforcement of any payment on or with respect
to any Note on or after the Stated Maturity thereof, (g) adversely affect the
right to have the Notes repurchased upon a Change of Control Event, (h) modify
the subordination provisions of the Indenture in a manner adversely affecting
any Holder of the Notes or (i) reduce the principal amount of Notes the
Holders of which must consent to a modification or amendment.
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The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. Without the consent of any Holder of the Notes, the Company
and the Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption
of the Company's obligations under the Notes in the case of a permitted
merger, to comply with the Trust Indenture Act, to reflect the release or
addition of a Guarantor pursuant to the terms of the Indenture, or to make any
change that does not adversely affect the legal rights of any Holder of the
Notes.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any Subsidiary to consolidate or
merge with or into (whether or not the Company or such Subsidiary is the
surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or more
related transactions to, another corporation, person or entity unless (i)
either the Company or such Subsidiary or another Subsidiary is the surviving
person or the entity or the person (if other than the Company or such
Subsidiary or another Subsidiary) formed by or surviving any such
consolidation or merger or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the person (if other than the Company or
such Subsidiary or another Subsidiary) formed by or surviving any such
consolidation or merger or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the
obligations of the Company or such Subsidiary, as the case may be, pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee,
under the Notes and the Indenture; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) the Company (or, with respect to
such a transaction involving the Company in which the Company does not
survive, the surviving person) (A) shall have Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction
and (B) shall be permitted, by virtue of its Consolidated EBITDA Coverage
Ratio for the immediately preceding four fiscal quarters to incur at least
$1.00 of additional Indebtedness; provided, however, that for purposes of this
provision, the Consolidated EBITDA Coverage Ratio shall be calculated after
giving pro forma effect to such consolidation or merger, or such sale,
assignment, transfer, lease, conveyance or other disposition, as if the same
had occurred at the beginning of the applicable four-quarter period.
Notwithstanding anything in the foregoing to the contrary, any transaction
involving the disposition of the assets or property of any Subsidiary which
complies with "--Limitation on Asset Sales" above shall not be prohibited by
this paragraph.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the
covenants described under "Certain Covenants" and "Right to Require Repurchase
Upon Change of Control" above and the subordination provisions of the
Indenture ("covenant defeasance"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant
defeasance option. If the Company exercises its legal defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
with respect thereto. If the Company exercises its covenant defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
specified in clause (c) or (e) of the first paragraph of "Events of Default"
above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with
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certain other conditions, including delivery to the Trustee of an opinion of
counsel to the effect that holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been in the case if such defeasance
had not occurred (and, in the case of legal defeasance only, such opinion of
counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law).
CONCERNING THE TRUSTEE
The Trustee under the Indenture may at times be a depository for funds of,
make loans to, or perform services for, the Company and its Subsidiaries in
the normal course of its business. The Indenture will not preclude the Trustee
from enforcing its rights as a creditor.
The Holders of a majority in principal amount of the then Outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture will provide that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in
the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the Holders of the Notes, unless they shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
The Trustee, or its affiliates, participate on a regular basis in various
banking transactions for the Company.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer
or exchange any Note selected for redemption. Also, the Registrar is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed or an interest payment date.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to: UNC Incorporated, 175 Admiral Cochrane Drive,
Annapolis, Maryland 21401-7394, Attention: Gregory M. Bubb, Vice President and
Treasurer.
GOVERNING LAW
The Indenture and the Notes shall be deemed to be contracts made under the
laws of the State of New York, and for all purposes shall be construed in
accordance with the laws of the State of New York.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal United States federal
income tax consequences of the exchange of Old Notes for New Notes (the
"Exchange") and of the ownership and disposition of the New Notes to initial
beneficial owners of the Notes who are U.S. Holders (as defined below), as
well as, the principal U.S. federal income and estate tax consequences of the
Exchange and of the ownership and disposition of the New Notes to initial
beneficial owners of the Notes who are Non-U.S. Holders (as defined below).
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder and administrative and judicial
interpretations
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thereof, all as in effect or proposed on the date hereof and all of which are
subject to change, possibly with retroactive effect, or different
interpretations. It does not include any description of the tax laws of any
state, local or foreign government that may be applicable to the Exchange or
to the ownership and disposition of the New Notes. This discussion does not
address the tax consequences to subsequent beneficial owners of the New Notes,
and is limited to beneficial owners who hold the New Notes as capital assets
within the meaning of section 1221 of the Code. This discussion also does not
address the tax consequences to Non-U.S. Holders that are subject to U.S.
federal income or estate tax on a net basis on income realized with respect to
a New Note because such income is effectively connected with the conduct of a
U.S. trade or business. Such holders are generally taxed in a similar manner
to U.S. Holders; however, certain special rules apply. Moreover, this
discussion is for general information only, and does not address all of the
U.S. federal income tax consequences that may be relevant to particular
initial beneficial owners in light of their personal circumstances, or to
certain types of initial beneficial owners (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities
or persons who have hedged the risk of owning a New Note).
HOLDERS EXCHANGING OLD NOTES FOR NEW NOTES ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE AND
OF THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE APPLICABILITY
OF ANY FEDERAL TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY
CHANGES (OR PROPOSED CHANGES) IN APPLICABLE TAX LAWS OR INTERPRETATIONS
THEREOF.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest
In general, interest on a New Note will be taxable to a beneficial owner who
or which is (i) a citizen or resident of the United States, (ii) a corporation
created or organized under the laws of the United States or any State thereof
(including the District of Columbia) or (iii) a person otherwise subject to
U.S. federal income taxation on its worldwide income (a "U.S. Holder") as
ordinary income at the time it is (actually or constructively) received or
accrued, depending on the beneficial owner's method of accounting for U.S.
federal income tax purposes.
Registered Exchange Offer
The exchange of Old Notes for the New Notes pursuant to this Exchange Offer
will not be treated as an "exchange" for U.S. federal income tax purposes
because the New Notes will not be considered to differ materially in kind or
extent from the Old Notes. As a result, there will be no U.S. federal income
tax consequences to beneficial owners exchanging the Old Notes for the New
Notes pursuant to the Exchange Offer.
Sale, Exchange or Retirement of the New Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a New Note, a U.S. Holder will generally recognize taxable gain
or loss equal to the difference between the sum of cash plus the fair market
value of all other property received on such disposition (except to the extent
such cash or property is attributable to accrued but unpaid interest, which
will be taxable as ordinary income) and such beneficial owner's adjusted tax
basis in the New Note. A U.S. Holder's adjusted tax basis in a New Note
generally will equal the cost of the Old Note to such holder, less any
principal payments received by such holder.
Gain or loss recognized on the disposition of a New Note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the
time of such disposition, the U.S. Holder's holding period for the New Note
(which would include such holder's holding period in the Old Note exchanged
therefore) is more than one year.
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U.S. TAXATION OF NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(i) payments of principal and interest on the New Notes by the Company or
any agent of the Company to any beneficial owner of a New Note that is not
a U.S. Holder (a "Non-U.S. Holder") will not be subject to U.S. federal
withholding tax, provided that in the case of interest, either (a) (1) the
Non-U.S. Holder does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of the Company
entitled to vote, (2) the Non-U.S. Holder is not a controlled foreign
corporation that is related to the Company through stock ownership, (3) the
Non-U.S. Holder is not a bank described in Section 881 (c)(3)(A) of the
Code, and (4) either (A) the beneficial owner of the New Notes certifies to
the Company or its agent on Internal Revenue Service ("IRS") Form W-8 (or a
suitable substitute form), under penalties of perjury, that it is not a
"U.S. person" (as defined in the Code) and provides its name and address,
or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "financial institution") and holds the New Notes on
behalf of the beneficial owner certifies to the Company or its agent under
penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof or (b) the
Non-U.S. Holder is entitled to the benefits of an income tax treaty under
which interest on the New Notes is exempt from U.S. withholding tax and
provides a properly executed IRS Form 1001 claiming the exemption;
(ii) the exchange of Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for U.S. federal income tax
purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. As a result, there will be no U.S.
federal income tax consequences to beneficial owners exchanging the Old
Notes for the New Notes pursuant to the Exchange Offer;
(iii) a Non-U.S. Holder will not be subject to U.S. federal withholding
tax on gain realized on the sale, exchange or redemption of a New Note,
unless the Non-U.S. Holder is an individual who is present in the United
States for a period or periods aggregating 183 or more days in the taxable
year of the disposition and certain other conditions are met; and
(iv) New Notes held at the time of death (or theretofore transferred
subject to certain retained rights or powers) by an individual who at the
time of death is a Non-U.S. Holder will not be included in such holder's
gross estate for U.S. federal estate tax purposes provided that the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote or hold the New Notes in connection with a U.S. trade or business.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the New Notes are outstanding, the Company
is required to provide the IRS with certain information, including the
beneficial owner's name, address and taxpayer identification number, the
aggregate amount of interest paid to that beneficial owner during the calendar
year and the amount of tax withheld, if any. This obligation, however, does
not apply with respect to certain payments to U.S. Holders, including
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts, provided that they establish
entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the New Notes. This backup withholding is not an
additional tax and may be credited against the U.S. Holder's U.S. federal
income tax liability, provided that the required information is furnished to
the IRS.
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Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a New Note if such holder
has provided the required certification that it is not a U.S. person as set
forth in clause (4) in the first paragraph under "U.S. Taxation of Non-U.S.
Holders", or has otherwise established an exemption (provided that neither the
Company nor its agent has actual knowledge that the holder is a U.S. person or
that the conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a New Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes or a foreign person 50
percent or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, information reporting may
apply to such payments. Payment of the proceeds from the sale of a New Note to
or through the U.S. office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner certifies as to its
taxpayer identification number or otherwise establishes an exemption from
information reporting and backup withholding.
PROPOSED REGULATIONS
The IRS recently issued proposed regulations relating to withholding, backup
withholding and information reporting that, if adopted in their current form,
would, among other things, unify current certification procedures and forms
and clarify certain reliance standards. The regulations are proposed to be
effective for payments made after December 31, 1997 but provide that
certificates issued on or before the date that is 60 days after the proposed
regulations are made final will continue to be valid until they expire. The
proposed regulations, however, may be subject to change prior to their
adoption in final form.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to
participate in the distribution of such New Notes. Accordingly, any holder who
is an affiliate of the Company or any holder using the Exchange Offer to
participate in a distribution of the New Notes will not be able to rely on
such interpretations by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a resale transaction. Notwithstanding the foregoing, each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with any resale of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180
days from the date of this Prospectus, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. The Company has not entered into any arrangement or
understanding with any person to distribute the New Notes to be received in
the Exchange Offer.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. 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
95
<PAGE>
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-dealer that participates in a distribution of
such 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
commission 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 as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date of this Prospectus, the Company will
send a reasonable number of additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company will pay all the
expenses incident to the Exchange Offer (which shall not include the expenses
of any holder in connection with resales of the New Notes). The Company has
agreed to indemnify the Initial Purchasers and the holders of the Notes
(including any broker-dealers participating in the Exchange Offer) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the issuance of the New Notes will be
passed upon for the Company by Miles & Stockbridge, a Professional
Corporation, Baltimore, Maryland.
EXPERT
The consolidated balance sheets of UNC Incorporated and Subsidiaries as of
December 31, 1995 and 1994, and the consolidated statements of earnings, cash
flows, and changes in stockholders' equity for each of the two years in the
period ended December 31, 1995 and the statements of earnings and cash flows
of certain of the hangar facilities (as described in Note 1 to the financial
statements "the Hangars") of AlliedSignal Engines-Hangar Operations, a
division of AlliedSignal Inc., for the six month period ended June 30, 1994
and the year ended December 31, 1993, included elsewhere in this registration
statement, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The consolidated financial statements of UNC Incorporated for the year ended
December 31, 1993, included in this Prospectus, have been included herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein and
upon the authority of said firm as experts in accounting and auditing.
Following discussions between KPMG Peat Marwick LLP and representatives of the
Company, the parties determined that KPMG Peat Marwick LLP would cease to
serve as the Company's auditors effective February 22, 1994. The Company's
audit committee was advised of these discussions and approved of this action.
In connection with the audit of the Company's consolidated financial
statements for each of the fiscal years ended December 31, 1993 and 1992 and
in the subsequent interim period through February 22, 1994, there were no
disagreements between the Company and KPMG Peat Marwick LLP on any matter of
accounting principles or practices, financial statement disclosures or
auditing scope or procedures, which disagreements, if not resolved to KPMG
Peat Marwick's satisfaction, would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement. The
audit report of KPMG Peat Marwick LLP on the consolidated financial statements
of the Company and its subsidiaries as of and for the years ended December 31,
1993 and 1992, did not contain any adverse opinion or disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope or accounting
principles, except that, as required with respect to changes in accounting
principles, the 1993 audit report made reference to
96
<PAGE>
the Company's adoption in 1993 of the provisions of the Financial Accounting
Standards Board's Statement on Financial Accounting Standards No. 109,
Accounting for Income Taxes.
The consolidated financial statements of Garrett Aviation Services and
subsidiary as of December 31, 1995 and 1994, and for the year ended December
31, 1995 and the period July 1, 1994 to December 31, 1994 appearing or
incorporated by reference in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein and in the
Registration Statement or incorporated by reference. Such consolidated
financial statements have been included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
97
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF UNC INCORPORATED AND SUBSIDIARIES
Reports of Independent Accountants........................................ F-2
Consolidated Statements of Earnings for the years ended December 31, 1995,
1994 and 1993............................................................ F-4
Consolidated Balance Sheets as of December 31, 1995 and 1994.............. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993...................................................... F-7
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993................................... F-8
Notes to Consolidated Financial Statements................................ F-9
CONSOLIDATED FINANCIAL STATEMENTS OF UNC INCORPORATED AND SUBSIDIARIES
(UNAUDITED)
Consolidated Statements of Earnings for the six months ended June 30, 1996
and 1995................................................................. F-34
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995..... F-35
Consolidated Statements of Cash Flows for the six months ended June 30,
1996 and 1995............................................................ F-36
Notes to Consolidated Financial Statements................................ F-37
CONSOLIDATED FINANCIAL STATEMENTS OF GARRETT AVIATION SERVICES
Report of Independent Auditors............................................ F-46
Consolidated Balance Sheets as of March 31, 1996 (unaudited) and December
31, 1995 and 1994........................................................ F-47
Consolidated Statements of Income for the unaudited three month periods
ended March 31, 1996 and 1995, the year ended December 31, 1995 and the
period from July 1, 1994 (date of inception) to December 31, 1994........ F-48
Consolidated Statements of Partners' Capital.............................. F-49
Consolidated Statements of Cash Flows..................................... F-50
Notes to Consolidated Financial Statements................................ F-51
FINANCIAL STATEMENTS OF ALLIEDSIGNAL ENGINES-HANGAR OPERATIONS
Report of Independent Accountants......................................... F-59
Statements of Earnings for the six month period ended June 30, 1994 and
the year ended
December 31, 1993........................................................ F-60
Statements of Cash Flows for the six month period ended June 30, 1994 and
the year ended
December 31, 1993........................................................ F-61
Notes to Financial Statements............................................. F-62
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
UNC Incorporated:
We have audited the accompanying consolidated balance sheets of UNC
Incorporated and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, cash flows and changes in
shareholders' equity for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of UNC
Incorporated and Subsidiaries as of December 31, 1993, and for the year then
ended, were audited by other auditors, whose report, dated February 9, 1994,
expressed an unqualified opinion on those statements.
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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UNC
Incorporated and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
February 26, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
UNC Incorporated:
We have audited the accompanying consolidated statements of earnings,
changes in shareholders' equity and cash flows of UNC Incorporated and
Subsidiaries for the year ended December 31, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the
cash flows of UNC Incorporated and Subsidiaries for the year ended December
31, 1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 9, 1994
F-3
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales and operating revenues.................... $536,243 $525,833 $438,293
Costs and expenses
Costs and operating expenses.................. 456,935 444,375 360,869
Selling, general and administrative expenses.. 56,952 69,768 53,987
Restructuring charge.......................... 58,706
Multi-employer pension plan withdrawal
charge....................................... 14,000
-------- -------- --------
513,887 586,849 414,856
-------- -------- --------
Operating income (loss)......................... 22,356 (61,016) 23,437
Other income (expense)
Interest expense.............................. (19,514) (18,549) (13,865)
Other......................................... 116 (1,850) (1,821)
-------- -------- --------
(19,398) (20,399) (15,686)
-------- -------- --------
Earnings (loss) before income taxes and
extraordinary item............................. 2,958 (81,415) 7,751
Income tax benefit (provision).................. (1,035) 13,483 3,843
-------- -------- --------
Earnings (loss) before extraordinary item....... 1,923 (67,932) 11,594
Extraordinary item--early retirement of debt,
net of income taxes............................ (532)
-------- -------- --------
Net earnings (loss)............................. $ 1,923 $(67,932) $ 11,062
======== ======== ========
Earnings (loss) per share
Earnings (loss) before extraordinary item..... $ .11 $ (3.89) $ .67
Extraordinary item............................ (.03)
-------- -------- --------
Net earnings (loss)........................... $ .11 $ (3.89) $ .64
======== ======== ========
</TABLE>
F-4
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash....................................................... $ 1,671 $ 2,619
Accounts receivable, less allowance for doubtful accounts
of $3,185 and $3,706, respectively........................ 102,462 89,279
Unbilled costs and accrued profits on contracts in
progress.................................................. 11,128 14,097
Inventories................................................ 91,130 85,110
Assets held for sale....................................... 5,099 49,174
Other...................................................... 10,156 8,168
-------- --------
Total current assets......................................... 221,646 248,447
Assets held for sale--noncurrent............................. 12,796 2,300
Property, plant and equipment, at cost
Land, buildings and improvements........................... 22,087 22,081
Machinery and equipment.................................... 60,362 51,397
-------- --------
82,449 73,478
Less accumulated depreciation and amortization............... 34,381 28,789
-------- --------
Net property, plant and equipment............................ 48,068 44,689
Cost in excess of net assets of acquired companies, less
accumulated amortization of $28,175 and $23,397,
respectively................................................ 136,298 140,128
Other noncurrent assets...................................... 27,453 32,470
-------- --------
Total assets................................................. $446,261 $468,034
======== ========
</TABLE>
F-5
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt........................ $ 1,748 $ 42,971
Accounts payable......................................... 39,614 38,918
Income taxes............................................. 1,392 3,521
Accruals and other current liabilities................... 54,794 62,863
-------- --------
Total current liabilities.................................. 97,548 148,273
Long-term debt, less current portion
Revolving Senior Bank Debt, interest rate at December 31,
1995, 8.71% due 2000.................................... 37,181
9 1/8% Senior Notes due 2003............................. 100,000 100,000
7 1/2% Convertible Subordinated Debentures due 2006...... 64,800 69,000
Other.................................................... 1,352 2,352
-------- --------
Total long-term debt, less current portion................. 203,333 171,352
Other noncurrent liabilities............................... 45,228 49,512
-------- --------
Total liabilities.......................................... 346,109 369,137
Shareholders' equity
Series preferred stock, par value $1 per share; Autho-
rized 12,000,000 shares; 250,000 designated Series A Ju-
nior Participating Preferred stock, none issued
Common stock, par value $0.20 per share; Authorized
50,000,000 shares, issued 18,393,868 and 18,242,134
shares, respectively.................................... 3,679 3,648
Additional paid-in capital............................... 123,717 122,940
Retained earnings (deficit).............................. (15,450) (17,373)
-------- --------
111,946 109,215
Less
Treasury stock, at cost (700,000 shares)................. 8,750 8,750
Minimum pension liability adjustment..................... 1,801 540
Unearned compensation--restricted stock.................. 1,243 1,028
-------- --------
Total shareholders' equity................................. 100,152 98,897
-------- --------
Total liabilities and shareholders' equity................. $446,261 $468,034
======== ========
</TABLE>
F-6
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................ $ 1,923 $(67,932) $ 11,062
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization................ 12,491 12,727 11,477
Provision for pension withdrawal liability... 14,000
Provision for restructuring.................. 58,706
Provision for losses on accounts receivable.. 1,637 4,296 1,602
Income from leveraged lease.................. (2,475) (1,263)
Deferred income taxes (benefit).............. (28) (14,587) (5,258)
Gain on disposition of assets and other...... (52) (350) (583)
Extraordinary loss on retirement of debt..... 625
Changes in assets and liabilities, net of effect
of acquisitions and divestitures:
(Increase) decrease in accounts receivable..... (15,355) (4,228) 33
(Increase) decrease in unbilled costs and
accrued profits on contracts in progress...... 2,969 14,065 (8,974)
(Increase) in inventories...................... (4,974) (19,665) (9,082)
(Increase) decrease in other current assets.... 484 5,688 (7,111)
(Increase) decrease in other noncurrent
assets........................................ (2,538) 389 (640)
Increase (decrease) in accounts payable........ 709 341 (3,408)
Increase (decrease) in accruals and other
current liabilities........................... (5,816) (10,255) 5,855
Increase (decrease) in income taxes payable.... (2,660) 1,459 1,195
(Decrease) in other noncurrent liabilities..... (1,666) (6,559) (1,446)
(Decrease) in discontinued operations
liabilities................................... (4,936) (5,115) (5,721)
-------- -------- --------
Total adjustments.............................. (19,735) 48,437 (22,699)
-------- -------- --------
Net cash provided (used) by operating
activities.................................. (17,812) (19,495) (11,637)
-------- -------- --------
Cash flows from investing activities:
Net proceeds from sale of assets............... 33,600 11,713 10,843
Additions to property, plant and equipment..... (6,767) (10,299) (11,250)
Acquisition of subsidiaries, net of cash
acquired...................................... (947) (4,911) (48,477)
Proceeds from sale of leveraged lease.......... 6,758
Investment in leveraged lease.................. (2,697)
Other transactions, net........................ 39 1
-------- -------- --------
Net cash provided (used) by investing
activities.................................. 25,886 3,300 (51,580)
-------- -------- --------
Cash flows from financing activities:
Additions to debt.............................. 382,005 201,085 228,632
Reductions in debt............................. (391,247) (184,045) (265,966)
Issuance of 9 1/8% Senior Notes................ 100,000
Exercise of stock options...................... 220 280 77
-------- -------- --------
Net cash provided (used) by financing
activities.................................. (9,022) 17,320 62,743
-------- -------- --------
Net increase (decrease) in cash.................. (948) 1,125 (474)
Cash at beginning of year........................ 2,619 1,494 1,968
-------- -------- --------
Cash at end of year.............................. $ 1,671 $ 2,619 $ 1,494
======== ======== ========
</TABLE>
F-7
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS OTHER TOTAL
---------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 18,002,334 $3,600 $121,292 $ 39,497 $ (8,750)* $155,639
Net earnings............ 11,062 11,062
Award of restricted
stock under the
employees' stock plan.. 65,000 13 381 394
Exercise of stock
options................ 18,000 4 73 77
Minimum pension
liability adjustment... (1,345) (1,345)
Unearned compensation--
restricted stock....... (341) (341)
---------- ------ -------- -------- -------- --------
Balance at December 31,
1993................... 18,085,334 3,617 121,746 50,559 (10,436) 165,486
Net loss................ (67,932) (67,932)
Award of restricted
stock under the
employees' stock plan.. 97,000 19 926 945
Exercise of stock
options................ 59,800 12 268 280
Minimum pension
liability adjustment... 805 805
Unearned compensation--
restricted stock....... (687) (687)
---------- ------ -------- -------- -------- --------
Balance at December 31,
1994................... 18,242,134 3,648 122,940 (17,373) (10,318) 98,897
Net income.............. 1,923 1,923
Award of restricted
stock under the
employees' stock plan.. 104,534 21 567 588
Exercise of stock
options................ 47,200 10 210 220
Minimum pension
liability adjustment... (1,261) (1,261)
Unearned compensation--
restricted stock....... (215) (215)
---------- ------ -------- -------- -------- --------
Balance at December 31,
1995................... 18,393,868 $3,679 $123,717 $(15,450) $(11,794) $100,152
========== ====== ======== ======== ======== ========
</TABLE>
- --------
* Treasury Stock
F-8
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation. The accompanying financial statements include the
accounts of UNC Incorporated and its Subsidiaries ("the Company") after
elimination of all significant intercompany accounts and transactions.
(b) Long-Term Contracts. Revenues under fixed-price production contracts are
primarily recognized under the percentage-of-completion method and are
measured principally on a cost-to-cost basis. Cost estimates are reviewed
periodically as the work progresses, and adjustments are reflected in the
period in which revisions to such estimates are deemed necessary. Revenues
under fixed rate per hour service contracts are recognized as services are
performed based on actual hours incurred under the contracts. Performance
award fees incorporated in certain government contracts are recognized when
there is sufficient information to assess expected contract performance.
Provisions for estimated losses on contracts are recorded when identified.
(c) Inventories. Valuation of inventories is at the lower of cost or market,
utilizing the first-in, first-out and average cost methods.
(d) Depreciation and Amortization. The Company's property, plant and
equipment are depreciated and amortized over their estimated useful lives by
the straight-line method, using periods ranging from 10 to 30 years for
buildings and improvements and from 3 to 10 years for machinery and equipment.
(e) Cost in Excess of Net Assets of Acquired Companies. The excess of
acquisition cost over the fair value of tangible and identifiable intangible
net assets of acquired companies at date of acquisition is amortized on a
straight-line basis over periods ranging from 10 to 40 years. The Company
assesses the recoverability of cost in excess of net assets of acquired
companies by determining whether the amortization of this intangible asset
over its remaining life can be recovered through estimated future undiscounted
operating cash flows. If it is not recoverable, the carrying value of the cost
in excess of net assets of acquired companies will be reduced by the estimated
shortfall of discounted cash flows.
(f) Pension Plans and Post-retirement Benefits. Substantially all non-union
employees of the Company are covered under defined contribution plans. The
cost of these plans is a fixed percentage of the participants' eligible
compensation. In addition, the Company provides benefits to a limited number
of active and retired employees under an unfunded contributory defined benefit
post retirement health care plan. Also, the Company participates in multi-
employer defined benefit pension plans for certain active and retired union
employees. The Company's policy is to fund these benefits in accordance with
the provisions of the collective bargaining agreements.
(g) Income Taxes. Deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and credit carryforwards, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when it is "more likely than not" that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
(h) Environmental Liabilities. The Company accrues environmental costs on an
undiscounted basis when it is probable that a liability has been incurred and
the amount can be reasonably estimated. To the extent such costs are covered
by U.S. government contracts, these costs are treated as contract cost and
recognized as incurred.
(i) Earnings Per Share. The calculation of earnings per share of common
stock is based on the weighted average number of shares outstanding, assuming
the exercise of stock options where the impact is dilutive. The weighted
average number of shares of common stock outstanding for the years 1995, 1994
and 1993 were 17,666,000, 17,474,000 and 17,356,000, respectively.
F-9
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(j) Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. RESTRUCTURING
In the second quarter of 1994, the Company recorded a restructuring charge
of $58.7 million ($47 million after-tax) in connection with a strategic
program to reduce its cost structure and asset base in light of the continuing
depressed economic conditions in the aviation industry. The restructuring
charge consisted of a $21.8 million non-cash charge applicable to the
writedown of the estimated net realizable value of the assets, including $4.6
million of goodwill, associated with the sale and disposition of two business
units, the closing of a facility and the consolidation of two other plants,
and a $20.5 million provision for cost associated with the sale, closing and
consolidation of two business units and facilities, including severance and
related cost. The remaining $16.4 million restructuring charge consists of
non-cash charges of $3.0 million related to the writedown of the carrying
value of certain underutilized plant and equipment that were identified for
sale under the restructuring program and a $13.4 million writedown of the
carrying value of inventory that was identified for sale to third party
brokers and others under the restructuring program. The balance of the reserve
for future expenditures related to restructuring at December 31, 1995, was
$3.9 million.
3. ACQUISITIONS AND PROSPECTIVE ACQUISITION
On January 15, 1996, the Company entered into an agreement to acquire
substantially all of the assets and certain liabilities of Garrett Aviation
Services, a leading provider of aviation services in the business aviation
aftermarket. The purchase price is approximately $145 million which the
Company intends to finance through the issuance of $125 million of long-term
senior subordinated notes and $25 million of 8.5% cumulative convertible
Preferred Stock. In addition, borrowing under the Company's Revolving Senior
Bank Debt will be necessary to the extent the purchase price plus transaction
costs exceeds the amount of funds generated from the issuance of the notes and
Preferred Stock. The Company is currently in the process of soliciting the
holders of the 9 1/8% Senior Notes to amend certain covenants in order to
permit the borrowing of additional debt and amend the restrictions on the
payment of cash dividends to permit the payment of dividends on the Preferred
Stock. As of February 23, 1996, the Company received consent from the required
majority of note holders to amend the covenants. The acquisition is contingent
upon, among other things, receiving governmental approval under the Hart Scott
Rodino Act and financing on terms that are satisfactory to the Company. It is
anticipated that the acquisition will be completed in the latter part of April
1996. Under certain circumstances, if the acquisition is not ultimately
consummated, the Company may be required to pay a break-up fee of up to
potentially $5.0 million.
F-10
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1993, the Company acquired the entities described below, which were
accounted for by the purchase method of accounting. The results of operations
of the acquired companies are included in the Company's statement of earnings
for the periods in which they were owned by the Company.
In April 1993, the Company acquired substantially all of the assets and
technology, and assumed certain liabilities of Artex Tool Corporation and
Stockton Enterprises (collectively "Artex") for $5.2 million which was funded
through a borrowing under the Company's revolving credit agreement. Artex is
engaged in the remanufacture and repair of aircraft engine gear box housings,
wheels and other aircraft and engine parts and accessories. Following its
acquisition this operation was renamed UNC Artex. Under the terms of the
purchase agreement, the Company may be required to make additional payments of
up to $1.2 million, contingent upon Artex achieving certain profit levels
during the three year period ending May 1, 1996. The excess of the purchase
price over the estimated fair value of the tangible and identifiable
intangible net assets acquired is amortized over a period of twenty-five years
using the straight-line method. Any future amounts earned under the terms of
this agreement will be recorded as additional cost in excess of net assets of
acquired companies.
In July 1993, the Company acquired substantially all of the assets and
technology, and assumed certain liabilities of Johnson Technology ("Johnson"),
a division of Freedom Forge Corporation for $14.5 million in cash and $4
million in notes, payable in annual installments through July 1997. The cash
portion of the purchase price was funded from proceeds received from the sale
of 9 1/8% Senior Notes (see Note 7 of Notes to Consolidated Financial
Statements). Johnson provides proprietary turbine nozzle and vane
manufacturing and repairs, and specialized non-conventional machining of super
alloys such as electro-chemical deep hole drilling, laser milling, and
electro-discharge machining. Following its acquisition, this operation was
renamed UNC Johnson Technology. Under the terms of the purchase agreement, the
Company may be required to make additional payments contingent upon Johnson
achieving certain gross profit levels during a five year period ending in
September 1998 of up to $5 million of which $0.9 million was paid in 1995, and
$1.0 million in 1994. The excess of the purchase price over the estimated fair
value of the tangible and identifiable intangible net assets acquired is
amortized over a period of forty years using the straight-line method.
Contingent amounts earned under the terms of this agreement are recorded as
additional cost in excess of net assets of acquired companies.
In August 1993, the Company acquired the assets and technology and assumed
certain liabilities of All Fab, Inc. ("All Fab"), an aerostructure supplier
for a major airframe manufacturer. All Fab serves the aviation industry as a
manufacturer of major aircraft structural components and sheet metal sub-
assemblies. Following its acquisition, this operation was renamed UNC
Aerostructures, Washington. The purchase price consisted of $2.7 million in
cash and $3.1 million in notes. The notes consist of a $1.8 million note
bearing interest at 8% and a $1.3 million note bearing interest at the prime
rate plus one half of one percent, payable in variable installments through
December 1998. The excess of the purchase price over the estimated fair value
of the tangible and identifiable intangible net assets acquired is amortized
over a period of forty years using the straight-line method.
In August 1993, the Company acquired substantially all the assets and
technology, and assumed certain liabilities of Metcalf Servicing Company
("Metcalf") for $4.5 million in cash and the Company elected to retire $1.3
million of bank indebtedness of Metcalf. Metcalf serves the industrial turbine
engine market with overhauls, parts repair and contract maintenance services.
Following its acquisition, this operation was renamed UNC Metcalf Servicing,
Inc. The excess of the purchase price over the estimated fair value of the
tangible and identifiable intangible net assets acquired is amortized over a
period of twenty-five years using the straight-line method.
In October 1993, the Company acquired substantially all the assets and
assumed certain liabilities of Lear Siegler Management Services Corp. ("Lear
Siegler"). Lear Siegler provides contract services for the operation,
maintenance and repair of aircraft, land vehicles and marine vehicles for the
U.S. Department of Defense and
F-11
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the armed services of foreign governments. Following its acquisition, this
operation was renamed UNC Lear Siegler. The purchase price was $17.4 million.
The excess of the purchase price over the estimated fair value of the tangible
and identifiable intangible net assets acquired is amortized over a period of
twenty-five years using the straight-line method.
Under the terms of the earn-out provisions of agreements related to
acquisitions prior to 1993, the Company paid $3.7 million in 1994, and $3.7
million in 1993. The earn-out provisions under these agreements have expired.
4. CONTRACTS IN PROGRESS
Unbilled costs and accrued profits on production contracts in progress
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
U.S. government contracts and subcontracts:
Costs incurred and accrued profits on contracts in
progress............................................ $ 26,516 $ 14,192
Less progress billings to date....................... 21,674 7,389
-------- --------
Unbilled costs and accrued profits on contracts in
progress............................................ 4,842 6,803
Commercial contracts:
Costs incurred and accrued profits on contracts in
progress............................................ 6,286 7,294
-------- --------
Total unbilled costs and accrued profits on contracts
in progress........................................... $ 11,128 $ 14,097
======== ========
</TABLE>
Amounts billed under contracts in progress and included in accounts
receivable at December 31, 1995 were $3.1 million under U.S. government prime
and subcontracts and $2.4 million under commercial contracts. At December 31,
1994 these amounts were $3.1 million and $2.2 million, respectively.
Also, included in accounts receivable at December 31, 1995 and 1994 were
other amounts due from the U.S. government totaling $37.7 million and $42.2
million, respectively, including unbilled amounts of $14.9 million and $18.3
million in 1995 and 1994, respectively.
Unbilled amounts are recoverable from the customer upon shipment of the
product, presentation of bills or completion of the contract. The Company
believes that a substantial portion (approximately 80%) of these unbilled
amounts will be collected in 1996.
Included in accounts receivable at December 31, 1995 and 1994 is $2.0
million of cost applicable to a $3.2 million claim for equitable adjustment
filed by the Company under a contract with the U.S. government. The claim,
which includes direct costs, overhead, general and administrative costs and
profit, arises from constructive change orders on the part of the government,
defective specifications, government caused delays and other issues in
connection with a contract to provide aircraft nozzle segment assemblies to
the U.S. Air Force. The Company has been advised by outside legal counsel that
a basis for entitlement exists and that recovery of the recorded amount of the
claim is probable.
Also included in accounts receivable at December 31, 1995 and 1994 is a
claim for $630,000 which the Company believes was improperly withheld by the
U.S. government in connection with a contract to provide aircraft intermediate
level maintenance, repair and overhaul services at six Naval Air Stations. The
claim arises from the U.S. government unilaterally imposing a previously
undisclosed conversion formula to the determination of the amount earned,
contrary to contract terms. In December 1993, the Company received a
F-12
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
favorable ruling on the claim from the Armed Services Board of Contract
Appeals which overturned the government's previous position and instructed the
government to reconsider the matter. The Company believes it will prevail in
realizing the amount of the claim that has been recorded in accordance with
the terms of the contract.
5. INVENTORIES
Inventories as of December 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Component parts and materials.............................. $70,317 $61,282
Work in progress........................................... 17,436 21,161
Supplies................................................... 3,377 2,667
------- -------
$91,130 $85,110
======= =======
</TABLE>
6. ASSETS HELD FOR SALE
Assets held for sale, which are stated at their estimated net realizable
value, consist principally of real estate and improvements and inventories of
the Company's former JT8 engine overhaul business that was closed in 1994, and
certain other inventory and underutilized property and equipment that has been
identified for sale under the Company's restructuring program. Also included
in assets held for sale is real estate of the Company's discontinued minerals
business. The Company expects to recover the recorded value of these assets
over the next three years.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revolving Senior Bank Debt, interest rate at December
31, 1995, 8.71% due 2000.............................. $ 37,181
Revolving Senior Bank Debt, prime plus 1/2% due 1995... $ 40,000
9 1/8% Senior Notes due 2003........................... 100,000 100,000
7 1/2% Convertible Subordinated Debentures due 2006.... 65,431 69,000
Other.................................................. 2,469 5,323
-------- --------
205,081 214,323
Less current portion................................... 1,748 42,971
-------- --------
$203,333 $171,352
======== ========
</TABLE>
In May 1995, the Company entered into a new revolving credit agreement which
provides for a five year credit line through May 2000 with a borrowing
capacity of up to $90 million, subject to borrowing base limitations as
defined in the agreement and reduced by outstanding letters of credit. The
Company's unused availability under the credit line was $33.0 million at
December 31, 1995. Interest is payable on the borrowings at a base rate, as
defined in the agreement, or the LIBOR rate plus, in each case, an applicable
margin based
F-13
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
upon the Company's performance under certain financial ratios. The interest
rate at December 31, 1995, was 8.71%. The Company has agreed to pay an annual
commitment fee on the unused portion of the line at rates ranging from 1/2 of
1% to 1/4 of 1% dependent on meeting certain financial ratios. The revolving
credit is collateralized by the Company's accounts receivable and inventories.
The agreement contains covenants which, among other things, include provisions
for the maintenance of certain financial ratios and prohibits the payment of
cash dividends, except for cash dividends paid in connection with the senior
cumulative convertible preferred stock to be issued under the October 1995
agreement with Gildea Investment Company. See Note 9 of Notes to Consolidated
Financial Statements.
On July 29, 1993 the Company issued $100.0 million of 9 1/8% Senior Notes
due July 15, 2003. The Notes are redeemable, at the option of the Company, on
or after July 15, 1998 at declining premiums through 2000 and at their
principal amount thereafter. The debt indenture contains certain covenants
which, among other things, allow additional borrowings based on certain
financial ratios and restrict the payment of cash dividends. In connection
with the proposed acquisition of Garrett Aviation Services, the Company is in
the process of soliciting current note holders to amend certain covenants in
order to permit additional borrowings and amend the restrictions on the
payment of cash dividends. As of February 23, 1996, the Company received
consent from the required majority of note holders to amend the covenants.
The 7 1/2% Convertible Subordinated Debentures due 2006 are convertible into
shares of the Company's common stock at a conversion price of $15.40 per share
and are redeemable (subject to certain restrictions) at the option of the
Company at declining premiums through 1996 and at the principal amount
thereafter. Annual sinking fund payments of $4.2 million commence in March
1996. During 1995 the Company purchased approximately $3.6 million face amount
of debentures to satisfy, in part, the March 1996 sinking fund payment. In
January 1996, the Company purchased in the open market an additional $0.6
million of the 7 1/2% Convertible Subordinated Debentures to satisfy the
balance of the 1996 sinking fund requirement.
Included in other assets at December 31, 1995 and 1994, respectively, was
approximately $3.5 million and $3.9 million of unamortized issue costs
incurred in connection with the issuance of the 9 1/8% Senior Notes and the 7
1/2% Convertible Subordinated Debentures.
Annual maturities of long-term debt during the next five years are
$1,748,000 in 1996, $5,317,000 in 1997, $4,317,000 in 1998, $4,318,000 in 1999
and $41,381,000 in 2000.
The estimated fair values of the 7 1/2% Convertible Subordinated Debentures,
and the 9 1/8% Senior Notes, based on quoted market prices, were approximately
$58.2 million and $98.0 million, respectively, at December 31, 1995 and $53.2
million and $89.0 million, respectively, at December 31, 1994. The Company
believes that the carrying value of its remaining debt, which consists
principally of revolving credit, approximates market value based on interest
rates that are available to the Company for the issuance of debt with similar
term and maturities.
F-14
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. OTHER LIABILITIES
Accruals and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Payroll and related expenses............................ $ 28,339 $ 26,807
Pension plans........................................... 6,106 5,910
Accrued interest........................................ 5,812 6,473
Accruals related to discontinued operations............. 3,075 4,671
Accruals related to restructuring....................... 3,858 7,812
Other................................................... 7,604 11,190
-------- --------
$ 54,794 $ 62,863
======== ========
</TABLE>
The Company discontinued its minerals and offshore products and services
operations in 1984, its telecommunications operation in 1988 and its submarine
propulsion unit manufacturing operation and its environmental services
operation in 1990. In connection with these actions, the Company has
approximately $15.7 million, $12.6 million included in noncurrent liabilities,
accrued to cover the cost of certain long-term remediation activities, wind
down and final closure of certain long-term U.S. government contracts,
resolution of certain litigation and disposition of remaining properties. The
Company anticipates that these activities will be completed over the next
three years.
9. PREFERRED STOCK
In October 1995, the Company reached an agreement with Gildea Investment
Company ("Gildea") and other investors to provide up to $25 million of equity
financing on an as needed basis to assist in financing future acquisitions.
The equity investment will be in the form of a senior cumulative convertible
preferred stock ("the Preferred") issued by the Company. The Preferred will be
purchased at $100 per share with a cumulative annual dividend rate of 8.5%,
with no mandatory redemption, and will be convertible into common stock at a
price of $7 per share. The Company will have the option to pay dividends in
cash or in the form of a pay-in-kind cumulative preferred stock. Gildea has
the option to invest $10 million if a like amount of Preferred has not been
issued by the Company by April 4, 1996.
10. PREFERRED STOCK PURCHASE RIGHTS
On September 25, 1987, the Board of Directors of the Company declared a
dividend of one Preferred Share Purchase Right for each share of common stock
outstanding on October 19, 1987. Each Right entitles the holder to acquire one
one-hundredth of a share of newly created Series A Junior Participating
Preferred Stock at an exercise price of $50 per one one-hundredth of a
Preferred Share. The Rights trade with the common stock and are not
exercisable or transferable apart from the common stock until 10 days after a
person or group acquires, or announces a tender offer for 20% or more of the
Company's outstanding common stock.
If the Company is acquired in a merger or other business combination, each
Right will entitle its holder to purchase, at the Right's then-current
exercise price, a number of the acquiring company's shares having a market
value at that time of twice the Right's exercise price. In addition, if
someone acquires 20% or more of the Company's outstanding common stock, each
Right will entitle its holder (other than the acquiring person) to purchase,
at the Right's then-current exercise price, a number of the Company's common
shares having a market value of twice the Right's exercise price.
F-15
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the acquisition by someone of beneficial ownership of 20% or more
of the Company's common stock, the Rights are redeemable for $.01 per Right
either at the option of the Board of Directors or automatically in connection
with the consummation of any tender offer at a cash price per share equal to
or greater than the price approved by stockholders at a special meeting which
would be called under certain circumstances in accordance with procedures
contained in the Rights Plan. The Rights expire on October 19, 1997.
11. LITIGATION AND CONTINGENCIES
Since 1985 the former Western Union has been seeking recoupment (the
"Claim") from various providers of international telex services ("ITPs") for
interconnect charges with respect to the use of Western Union's domestic telex
network during the late 1970s and early 1980s. Among these ITPs was TRT
Communications, Inc. ("TRT"), which the Company had acquired in September
1985. As part of the Company's acquisition of TRT, the Company had received
certain representations and warranties from the seller of TRT with respect to
the Claims. In January 1995, nearly seven years after a 1988 remand from the
U.S. Court of Appeals for the District of Columbia (the "Appeals Court"),
which had vacated an earlier determination by the FCC with respect to the
Claims, the FCC determined that the Claims were appropriate. The FCC's
determination was again appealed to the Appeals Court which on February 6,
1996 rendered a judgment upholding the FCC's determination with respect to
these matters. As a result, TRT may be liable to the former Western Union for
Claims and interest of approximately $5.0 million. However, the Company sold
its interest in TRT in 1988 and, in connection therewith, the Company provided
the purchaser with certain specific indemnities. The Company has been informed
that its purchaser has in turn sold TRT to a third party with whom the Company
has no contract for indemnity. As a consequence, the Company does not believe
that it has any indemnity liability to the current owner of TRT. The Company
intends to seek a rehearing by the Appeals Court, to assert a protective claim
against the seller of TRT, and to reject any claim by the current owner of
TRT. Both the Company and its outside legal counsel believe the Company has
meritorious defenses against any claim under its indemnification agreement.
Lockheed-Martin Corporation ("Lockheed") began an action in United States
District Court of the Central District of California under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA") in
August 1994. In that action, Lockheed seeks to have owners and operators of
property situated above the San Fernando Valley aquifer contribute to the
costs incurred or to be incurred by Lockheed to clean up contaminated
groundwater constituting the aquifer. A subsidiary of the Company, Pacific
Airmotive Corporation ("PAC"), was made one of the defendants in the action.
The Company and a second subsidiary, Airwork Corporation, were added as
defendants in December 1995. Based on several series of soil tests conducted
on PAC's property and consultants' reports since approximately 1989, the
Company concluded, and continues to conclude, that there is no demonstration
that contaminants of concern identified in the groundwater by the U.S.
Environmental Protection Agency have been transmitted from the surface of
PAC's property to the underlying groundwater approximately 200 feet below
ground surface. PAC is also pursuing alternative remedies against Purex
Industries, Inc. which owned and operated the property prior to 1985. The
Company and Airwork have filed motions to dismiss the action as to them on the
ground, among others, that they did not own or operate PAC's property, or
control PAC's operations. The Company is not able to determine whether it or a
subsidiary of the Company will be held liable as a result of the Lockheed
action, or to establish a range of loss.
The Company during 1995 was involved in litigation with respect to a
promissory note issued by the Company in July 1981 in connection with the
acquisition of Normco Contractors, Inc. ("Normco"), a former subsidiary of the
Company that was discontinued in 1984 and sold in 1985. The plaintiff, a
former owner of Normco, brought action to obtain payment of $2.2 million
allegedly due under the note. The Company did not make payment on the note
because the Company believed that, under the terms of the note and the related
purchase agreement, payment was contingent upon Normco attaining certain
operating profit levels that were not
F-16
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
achieved. The plaintiff's motion for summary judgment was granted in March
1992. However, in July 1993 the appellate court reversed and remanded the case
for trial. Following trial in April 1994, a jury verdict was rendered in
plaintiff's favor for the amount of the note plus interest and attorney's
fees. The Company appealed the verdict on the grounds of prejudicial conduct
by the trial judge as well as on legal grounds that were essentially the same
as those argued in its previous successful appeal. The Appellate Court ruled
in favor of the plaintiff, and the Company paid the judgment of approximately
$3.5 million in October 1995. The Company is currently evaluating seeking
recovery of all or part of the judgment from the legal firm that represented
the Company in the 1981 acquisition of Normco.
In June 1995, the Company sold its chemical milled aircraft and engine
component business located in Weatherford, Texas, Chemical Dynamics, Inc., to
the former owner of the business. Under the terms of the agreement, the
purchaser assumed, among other things, all known environmental risks related
to the operation of the business.
The Company and a subsidiary, UNC Airwork Corporation, are defendants in
litigation commenced in New York by Energy Services, Inc. ("ESI") seeking $3.4
million in alleged contract damages relating to a proposal to provide and
install electrical generating and other related equipment for a third party.
The Company and Airwork believe they have meritorious defenses to ESI's
claims. Airwork has filed a counterclaim against ESI and an affiliate, Energy
Maintenance Corporation ("EMC") for more than $3.7 million. In December 1994,
the trial court granted Airwork's motion for partial summary judgment against
EMC, on a separate claim, in the amount of $458,000. The trial court
subsequently awarded $1.5 million of ESI's claims against the Company and
Airwork on a theory of unjust enrichment, based apparently on the opinion that
the Company, Airwork and ESI in 1992 were implementing an agreement between
Airwork and ESI's affiliate dated August 19, 1991. The Company and Airwork are
preparing for trial on Airwork's claim for more than $3.7 million, and will
appeal the trial court's award to ESI. The Company believes it is probable
that ESI and an affiliate will be found liable for Airwork's remaining claims,
and that any recovery against the Company and Airwork is not predictable.
During 1993, the State of New Mexico passed the New Mexico Mining Act
("Act"), which imposes certain reclamation obligations on owners and operators
of existing and new mining operations. The State has asserted that a number of
mines operated by the Company's subsidiary, United Nuclear Corporation
("United Nuclear"), at various times during the period 1970 through 1982 may
be covered by the Act. Regulations for compliance with the Act were issued in
1994. However, the regulations did not clarify the extent to which mines
previously operated by United Nuclear may be covered by the Act. Consequently,
it is impossible to estimate the cost of remediation or the timing and extent
of remedial action that may be required. The Company has been advised by
outside counsel that United Nuclear's defenses have merit, and it is
contesting the State's assertions.
A uranium mill and mill tailings facility of a subsidiary of the Company,
United Nuclear, located in Church Rock, New Mexico was placed on the National
Priorities List by the U.S. Environmental Protection Agency ("EPA") in 1982,
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"). EPA issued an Administrative Order in 1989
requiring remediation of ground water on or adjacent to the site that is the
same as those contained in the reclamation plan submitted to the Nuclear
Regulatory Commission ("NRC") in 1988 by United Nuclear in accordance with its
license with the NRC. United Nuclear has been remediating the site in
accordance with the Administrative Order and the NRC license and has incurred
cost for such remediation of $2.1 million, $2.2 million and $1.7 million in
1995, 1994 and 1993, respectively. The Company has accrued approximately $4.0
million in the accompanying consolidated balance sheet for the balance of
remediation required under the approved reclamation plan.
The Company's former Naval Products Division has been named under CERCLA,
along with a number of other parties, as a Potentially Responsible Party at
several waste disposal sites. In each case, the Division has
F-17
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
been named as a de minimus party. The Company believes that any cost,
estimated to be less than a total of $100,000, that may be assessed to the
Division is recoverable under its U.S. government contracts.
The Company and its subsidiaries are also parties to various other legal
actions and administrative proceedings and subject to various claims arising
in the ordinary course of business. The Company believes that the disposition
of these matters will not have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.
12. INCOME TAXES
During 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 109 (SFAS No. 109), "Accounting for Income
Taxes" which supersedes SFAS No. 96. Similar to SFAS No. 96, SFAS No. 109
retains an asset and liability approach to accounting for income taxes. This
standard also requires recognition of income tax benefits for loss
carryforwards, credit carryforwards and certain temporary differences for
which tax benefits have not previously been recorded. The tax benefits
recognized must be reduced by a valuation allowance where it is more likely
than not that the benefits may not be realized. The Company adopted SFAS No.
109 as of January 1, 1993. There was no cumulative effect of this change in
accounting for income taxes on the consolidated financial statements.
The income tax provision for continuing operations consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal: Current............................. $ 260 $ 103 $ 396
Deferred.................................. (97) (14,230) (5,664)
------- -------- --------
163 (14,127) (5,268)
State: Current............................... 803 1,001 1,019
Deferred................................... 69 (357) 406
------- -------- --------
872 644 1,425
------- -------- --------
Total tax provision (benefit)................ $ 1,035 $(13,483) $ (3,843)
======= ======== ========
</TABLE>
The tax provision for continuing operations differs from the amount computed
using the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate..... $ 1,006 $(27,681) $ 2,635
Amortization and write-off of cost in excess
of net assets of acquired companies........ 1,078 1,009 1,019
State taxes, net of federal tax benefit and
reduction of state tax accrual............. 600 425 1,238
Change in the valuation allowance for
deferred tax assets........................ (1,331) 13,692 (8,242)
Foreign sales tax benefits.................. (487) (381) (302)
Other....................................... 169 (547) (191)
------- -------- --------
Tax provision (benefit) at actual rate...... $ 1,035 $(13,483) $ (3,843)
======= ======== ========
</TABLE>
F-18
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts.................................... $ 1,070 $ 503
Inventories, principally due to additional cost
inventoried for tax purposes and financial statement
allowances........................................... 1,679 1,666
Employee benefits, principally due to accrual for
financial reporting purposes......................... 13,510 11,264
Accrual for costs of restructuring.................... 8,750 12,112
Accrual for disposal of discontinued operations....... 5,020 5,820
Net operating loss carryforward....................... 11,771 14,540
Alternative minimum tax credit carryforwards.......... 1,730 1,730
Other................................................. 5,756 4,549
Less--valuation allowance............................. (15,710) (17,041)
-------- --------
Total deferred tax assets............................... 33,576 35,143
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to basis
differences.......................................... (8,993) (8,617)
Contract income recognized for financial reporting
purposes............................................. (921) (1,232)
Intangibles........................................... (979)
Other................................................. (64) (320)
-------- --------
Total deferred tax liabilities.......................... (10,957) (10,169)
-------- --------
Net deferred tax asset.................................. $ 22,619 $ 24,974
======== ========
</TABLE>
The decrease in the deferred tax valuation allowance of $1,331,000 in 1995
was due to the realization of current income tax benefits resulting from the
reversal of temporary differences against financial statement income. The
increase in the deferred tax valuation allowance of $13,692,000 in 1994 was
due to the uncertainty of realizing the tax benefits from net operating losses
and certain tax assets generated by the 1994 restructuring provisions, the
provision for the withdrawal from a multi-employer pension plan and other one-
time charges. The net change in the valuation allowance in 1993 was a decrease
of $10,070,000 of which $2,451,000 resulted from the realization of tax
benefits of temporary differences which reversed during the year and
$7,619,000 resulted from the Company's re-evaluation of the realizability of
future income tax benefit occasioned by various events, including the
acquisition of four businesses which resulted in an adjustment to goodwill of
$1,829,000, the awarding of approximately $227,000,000 in new contracts and
the decision to withdraw from the unprofitable third-party JT8 engine overhaul
product line. The amount of deferred tax valuation allowance is determined
based upon management's evaluation of the net realizability of the future
income tax benefits, considering expiration of net operating losses,
predictability of future income, including the impact of the Company's
restructuring program, and the timing of reversal of temporary differences.
At December 31, 1995 and 1994, other current assets include net deferred tax
assets of approximately $5.7 million and $3.2 million and other noncurrent
assets include net deferred tax assets of approximately $16.9 million and
$21.7 million, respectively. Also, at December 31, 1995 and 1994, current
liabilities include income taxes payable of $1.4 million and $3.5 million,
respectively.
At December 31, 1995, the Company has net operating loss carryforwards of
$34,621,000 for income tax reporting purposes of which $8,727,000 expire in
2008, $19,576,000 expire in 2009, and $6,318,000 expire in 2010. The Company
also has net operating loss carryforwards of $29,602,000 available for
purposes of federal
F-19
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
alternative minimum tax of which $1,454,000 expire in 2008, $22,777,000 expire
in 2009 and $5,371,000 expire in 2010. At December 31, 1995, the Company has
alternative minimum tax credit carryforwards of approximately $1,730,000 which
are available to reduce future Federal regular income taxes over an indefinite
period.
In connection with an examination of the Company's federal income tax
returns for the years 1990 through 1992, the Internal Revenue Service ("IRS")
has proposed certain tax adjustments that could result in an additional tax
liability. The Company disagrees with a large majority of the proposed
adjustments and has asserted certain offsetting tax adjustments in its favor.
The Company has filed a written protest challenging the proposed adjustments
and supporting its right to the offsetting adjustments. Management and its tax
counsel are of the opinion that the issues making up most of the additional
tax liability proposed by the IRS are either not factually or legally
supportable and that the Company's offsetting adjustments are meritorious. In
addition, management is of the opinion that any additional net tax liability
that might ultimately result from the IRS audit would not have a material
adverse effect on the Company's consolidated financial condition, results of
operation or liquidity.
13. INCENTIVE COMPENSATION PLANS
The Company has stock plans, approved by the shareholders, which provide for
the granting of options and restricted stock to officers and key employees.
Options are granted at no less than fair market value on the date of grant,
become exercisable in increments, in some instances partially conditioned on
the attainment of specific performance objectives, and expire between six and
ten years from the date of grant.
The 1990 Stock Option Plan for Key Employees reserved 1,125,000 shares of
common stock, either previously unissued shares or shares held in treasury,
for issuance upon the exercise of options or as stock appreciation rights or
as restricted stock awards. The exercise of an option is conditioned upon the
holder, (i) purchasing at fair market value, within ninety days of the grant,
stock equal to twenty-five percent of the number of options granted, and (ii)
continuing as beneficial owner of all such stock through the time of exercise.
Options are granted at no less than fair market value on the date of grant,
expire in ten years and vest in five annual installments of twenty percent
each January 1 following the date of grant. The 1985 stock plan for Key
Employees terminated as of December 31, 1994, and no further options will be
granted under that plan. However, 677,820 options remain outstanding and will
be exercisable in future years in accordance with the terms of the plan.
As of December 31, 1995, officers and employees eligible under the 1985 and
1990 plans have purchased 234,000 shares of the Company's common stock in the
open market in order to qualify under the terms of these plans and held
outstanding options to purchase an additional 1,597,862 shares.
A summary of certain plan information related to stock options is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(NUMBER OF SHARES)
<S> <C> <C> <C>
Outstanding at beginning of year......... 1,912,996 1,788,896 1,735,946
Granted.................................. 150,000 423,000 159,000
Exercised................................ (47,200) (59,800) (18,000)
Expired or canceled...................... (417,934) (239,100) (88,050)
---------- ---------- ----------
Outstanding at end of year............... 1,597,862 1,912,996 1,788,896
========== ========== ==========
Exercisable at end of year............... 1,279,387 1,126,521 1,281,521
Available for grant at end of year....... 0 0 132,470
Price range of options outstanding....... $3.19-9.75 $3.19-9.75 $3.19-8.63
Exercised................................ $4.44-5.75 $3.88-6.57 $3.88-5.75
</TABLE>
F-20
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company sponsors defined contribution plans that cover substantially all
of its employees. Contributions are based upon a percentage of the employee's
compensation. The cost of these plans was $6,273,000, $4,552,000 and
$3,354,000 in 1995, 1994 and 1993, respectively.
A defined benefit plan is also maintained for a limited number of former
union personnel of an overhaul facility that the Company closed in 1994. The
cost of this plan was $98,000 in 1995, $81,000 in 1994 and $193,000 in 1993.
In connection with the restructuring program in the second quarter of 1994,
the Company recorded a curtailment loss of $460,000 as a result of the closing
of this facility and the termination of the employees who were covered under
this defined benefit plan. The projected benefit obligation and the fair value
of plan assets at December 31, 1995 were $1,568,000 and $985,000,
respectively. The weighted-average discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.25% in 1995.
The expected long-term rate of return on assets was 7.25% in 1995. Plan assets
consist principally of investments in commercial paper, marketable securities,
certificates of deposit and U.S. government obligations.
A subsidiary of the Company, UNC Airwork Corporation ("Airwork"), has been a
participating employer in a multi-employer pension plan covering its hourly
employees who are members of United Auto Workers ("UAW") Local 2315. The plan
is administered by trustees appointed by the UAW. Through December 1994,
Airwork has made contributions under the plan on the basis of a portion of its
hourly payroll based on collective bargaining, and has expensed such
contributions on a current basis. The Company's contribution to the plan, as
required by the union contract, was $383,000 in 1994, and $313,000 in 1993.
The Company has not made any payments to the plan in 1995 because it withdrew
from the plan in January 1995.
During 1994, the plan's trustees informed participating employers that the
plan's obligations were substantially underfunded, that funding deficiencies
were incurred in the previous three plan years, and that a substantial
increase in employer contributions would be required. This underfunded status
of the plan is not a result of Airwork not meeting its contractual
obligations, as Airwork has consistently complied with its funding
responsibilities in accordance with the terms of the collective bargaining
agreement. On January 31, 1995, the UAW provided participating employers with
an amendment to their respective collective bargaining agreements that would
have the effect of terminating the plan as to each employer entering into such
an amendment and, by doing so, withdrawing from the plan. Airwork entered into
such an amendment, recognizing that participating employers not withdrawing
from the plan would be liable for underfunding on an ongoing basis, that under
the circumstances most employers would withdraw from the plan, and that, as
probably the largest participating employer, Airwork's liability could be
substantial. As a result of the UAW's action, and confirming Airwork's
expectations, employers representing approximately 95% of the plan
participants withdrew from the plan on January 31, 1995.
Under the rules and regulations of the Internal Revenue Service ("IRS")
regarding multi-employer plans, all employers who participate in an
underfunded multi-employer plan and withdraw are assessed a withdrawal
liability. Payment of the withdrawal liability is made over future years while
annual funding deficiencies, if not waived by the IRS, would be paid at the
time the waiver is denied. As a result of its withdrawal from the plan,
Airwork recognized as a non-recurring expense in 1994 of its portion of the
plan's unfunded liabilities and annual funding deficiencies which it estimated
to be approximately $14.0 million. The Company is currently negotiating with
the Plan Trustees regarding annual funding payments to the plan for the
withdrawal liability and anticipates payments in an undetermined amount will
begin in 1996.
The Company also contributes to other multi-employer plans that cover
approximately 566 employees. The cost of these plans was $630,000, $591,000
and $816,000 in 1995, 1994 and 1993, respectively.
F-21
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has non-qualified unfunded supplemental executive retirement
plans covering certain officers and directors for which the Company has
purchased cost recovery life insurance. The Company is the sole owner and
beneficiary of such policies. The amount of coverage is designed to provide
sufficient revenues to recover substantially all costs of the plans if the
assumptions made regarding mortality experience, policy earnings and other
factors are realized. As of December 31, 1995 and 1994 the projected benefit
obligation was $16,231,000 and $12,972,000, respectively, and the accumulated
benefit obligation was $15,883,000 and $12,640,000, respectively, which is
included in other noncurrent liabilities in the accompanying balance sheet.
The cost of these plans was $2,095,000, $2,280,000 and $1,232,000 for 1995,
1994 and 1993, respectively. The discount rate used in determining the pension
liabilities was 7.25% at December 31, 1995 and 8% at December 31, 1994. At
December 31, 1995, the additional minimum liability exceeded the unamortized
transition amount by $1,801,000, net of deferred income taxes. At December 31,
1994, the additional minimum liability exceeded the unamortized transition
amount by $540,000, net of deferred income taxes. These amounts have been
reflected in the accompanying consolidated balance sheets as reductions in
stockholders' equity at December 31, 1995 and 1994.
Post-retirement health care and life insurance benefits are provided to a
limited number of participating employees who become eligible for benefits
after reaching normal retirement age while employed by the Company. The plan,
which is an unfunded contributory defined benefit plan, covers approximately
3% of the Company's employees. Effective January 1, 1993, the Company adopted
the provisions of the Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions."
SFAS No. 106 requires the Company to accrue the estimated cost of such retiree
benefits payments, other than pensions, during the employee's active service
period. The Company previously expensed the cost of these benefits as claims
were paid. The Company is amortizing the unrecognized net loss and
unrecognized transition obligation over 20 years.
The actuarial and recorded liabilities for the post-retirement health care
and life insurance benefits at December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees....................................... $ 1,425 $ 1,320
Full eligible active plan participants......... 39 48
Other active participants...................... 316 627
----------- -----------
Total accumulated post-retirement benefit
obligation...................................... 1,780 1,995
Unrecognized net loss (gain)..................... 58 (329)
Unrecognized transition obligation............... (1,357) (1,437)
----------- -----------
Accrued post-retirement benefit cost............. $ 481 $ 229
=========== ===========
</TABLE>
The net periodic post-retirement benefit cost for 1995 was $350,000 and
included $112,000 of service cost, $152,000 of interest and $86,000
amortization of the transition obligation. The cost for 1994 was $360,000 and
included $76,000 of service costs, $172,000 of interest and $112,000
amortization of the transition obligation.
For measurement purposes, a 7.25% and an 8% discount rate was used in
determining the accumulated post-retirement benefit obligation as of December
31, 1995 and 1994, respectively. Also, a 10% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1995; the rate
was assumed to decrease gradually to 6% for 2002 and remain at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. A 1% increase in the assumed health care cost
trend rates would increase the accumulated post-retirement benefit obligation
as of December 31, 1995 by approximately $202,000
F-22
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and the aggregate of the service and interest cost components of net periodic
post-retirement benefit cost for the year then ended by approximately $24,000.
The Company also contributes in accordance with a union agreement to a
multi-employer health benefit plan. The cost of this plan was $2,592,000,
$1,865,000 and $959,000 in 1995, 1994 and 1993, respectively.
15. LEASES
In December 1994 the Company sold a McDonnell Douglas DC-10-30 aircraft
which had previously been covered under a leveraged lease. The net proceeds
received of $6.8 million approximated the Company's investment in the lease.
Income from the leveraged lease in 1994 and 1993 was $2.6 million and $1.3
million, respectively ($1.5 million and $0.8 million net of income taxes in
1994 and 1993, respectively).
The Company entered into several agreements for the sale and leaseback of
certain equipment which resulted in gains totaling approximately $2.6 million
in 1993. The gains were deferred and are being amortized as a reduction to
rent expense over the lease terms. The leases are classified as operating
leases and the rental commitments and rental expenses are included in the
following summary.
The Company has noncancellable operating leases covering certain real
property and equipment used in its operations. Minimum rental commitments
under these leases are 1996, $8,290,000; 1997, $7,087,000; 1998, $6,765,000;
1999, $5,943,000; 2000, $4,167,000; and thereafter, $1,769,000. Rental
expenses for the years 1995, 1994 and 1993 were $9,186,000, $8,720,000, and
$5,702,000, respectively.
16. CASH FLOWS
Cash payments for income taxes were $1.2 million, $0.8 million, and $1.8
million in 1995, 1994 and 1993, respectively. In these years, interest
payments were $19.6 million, $17.6 million, and $10.7 million, respectively.
In connection with the acquisition of companies, the Company assumed
liabilities of $44.5 million in 1993 (see Note 3 of Notes to Consolidated
Financial Statements).
17. BUSINESS SEGMENT INFORMATION
The Company's operations are conducted within one business segment which
includes: the overhaul of aircraft engines, industrial gas turbine engines,
and aircraft accessories, the manufacture and remanufacture of jet engine and
aircraft components and providing maintenance and training, repair and
logistical contract services.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales to federal government...................... $228,512 $223,127 $148,849
======== ======== ========
Capital additions................................ $ 6,767 $ 10,299 $ 11,250
======== ======== ========
Depreciation and amortization expense............ $ 12,491 $ 12,727 $ 11,477
======== ======== ========
</TABLE>
The Company maintains foreign marketing offices in Amsterdam, The
Netherlands and Singapore. Identifiable assets at these locations are not
material.
F-23
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Export sales from the Company's United States operations to unaffiliated
customers were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Europe, Africa, Middle East...................... $ 71,283 $ 60,338 $ 30,706
Latin America.................................... 18,035 13,821 13,237
Asia, Pacific Rim................................ 15,333 6,660 7,719
Canada........................................... 8,358 6,497 7,713
-------- -------- --------
Total............................................ $113,009 $ 87,316 $ 59,375
======== ======== ========
</TABLE>
Net sales of tangible products in 1995, 1994 and 1993 amounted to $335.2
million, $303.6 million and $322.4 million, respectively, and costs and
operating expenses related to tangible goods amounted to $273.5 million,
$244.4 million and $259.1 million, respectively.
18. QUARTERLY SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Revenues................ $ 125,703 $ 131,342 $ 137,437 $ 141,761 $ 536,243
Operating income........ 5,233 6,365 6,401 4,357 22,356
Net earnings............ 49 959 839 76 1,923
Net earnings per share.. .05 .05 .01 .11
YEAR ENDED DECEMBER 31,
1994
Revenues................ $ 138,412 $ 122,326 $ 129,721 $ 135,374 $ 525,833
Operating income
(loss)................. 8,450 (63,746) 5,178 (10,898) (61,016)
Net earnings (loss)..... 2,462 (54,634) 30 (15,790) (67,932)
Net earnings (loss) per
share.................. .14 (3.12) (.90) (3.89)
</TABLE>
See Note 2 for a description of the restructuring charge in the second
quarter of 1994.
See Note 14 for a description of the multi-employer pension withdrawal
adjustment in the fourth quarter of 1994.
19. GUARANTOR SUBSIDIARIES
In July 1993, the Company issued $100 million principal amount of 9 1/8%
Senior Notes due 2003 (see Note 7 of Notes to Consolidated Financial
Statements). The notes are guaranteed by all of the Company's domestic wholly-
owned operating subsidiaries in the manner described below. The combined
guarantors are jointly and severally liable under the subsidiary guarantees.
The Company's obligations under the Notes are unconditionally guaranteed by
each of the Company's domestic wholly-owned operating subsidiaries (the
"Guarantees"). Each Guarantee is a senior unsecured obligation of the
subsidiary providing such Guarantee and ranks pari passu with all senior
unsecured indebtedness of such subsidiary. The domestic wholly-owned operating
subsidiaries also have guaranteed the indebtedness outstanding under the
Company's revolving credit facility (the "Subsidiary Bank Guarantees").
F-24
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The Subsidiary Bank Guarantees are collateralized, in general, by the accounts
receivable and inventory of the subsidiaries and therefore effectively rank
senior to the Guarantees. The Guarantees are in effect only for as long as the
Subsidiary Bank Guarantees remain in effect. If the Guarantees are terminated
the Notes will be obligations solely of the Company and will be effectively
subordinated to all existing and future indebtedness of the subsidiaries.
The following condensed consolidating information presents:
(1) Condensed financial statements as of December 31, 1995 and 1994 and
for the years ended December 31, 1995, 1994 and 1993 of (a) the
Company on a parent company only basis (Parent Company), (b) the
Combined Guarantors, and (c) the Company on a consolidated basis.
(2) The Parent Company with its investments in subsidiaries accounted
for on the equity method.
(3) Elimination entries necessary to consolidate the Parent Company and
its subsidiaries.
F-25
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 123 $ 1,548 $ 1,671
Accounts receivable, net...... 410 102,052 102,462
Unbilled costs and accrued
profits on contracts in
progress..................... 11,128 11,128
Inventories................... 91,130 91,130
Assets held for sale.......... 114 4,985 5,099
Other......................... 1,125 9,031 10,156
-------- -------- ---------
Total current assets.......... 1,772 219,874 221,646
-------- -------- ---------
Assets held for sale-
noncurrent..................... 2,834 9,962 12,796
Property, plant & equipment,
net............................ 706 47,362 48,068
Cost in excess of net assets of
acquired companies, net........ 136,298 136,298
Other noncurrent assets......... 9,748 17,705 27,453
Investments in and advances to
subsidiaries................... 343,366 $(343,366)
-------- -------- --------- ---------
Total assets................ $358,426 $431,201 $(343,366) $ 446,261
======== ======== ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt......................... $ 1,631 $ 117 $ 1,748
Accounts payable.............. 2,784 36,830 39,614
Accruals and other current
liabilities.................... 21,253 34,933 56,186
-------- -------- ---------
Total current liabilities....... 25,668 71,880 97,548
-------- -------- ---------
Long-term debt.................. 202,981 352 203,333
Other noncurrent liabilities.... 20,875 24,353 45,228
-------- -------- ---------
Total liabilities........... 249,524 96,585 346,109
-------- -------- ---------
Common stock and additional
paid-in capital................ 127,396 127,396
Retained earnings (deficit)..... (15,450) (15,450)
Equity of subsidiaries and
advances of parent............. 343,366 $(343,366)
-------- -------- --------- ---------
111,946 343,366 (343,366) 111,946
Less:
Treasury stock at cost
(700,000 shares)............. 8,750 8,750
Minimum pension liability
adjustment................... 1,801 1,801
Unearned compensation-
restricted stock............. 1,243 1,243
-------- -------- --------- ---------
Total shareholders' equity.. 108,902 334,616 (343,366) 100,152
-------- -------- --------- ---------
Total liabilities and
shareholders' equity........... $358,426 $431,201 $(343,366) $ 446,261
======== ======== ========= =========
</TABLE>
F-26
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 1,519 $ 1,100 $ 2,619
Accounts receivable, net...... 640 88,639 89,279
Unbilled costs and accrued
profits on contracts in
progress..................... 14,097 14,097
Inventories................... 85,110 85,110
Assets held for sale.......... 18,449 30,725 49,174
Other......................... 1,168 7,000 8,168
-------- -------- --------
Total current assets........ 21,776 226,671 248,447
-------- -------- --------
Assets held for sale-
noncurrent..................... 2,300 2,300
Property, plant & equipment,
net............................ 790 43,899 44,689
Cost in excess of net assets of
acquired companies, net........ 140,128 140,128
Other noncurrent assets......... 10,011 22,459 32,470
Investments in and advances to
subsidiaries................... 304,392 $(304,392)
-------- -------- --------- --------
Total assets................ $336,969 $435,457 $(304,392) $468,034
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt......................... $ 14,400 $ 28,571 $ 42,971
Accounts payable.............. 1,387 37,531 38,918
Accruals and other current
liabilities.................. 25,643 40,741 66,384
-------- -------- --------
Total current liabilities... 41,430 106,843 148,273
-------- -------- --------
Long-term debt.................. 171,000 352 171,352
Other noncurrent liabilities.... 16,892 32,620 49,512
-------- -------- --------
Total liabilities........... 229,322 139,815 369,137
-------- -------- --------
Common stock and additional
paid-in capital................ 126,588 126,588
Retained earnings (deficit)..... (17,373) (17,373)
Equity of subsidiaries and
advances of parent............. 304,392 $(304,392)
-------- -------- --------- --------
109,215 304,392 (304,392) 109,215
Less:
Treasury stock at cost
(700,000 shares)............. 8,750 8,750
Minimum pension liability
adjustment................... 540 540
Unearned compensation-
restricted stock............. 1,028 1,028
-------- -------- --------- --------
Total shareholders' equity.. 107,647 295,642 (304,392) 98,897
-------- -------- --------- --------
Total liabilities and
shareholders' equity........... $336,969 $435,457 $(304,392) $468,034
======== ======== ========= ========
</TABLE>
F-27
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues.... $536,243 $536,243
Costs and expenses
Costs and operating expenses.. 456,935 456,935
Selling, general and
administrative expenses...... $ 16,423 40,529 56,952
Allocated expenses............ (19,739) 19,739
-------- -------- --------
(3,316) 517,203 513,887
-------- -------- --------
Operating income................ 3,316 19,040 22,356
Other income (expense)
Interest expense.............. (17,987) (1,527) (19,514)
Other......................... 141 (25) 116
Equity in income of
subsidiaries................. 11,367 $(11,367)
-------- -------- -------- --------
(6,479) (1,552) (11,367) (19,398)
-------- -------- -------- --------
Earnings (loss) before income
taxes.......................... (3,163) 17,488 (11,367) 2,958
Income tax benefit (provision).. 5,086 (6,121) (1,035)
-------- -------- -------- --------
Net earnings.................... $ 1,923 $ 11,367 $(11,367) $ 1,923
======== ======== ======== ========
</TABLE>
F-28
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS)
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues... $ 2,600 $ 523,233 $ 525,833
Costs and expenses
Costs and operating
expenses.................... 444,375 444,375
Selling, general and
administrative expenses..... 18,213 51,555 69,768
Restructuring charge......... 4,800 53,906 58,706
Multi-employer pension plan
withdrawal charge........... 14,000 14,000
Allocated expenses........... (22,803) 22,803
--------- --------- ---------
210 586,639 586,849
--------- --------- ---------
Operating income (loss)........ 2,390 (63,406) (61,016)
Other income (expense)
Interest expense............. (14,924) (3,625) (18,549)
Other........................ (1,911) 61 (1,850)
Equity in income (loss) of
subsidiaries................ (55,838) $ 55,838
--------- --------- -------- ---------
(72,673) (3,564) 55,838 (20,399)
--------- --------- -------- ---------
Earnings (loss) before income
taxes......................... (70,283) (66,970) 55,838 (81,415)
Income tax benefit............. 2,351 11,132 13,483
--------- --------- -------- ---------
Net earnings (loss)............ $ (67,932) $ (55,838) $ 55,838 $ (67,932)
========= ========= ======== =========
</TABLE>
F-29
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues... $ 1,263 $437,030 $438,293
Costs and expenses
Costs and operating
expenses.................... 360,869 360,869
Selling, general and
administrative expenses..... 12,856 41,131 53,987
Allocated expenses........... (15,481) 15,481
-------- -------- --------
(2,625) 417,481 414,856
-------- -------- --------
Operating income............... 3,888 19,549 23,437
Other income (expense)
Interest expense............. (11,897) (1,968) (13,865)
Other........................ (1,869) 48 (1,821)
Equity in income of
subsidiaries................ 17,658 $(17,658)
-------- -------- -------- --------
3,892 (1,920) (17,658) (15,686)
-------- -------- -------- --------
Earnings before income taxes
and extraordinary items....... 7,780 17,629 (17,658) 7,751
Income tax benefit............. 3,814 29 3,843
-------- -------- -------- --------
Earnings before extraordinary
items......................... 11,594 17,658 (17,658) 11,594
Extraordinary item--early
retirement of debt, net of
income taxes.................. (532) (532)
-------- -------- -------- --------
Net earnings................... $ 11,062 $ 17,658 $(17,658) $ 11,062
======== ======== ======== ========
</TABLE>
F-30
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS CONSOLIDATED
--------- ---------- ------------
<S> <C> <C> <C>
Net cash provided (used) by operating
activities................................. $ (15,591) $ (2,221) $ (17,812)
--------- -------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets.......... 26,159 7,441 33,600
Additions to property, plant and
equipment................................ (239) (6,528) (6,767)
Acquisition of subsidiaries............... (947) (947)
--------- -------- ---------
Net cash and short-term investments
provided (used) by investing
activities............................. 25,920 (34) 25,886
--------- -------- ---------
Cash flows from financing activities:
Additions to debt......................... 382,005 382,005
Reductions in debt........................ (362,793) (28,454) (391,247)
Other transactions........................ 220 220
Net cash transfers to (from) parent....... (31,157) 31,157
--------- -------- ---------
Net cash provided (used) by financing
activities............................. (11,725) 2,703 (9,022)
--------- -------- ---------
Net increase (decrease) in cash............. (1,396) 448 (948)
Cash at beginning of year................... 1,519 1,100 2,619
--------- -------- ---------
Cash at end of year......................... $ 123 $ 1,548 $ 1,671
========= ======== =========
</TABLE>
F-31
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS CONSOLIDATED
--------- ---------- ------------
<S> <C> <C> <C>
Net cash provided (used) by operating
activities................................. $ (14,137) $ (5,358) $ (19,495)
--------- -------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets.......... 11,713 11,713
Additions to property, plant and
equipment................................ (381) (9,918) (10,299)
Acquisition of subsidiaries............... (4,911) (4,911)
Proceeds from sale of leveraged lease..... 6,758 6,758
Other transactions, net................... 39 39
--------- -------- ---------
Net cash and short-term investments
provided (used) by investing
activities............................. 6,377 (3,077) 3,300
--------- -------- ---------
Cash flows from financing activities:
Additions to debt......................... 161,085 40,000 201,085
Reductions in debt........................ (159,185) (24,860) (184,045)
Other transactions........................ 280 280
Net cash transfers to (from) parent....... 6,242 (6,242)
--------- -------- ---------
Net cash provided (used) by financing
activities............................. 8,422 8,898 17,320
--------- -------- ---------
Net increase in cash........................ 662 463 1,125
Cash at beginning of year................... 857 637 1,494
--------- -------- ---------
Cash at end of year......................... $ 1,519 $ 1,100 $ 2,619
========= ======== =========
</TABLE>
F-32
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS CONSOLIDATED
--------- ---------- ------------
<S> <C> <C> <C>
Net cash provided (used) by operating
activities................................ $ (384) $ (11,253) $ (11,637)
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets......... 10,843 10,843
Additions to property, plant and
equipment............................... (331) (10,919) (11,250)
Acquisition of subsidiaries, net of cash
acquired................................ (48,477) (48,477)
Investment in leveraged lease............ (2,697) (2,697)
Other transactions, net.................. 68 (67) 1
--------- --------- ---------
Net cash and short-term investments
provided (used) by investing
activities............................ (2,960) (48,620) (51,580)
--------- --------- ---------
Cash flows from financing activities:
Additions to debt........................ 193,132 35,500 228,632
Reductions in debt....................... (210,632) (55,334) (265,966)
Issuance of 9 1/8% Senior Notes.......... 100,000 100,000
Other transactions, net.................. 77 77
Net cash transfers to (from) parent...... (80,022) 80,022
--------- --------- ---------
Net cash provided (used) by financing
activities............................ 2,555 60,188 62,743
--------- --------- ---------
Net increase (decrease) in cash and short-
term investments.......................... (789) 315 (474)
Cash at beginning of year.................. 1,646 322 1,968
--------- --------- ---------
Cash at end of year........................ $ 857 $ 637 $ 1,494
========= ========= =========
</TABLE>
F-33
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Sales and operating revenues................................ $322,801 $257,045
Costs and expenses:
Cost and operating expenses............................... 275,964 217,999
Selling, general and administrative expenses.............. 32,205 27,448
-------- --------
308,169 245,447
-------- --------
Operating income............................................ 14,632 11,598
Other income (expense):
Interest expense.......................................... (11,145) (10,223)
Other..................................................... (737) 176
-------- --------
(11,882) (10,047)
-------- --------
Earnings before income taxes................................ 2,750 1,551
Income tax provision........................................ (825) (543)
-------- --------
Net Earnings................................................ $ 1,925 $ 1,008
Preferred dividends......................................... (187)
-------- --------
Net earnings applicable to common stock..................... 1,738 1,008
======== ========
Net earnings common per share............................... $ .10 $ .05
======== ========
</TABLE>
F-34
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 11,755 $ 1,671
Accounts receivable, less allowance for doubtful
accounts of
$4,531 and $3,186, respectively.................... 150,066 102,462
Unbilled costs and accrued profits on contracts in
progress........................................... 8,928 11,128
Inventories......................................... 121,573 91,130
Assets held for sale................................ 4,766 5,099
Other............................................... 11,121 10,156
-------- --------
Total current assets.............................. 308,209 221,646
-------- --------
Assets held for sale--noncurrent...................... 12,004 12,796
Property, plant and equipment, at cost................ 125,555 82,449
Less accumulated depreciation......................... 37,396 34,381
-------- --------
Net property, plant and equipment................... 88,159 48,068
Cost in excess of net assets of acquired companies,
less accumulated
amortization of $30,866 and $28,175, respectively.... 234,419 136,298
Other assets.......................................... 34,733 27,453
-------- --------
Total assets...................................... $677,524 $446,261
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................... $ 5,317 $ 1,748
Accounts payable.................................... 69,953 39,614
Income taxes........................................ 1,485 1,392
Accruals and other current liabilities.............. 75,445 54,794
-------- --------
Total current liabilities......................... 152,200 97,548
Long-term debt, less current portion:
Revolving Senior Bank Debt, interest rate at June
30, 1996, 9.75% due 2000........................... 61,675 37,181
9 1/8% Senior Notes due 2003........................ 100,000 100,000
11% Senior Subordinated Notes due 2006.............. 125,000
7 1/2% Convertible Subordinated Debentures due
2006............................................... 60,600 64,800
Other............................................... 6,670 1,352
-------- --------
Total long-term debt, less current portion............ 353,945 203,333
-------- --------
Other noncurrent liabilities.......................... 40,137 45,228
-------- --------
Total liabilities................................. 546,282 346,109
Shareholders' equity:
Series preferred stock, par value $1.00 per share;
Authorized 12,000,000 shares; Series A Junior
Participating Preferred Stock, 250,000 shares
authorized, none issued Series B Senior Cumulative
Preferred Stock, 250,000 shares authorized and
issued,
$25,000,000 liquidation preference.................. 250
Series C Senior Cumulative Preferred Stock, 250,000
shares authorized, none issued......................
Common stock, par value $0.20 per share; authorized
50,000,000 shares; issued 18,723,868 and 18,393,868
shares, respectively................................. 3,745 3,679
Additional paid-in capital............................ 149,562 123,717
Retained earnings (deficit)........................... (13,525) (15,450)
-------- --------
140,032 111,946
Less:
Treasury stock, at cost (486,500 and 700,000 shares,
respectively)...................................... 5,143 8,750
Minimum pension liability adjustment................ 1,801 1,801
Unearned compensation-restricted stock.............. 1,846 1,243
-------- --------
Total shareholders' equity........................ 131,242 100,152
-------- --------
Total liabilities and shareholders' equity........ $677,524 $446,261
======== ========
</TABLE>
F-35
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................ $ 1,925 $ 1,008
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization......................... 7,270 6,258
Provision for losses on accounts receivable........... 476 473
Provision for deferred income taxes................... 262 450
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.......... (5,145) 600
Decrease in unbilled costs & accrued profits on
contracts in progress.............................. 2,200 1,539
(Increase) decrease in inventories.................. (11,298) 1,229
(Increase) in other current assets.................. (141) (813)
(Increase) in other noncurrent assets............... (1,258) (5,160)
(Decrease) in accounts payable...................... (8,213) (12,267)
Increase (decrease) in accruals and other current
liabilities........................................ 11,139 (3,090)
Increase in income taxes payable.................... 93 217
Increase (decrease) in other noncurrent
liabilities........................................ (170) 3
(Decrease) in discontinued operations liabilities... (2,377) (2,732)
-------- ---------
Total adjustments................................... (7,162) (13,293)
-------- ---------
Net cash provided (used) by operating activities.... (5,237) (12,285)
-------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets........................ 1,490 6,834
Additions to property, plant and equipment.............. (6,945) (2,720)
Acquisition of subsidiary............................... (148,293)
-------- ---------
Net cash provided (used) by investing activities...... (153,748) 4,114
-------- ---------
Cash flows from financing activities:
Additions to debt....................................... 333,545 139,676
Reductions in debt...................................... (309,785) (132,573)
Issuance of 11% Series Subordinated Notes............... 125,000
Issuance of Convertible Preferred Stock................. 25,000
Payment of Preferred Stock dividend..................... (187)
Other transactions...................................... (4,504) 65
-------- ---------
Net cash provided (used) by financing activities...... 169,069 7,168
-------- ---------
Net increase (decrease) in cash......................... 10,084 (1,003)
Cash at beginning of year............................... 1,671 2,619
-------- ---------
Cash at end of period................................... $ 11,755 $ 1,616
======== =========
</TABLE>
F-36
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying financial statements, which should be read in
conjunction with the Consolidated Financial Statements included in the Annual
Report filed on Form 10-K for the year ended December 31, 1995, are unaudited.
The statements have been prepared in the ordinary course of business for the
purpose of providing information with respect to the interim periods, and are
subject to audit at the close of the year. It is the opinion of the management
of the Company that all adjustments (none of which were other than normal
recurring accruals) necessary for a fair presentation of such periods have
been included. Results of interim periods are not necessarily indicative of
results to be expected for the full year.
2. Inventories at June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Component parts and materials........................... $ 84,645 $ 70,317
Work in process......................................... 32,283 17,436
Supplies................................................ 4,645 3,377
----------- ----------
$ 121,573 $ 91,130
=========== ==========
</TABLE>
3. Net sales of tangible products in the six month period ended June 30,
1996 amounted to $210.7 million and cost and operating expenses related to
tangible goods sold amounted to $171.7 million.
4. On May 30, 1996, the Company acquired substantially all of the assets and
certain liabilities of Garrett Aviation Services ("Garrett"), a leading
provider of aviation services in the business aviation aftermarket. The
purchase price of approximately $145 million was paid in cash. The financing
of the acquisition was accomplished through the issuance of $125 million in
11% Senior Subordinated Notes due 2006 and $25 million in Convertible 8.5%
Preferred Stock. In addition, borrowings were made under the Company's
Revolving Senior Bank Debt for various transaction costs which exceeded the
amount of funds generated from the issuance of the notes and Preferred Stock.
The Acquisition will be accounted for as a purchase, and the purchase price
will be allocated to the assets and liabilities of Garrett based on their fair
values. The assets and liabilities of Garrett are included in the consolidated
balance sheet at June 30, 1996 at values reflecting preliminary allocation of
the purchase price. The final allocation of the purchase price is subject to
final determination based on valuations and other studies currently being
performed by the Company. The excess of the preliminary allocation of the
purchase price over the estimated fair value of the net assets acquired is
being amortized over a period of thirty years using the straight line method.
Also in connection with the acquisition, the Company issued 213,500 shares of
its treasury stock to certain Garrett executives it employed following the
closing at a purchase price of $5.75 per share, the closing price on the date
the purchase agreement was executed.
5. On May 30, 1996 in connection with the financing of the acquisition of
Garrett, the Company issued $25 million in Convertible 8.5% Preferred Stock
and $125 million in principal amount of 11% Senior Subordinated Notes due
2006. The Series B Preferred Stock was issued at $100 per share with an annual
cumulative dividend rate of 8.5%, with no mandatory redemption, and will be
convertible to common stock at a price of $7 per share. The Company will have
the option to pay dividends in the form of a pay-in-kind Series C Cumulative
Preferred Stock. The 11% Senior Subordinated Notes are redeemable on or after
June 1, 2001 at the option of the Company at declining premiums through 2003
and at principal amount thereafter.
6. Since 1985 the former Western Union has been seeking recoupment (the
"Claim") from various providers of international telex services ("ITPs") for
interconnect charges with respect to the use of Western Union's domestic telex
network during the late 1970s and early 1980s. Among these ITPs was TRT
Communications, Inc. ("TRT"), which the Company had acquired in September
1985. As part of the Company's
F-37
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
acquisition of TRT, the Company had received certain representations and
warranties from the seller of TRT with respect to the Claims. In January 1995,
nearly seven years after a 1988 remand from the U.S. Court of Appeals for the
District of Columbia (the "Appeals Court"), which had vacated an earlier
determination by the FCC with respect to the Claims, the FCC determined that
the Claims were appropriate. The FCC's determination was again appealed to the
Appeals Court which on February 6, 1996 rendered a judgment upholding the
FCC's determination with respect to these matters. As a result, TRT may be
liable to the former Western Union for Claims and interest of approximately
$5.0 million. However, the Company sold its interest in TRT in 1988 and, in
connection therewith, the Company provided the purchaser with certain specific
indemnities. The Company has been informed that its purchaser has in turn sold
TRT to a third party with whom the Company has no contract for indemnity. As a
consequence, the Company does not believe that it has any indemnity liability
to the current owner of TRT. The Company sought a rehearing by the Appeals
Court, to assert a protective claim against the seller of TRT, and to reject
any claim by the current owner of TRT. Appeals Court denied the Company's
petition for rehearing and reconsideration on April 11, 1996. The proceeding
is presently before the FCC for further determination. On April 12, 1996, the
Company filed a declaratory judgement action in Delaware seeking a judicial
determination that the Company is not required to indemnify its purchaser for
any amount for which TRT may be liable to the former Western Union. The case
is in the discovery phase, and a trial date has been initially scheduled in
June 1997. Both the Company and its outside legal counsel believe the Company
has meritorious defenses against any claim under its indemnification
agreement.
Lockheed-Martin Corporation ("Lockheed") began an action in United States
District Court of the Central District of California under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA") in
August 1994. In that action, Lockheed seeks to have owners and operators of
property situated above the San Fernando Valley aquifer contribute to the
costs incurred or to be incurred by Lockheed to clean up contaminated
groundwater constituting the aquifer. A subsidiary of the Company, Pacific
Airmotive Corporation ("PAC"), was made one of the defendants in the action.
The Company and a second subsidiary, Airwork Corporation, were added as
defendants in December 1995. Based on several series of soil tests conducted
on PAC's property and consultants' reports since approximately 1989, the
Company concluded, and continues to conclude, that there is no demonstration
that contaminants of concern identified in the groundwater by the U.S.
Environmental Protection Agency have been transmitted from the surface of
PAC's property to the underlying groundwater approximately 200 feet below
ground surface. PAC is also pursuing alternative remedies against Purex
Industries, Inc. which owned and operated the property prior to 1985. The
Company and Airwork have filed motions to dismiss the action as to them on the
ground, among others, that they did not own or operate PAC's property, or
control PAC's operations. These motions to dismiss the Lockheed action filed
by the Company and Airwork were denied. Whether, as alleged by Lockheed, the
Company and Airwork owned or operated PAC's property, or controlled its
operations, and whether the Company is subject to jurisdiction in California,
remain issues for trial in the Lockheed case. Trial of the case is currently
scheduled for early August 1996. The Company is not able to determine whether
it or a subsidiary of the Company will be held liable as a result of the
Lockheed action, or to establish a range of loss.
The Company during 1995 was involved in litigation with respect to a
promissory note issued by the Company in July 1981 in connection with the
acquisition of Normco Contractors, Inc. ("Normco"), a former subsidiary of the
Company that was discontinued in 1984 and sold in 1985. The plaintiff, a
former owner of Normco, brought action to obtain payment of $2.2 million
allegedly due under the note. The Company did not make payment on the note
because the Company believed that, under the terms of the note and the related
purchase agreement, payment was contingent upon Normco attaining certain
operating profit levels that were not achieved. The plaintiff's motion for
summary judgment was granted in March 1992. However, in July 1993 the
appellate court reversed and remanded the case for trial. Following trial in
April 1994, a jury verdict was rendered in plaintiff's favor for the amount of
the note plus interest and attorney's fees. The Company appealed
F-38
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
the verdict on the grounds of prejudicial conduct by the trial judge as well
as on legal grounds that were essentially the same as those argued in its
previous successful appeal. The Appellate Court ruled in favor of the
plaintiff, and the Company paid the judgment of approximately $3.5 million in
October 1995. The Company is currently evaluating seeking recovery of all or
part of the judgment from the legal firm that represented the Company in the
1981 acquisition of Normco.
The Company and a subsidiary, UNC Airwork Corporation, are defendants in
litigation commenced in New York by Energy Services, Inc. ("ESI") seeking $3.4
million in alleged contract damages relating to a proposal to provide and
install electrical generating and other related equipment for a third party.
The Company and Airwork believe they have meritorious defenses to ESI's
claims. Airwork has filed a counterclaim against ESI and an affiliate, Energy
Maintenance Corporation ("EMC") for more than $3.7 million. In December 1994,
the trial court granted Airwork's motion for partial summary judgment against
EMC, on a separate claim, in the amount of $458,000. The trial court
subsequently awarded $1.5 million of ESI's claims against the Company and
Airwork on a theory of unjust enrichment, based apparently on the opinion that
the Company, Airwork and ESI in 1992 were implementing an agreement between
Airwork and ESI's affiliate dated August 19, 1991. The Company and Airwork are
preparing for trial on Airwork's claim for more than $3.7 million, and will
appeal the trial court's award to ESI. The Company believes it is probable
that ESI and an affiliate will be found liable for Airwork's remaining claims,
and that any recovery against the Company and Airwork is not predictable.
During 1993, the State of New Mexico passed the New Mexico Mining Act
("Act"), which imposes certain reclamation obligations on owners and operators
of existing and new mining operations. The State has asserted that a number of
mines operated by the Company's subsidiary, United Nuclear Corporation
("United Nuclear"), at various times during the period 1970 through 1982 may
be covered by the Act. Regulations for compliance with the Act were issued in
1994. However, the regulations did not clarify the extent to which mines
previously operated by United Nuclear may be covered by the Act. The New
Mexico Mining Commission has ruled that three mines are covered by the
regulations, and United Nuclear is preparing to appeal that ruling to the
State courts. Consequently, it is impossible to estimate the cost of
reclamation or the timing and extent of reclamation that may be required. The
Company has been advised by outside counsel that United Nuclear's defenses
have merit, and it is contesting the State's assertions.
A uranium mill and mill tailings facility of a subsidiary of the Company,
United Nuclear, located in Church Rock, New Mexico was placed on the National
Priorities List by the U.S. Environmental Protection Agency ("EPA") in 1982,
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"). EPA issued an Administrative Order in 1989
requiring remediation of ground water on or adjacent to the site that is the
same as those contained in the reclamation plan submitted to the Nuclear
Regulatory Commission ("NRC") in 1988 by United Nuclear in accordance with its
license with the NRC. United Nuclear has been remediating the site in
accordance with the Administrative Order and the NRC license and has incurred
cost for such remediation of $0.6 million and $0.9 million in 1996 and 1995,
respectively. It is anticipated, based on the approved reclamation plan, that
the cost of future remediation through 1997 will be approximately $3.4
million. Such cost has been accrued as part of reserves established for the
discontinued operation.
The Company's former Naval Products Division has been named under CERCLA,
along with a number of other parties, as a Potentially Responsible Party at
several waste disposal sites. In each case, the Division has been named as a
de minimus party. The Company believes that any cost, estimated to be less
than a total of $100,000, that may be assessed to the Division is recoverable
under its U.S. government contracts.
F-39
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(UNAUDITED)
The Company and its subsidiaries are also parties to various other legal
actions and administrative proceedings and subject to various claims arising
in the ordinary course of business. The Company believes that the disposition
of these matters will not have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.
7. In July 1993, the Company issued $100 million principal amount of 9 1/8%
Senior Notes due 2003. The notes are guaranteed by the Company's domestic
operating subsidiaries in the manner described below. The combined guarantors
are jointly and severally liable under the subsidiary guarantees.
The Company's obligations under the Notes are unconditionally guaranteed by
each of the Company's domestic operating subsidiaries (the "Guarantees"). Each
Guarantee is a senior unsecured obligation of the domestic operating
subsidiary providing such Guarantee and ranks pari passu with all senior
unsecured indebtedness of such subsidiary. The domestic operating subsidiaries
also have guaranteed the indebtedness outstanding under the Company's
revolving credit facility (the "Subsidiary Bank Guarantees"). The Subsidiary
Bank Guarantees are collateralized, in general, by the accounts receivable and
inventory of the domestic operating subsidiaries and therefore effectively
rank senior to the Guarantees. The Guarantees are in effect only for as long
as the Subsidiary Bank Guarantees remain in effect. If the Guarantees are
terminated the Notes will be obligations solely of the Company and will be
effectively subordinated to all existing and future indebtedness of the
subsidiaries.
The following condensed consolidating information presents:
(1) Condensed financial statements as of June 30, 1996 and for the six
months ended June 30, 1996 and 1995 of (a) the Company on a parent
company only basis (Parent Company), the Combined Guarantors, and (c)
the Company on a consolidated basis.
(2) The Parent Company with its investments in subsidiaries accounted for
on the equity method.
(3) Elimination entries necessary to consolidate the Parent Company and
its subsidiaries.
F-40
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 183 $ 11,572 $ 11,755
Accounts receivable, net...... 497 149,569 150,066
Unbilled costs and accrued
profits on contracts in
progress..................... 8,928 8,928
Inventories................... 121,573 121,573
Assets held for sale.......... 114 4,652 4,766
Other......................... 733 10,388 11,121
-------- -------- --------
Total current assets........ 1,527 306,682 308,209
-------- -------- --------
Assets held for sale--
noncurrent..................... 1,169 10,835 12,004
Property, plant & equipment,
net............................ 585 87,574 88,159
Cost in excess of net assets of
acquired companies, net........ 234,419 234,419
Other noncurrent assets......... 16,247 18,486 34,733
Investments in and advances to
subsidiaries................... 511,474 $(511,474)
-------- -------- --------- --------
Total assets................ $531,002 $657,996 $(511,474) $677,524
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt......................... $ 5,200 $ 117 $ 5,317
Accounts payable.............. 731 69,222 69,953
Accruals and other current
liabilities.................. 24,750 52,180 76,930
-------- -------- --------
Total current liabilities... 30,681 121,519 152,200
-------- -------- --------
Long-term debt.................. 348,275 5,670 353,945
Other noncurrent liabilities.... 15,661 24,476 40,137
-------- -------- --------
Total liabilities........... 394,617 151,665 546,282
Cumulative preferred stock...... 250 250
Common stock and additional paid
in capital..................... 153,307 153,307
Retained earnings (deficit)..... (13,525) (13,525)
Equity of subsidiaries and
advances of parent............. 511,474 $(511,474)
-------- -------- --------- --------
140,032 511,474 (511,474) 140,032
Less:
Treasury stock, at cost....... 5,143 5,143
Minimum pension liability
adjustment................... 1,801 1,801
Unearned compensation--
restricted stock............. 1,846 1,846
-------- -------- --------- --------
Total shareholders' equity.. 136,385 506,331 (511,474) 131,242
-------- -------- --------- --------
Total liabilities and
shareholders' equity....... $531,002 $657,996 $(511,474) $677,524
======== ======== ========= ========
</TABLE>
F-41
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues.... $322,801 $322,801
Costs and expenses
Costs and operating expenses.. 275,964 275,964
Selling, general and
administrative expenses...... $ 6,163 26,042 32,205
Allocated expenses............ (2,502) 2,502
-------- -------- --------
3,661 304,508 308,169
-------- -------- --------
Operating income................ (3,661) 18,293 14,632
Other income (expense)
Interest expense.............. (11,097) (48) (11,145)
Other......................... (758) 21 (737)
Equity in income of
subsidiaries................. 12,786 $(12,786)
-------- -------- -------- --------
931 (27) (12,786) (11,882)
-------- -------- -------- --------
Earnings (loss) before income
taxes.......................... (2,730) 18,266 (12,786) 2,750
Income tax benefit (provision).. 4,655 (5,480) (825)
-------- -------- -------- --------
Net earnings.................... 1,925 12,786 (12,786) 1,925
Preferred dividends............. (187) (187)
-------- -------- -------- --------
Net earnings applicable to
common stock................... $ 1,738 $ 12,786 $(12,786) $ 1,738
======== ======== ======== ========
</TABLE>
F-42
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues..... $257,045 $257,045
Costs and expenses
Costs and operating expenses... 217,999 217,999
Selling, general and
administrative expenses....... $ 5,953 21,495 27,448
Allocated expenses............. (2,214) 2,214
------- -------- --------
3,739 241,708 245,447
------- -------- --------
Operating income................. (3,739) 15,337 11,598
Other income (expense)
Interest expense............... (8,065) (2,158) (10,223)
Other.......................... 204 (28) 176
Equity in income of
subsidiaries.................. 8,548 $(8,548)
------- -------- ------- --------
687 (2,186) (8,548) (10,047)
------- -------- ------- --------
Earnings before income taxes..... (3,052) 13,151 (8,548) 1,551
Income tax benefit (provision)... 4,060 (4,603) (543)
------- -------- ------- --------
Net earnings..................... $ 1,008 $ 8,548 $(8,548) $ 1,008
======= ======== ======= ========
</TABLE>
F-43
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS CONSOLIDATED
--------- ---------- ------------
<S> <C> <C> <C>
Net cash flow provided (used) by
operations................................ $ (11,873) $ 6,636 $ (5,237)
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets......... 102 1,388 1,490
Additions to property, plant and
equipment............................... (48) (6,897) (6,945)
Acquisition of subsidiary................ (148,293) (148,293)
--------- --------- ---------
Net cash provided (used) by investing
activities............................ 54 (153,802) (153,748)
--------- --------- ---------
Cash flows from financing activities:
Additions to debt........................ 458,531 14 458,545
Reductions in debt....................... (309,668) (117) (309,785)
Issuance of preferred stock.............. 25,000 25,000
Other transactions, net.................. (4,504) (4,504)
Payment of preferred stock dividend...... (187) (187)
Net cash transfers to (from) parent...... (157,293) 157,293
--------- --------- ---------
Net cash provided (used) by financing
activities............................ 11,879 157,190 169,069
--------- --------- ---------
Net decrease in cash....................... 60 10,024 10,084
Cash at beginning of year.................. 123 1,548 1,671
--------- --------- ---------
Cash at end of period...................... $ 183 $ 11,572 $ 11,755
========= ========= =========
</TABLE>
F-44
<PAGE>
UNC INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT COMBINED
COMPANY GUARANTORS CONSOLIDATED
--------- ---------- ------------
<S> <C> <C> <C>
Net cash flow provided (used) by operations
activities................................ $ (18,227) $ 5,942 $ (12,285)
--------- -------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets......... 1,070 5,764 6,834
Additions to property, plant and
equipment............................... (180) (2,540) (2,720)
--------- -------- ---------
Net cash provided (used) by investing
activities............................ 890 3,224 4,114
--------- -------- ---------
Cash flows from financing activities:
Additions to debt........................ 139,676 139,676
Reductions in debt....................... (104,631) (27,942) (132,573)
Other transactions, net.................. 65 65
Net cash transfers to (from) parent...... (19,225) 19,225
--------- -------- ---------
Net cash provided (used) by financing
activities............................ 15,885 (8,717) 7,168
--------- -------- ---------
Net increase (decrease) in cash............ (1,452) 449 (1,003)
Cash at beginning of year.................. 1,519 1,100 2,619
--------- -------- ---------
Cash at end of period...................... $ 67 $ 1,549 $ 1,616
========= ======== =========
</TABLE>
F-45
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
CFC Aviation Services, L.P. (dba Garrett Aviation Services)
We have audited the accompanying consolidated balance sheets of CFC Aviation
Services, L.P. (dba Garrett Aviation Services) as of December 31, 1995 and
1994, and the related consolidated statements of income, partners' capital and
cash flows for the year ended December 31, 1995 and for the period from July
1, 1994 (date of inception) to December 31, 1994. These financial statements
are the responsibility of the Partnership'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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Garrett
Aviation Services at December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for the year ended December 31, 1995
and for the period from July 1, 1994 (date of inception) to December 31, 1994,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 1, 1996
F-46
<PAGE>
GARRETT AVIATION SERVICES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ----------------
1996 1995 1994
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 15,641 $ 11,247 $ 8,753
Accounts receivable, net of allowance for
doubtful accounts of $1,553,000 at March 31,
1996, $1,547,000 at December 31, 1995 and
$500,000 at December 31, 1994.................. 57,693 44,649 38,680
Inventories, net................................ 25,615 21,281 14,482
Prepaid expenses and other current assets....... 2,026 1,334 956
-------- -------- -------
Total current assets.............................. 100,975 78,511 62,871
Property and equipment, net....................... 27,753 28,402 27,226
Excess of purchase price over net assets, net..... 4,791 4,954 6,297
-------- -------- -------
Total assets...................................... $133,519 $111,867 $96,394
======== ======== =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................ $ 46,025 $ 39,321 $32,023
Accrued expenses and other liabilities.......... 15,767 13,375 10,948
Current maturities of long-term debt............ 5,500 8,250 5,000
-------- -------- -------
Total current liabilities......................... 67,292 60,946 47,971
Revolving credit agreement........................ 23,000 10,000 8,000
Long-term debt.................................... 21,896 21,858 27,209
-------- -------- -------
Total liabilities................................. 112,188 92,804 83,180
Partners' capital:
General......................................... 213 190 132
Limited......................................... 21,118 18,873 13,082
-------- -------- -------
21,331 19,063 13,214
-------- -------- -------
Total liabilities and partners' capital........... $133,519 $111,867 $96,394
======== ======== =======
</TABLE>
See accompanying notes.
F-47
<PAGE>
GARRETT AVIATION SERVICES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994
THREE MONTHS ENDED (DATE OF
MARCH 31 INCEPTION) TO
-------------------- YEAR ENDED DECEMBER 31,
1996 1995 DECEMBER 31, 1995 1994
--------- --------- ----------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............... $ 87,688 $ 75,809 $338,104 $144,200
Cost of sales........... 75,216 66,912 294,382 130,224
--------- --------- -------- --------
Gross profit............ 12,472 8,897 43,722 13,976
Selling, general and
administrative......... 7,542 6,305 28,261 9,990
--------- --------- -------- --------
Operating profit........ 4,930 2,592 15,461 3,986
Interest expense........ 846 824 3,334 1,810
Other income............ (117) (178) (315) (68)
--------- --------- -------- --------
Net income.............. $ 4,201 $ 1,946 $ 12,442 $ 2,244
========= ========= ======== ========
</TABLE>
See accompanying notes.
F-48
<PAGE>
GARRETT AVIATION SERVICES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- ------- -------
<S> <C> <C> <C>
Initial contributions of cash........................ $120 $11,880 $12,000
Net income........................................... 22 2,222 2,244
Distributions provided............................... (10) (1,020) (1,030)
---- ------- -------
Partners' capital at December 31, 1994............... 132 13,082 13,214
Net income........................................... 124 12,318 12,442
Distributions provided............................... (66) (6,527) (6,593)
---- ------- -------
Partners' capital at December 31, 1995............... 190 18,873 19,063
Net income (unaudited)............................... 42 4,159 4,201
Distributions provided (unaudited)................... (19) (1,914) (1,933)
---- ------- -------
Partners' capital at March 31, 1996 (unaudited)...... $213 $21,118 $21,331
==== ======= =======
</TABLE>
See accompanying notes.
F-49
<PAGE>
GARRETT AVIATION SERVICES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994
THREE MONTHS ENDED (DATE OF
MARCH 31, YEAR ENDED INCEPTION) TO
-------------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
--------- --------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................... $ 4,201 $ 1,946 $ 12,442 $ 2,244
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization............... 1,576 1,571 5,954 2,984
Provision for doubtful
accounts................... -- -- 1,246 500
Provision for obsolete
inventory.................. -- 602 695 395
Accretion of lease
obligation................. 38 37 149 77
Changes in operating assets
and liabilities:
Accounts receivable....... (13,044) (5,533) (7,215) (8,413)
Inventories............... (4,334) 567 (7,494) (359)
Prepaid expenses and other
current assets........... (692) 235 (378) (744)
Accounts payable.......... 6,704 3,669 7,298 27,478
Accrued expenses and
other.................... 1,935 2,445 1,998 4,392
--------- -------- -------- --------
Net cash provided by (used in)
operating activities......... (3,616) 5,539 14,695 28,554
INVESTING ACTIVITIES
Acquisitions, net of cash
received..................... -- -- -- (64,603)
Purchases of property and
equipment.................... (764) (2,063) (5,787) (2,176)
--------- -------- -------- --------
Net cash used in investing
activities................... (764) (2,063) (5,787) (66,779)
FINANCING ACTIVITIES
Proceeds from revolving credit
agreement.................... 14,000 2,000 29,000 18,000
Repayment of revolving credit
agreement.................... (1,000) (5,000) (27,000) (10,000)
Proceeds from issuance of
debt......................... -- -- -- 52,277
Payments of debt.............. (2,750) -- (2,250) (25,277)
Cash contributions from
partners..................... -- -- -- 12,000
Cash distributions to
partners..................... (1,476) (43) (6,164) (22)
--------- -------- -------- --------
Net cash (used in) provided by
financing activities......... 8,774 (3,043) (6,414) 46,978
--------- -------- -------- --------
Net increase in cash and cash
equivalents.................. 4,394 433 2,494 8,753
Cash and cash equivalents at
beginning of period.......... 11,247 8,753 8,753 --
--------- -------- -------- --------
Cash and cash equivalents at
end of period................ $ 15,641 $ 9,186 $ 11,247 $ 8,753
========= ======== ======== ========
</TABLE>
See accompanying notes.
F-50
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND
PERIOD FROM JULY 1, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Formation and Description of Operations
Garrett Aviation Services (Garrett) is the d.b.a. of a limited partnership
with the legal name of CFC Aviation Services, L.P. The partnership was formed
as of June 30, 1994 and began operations July 1, 1994 upon the acquisition of
certain assets and the assumption of certain liabilities of AlliedSignal
discussed in the "Acquisitions" footnote herein. Garrett is owned 99 percent
by CFC Aviation Holding, L.P. as the limited partner and 1 percent by CFC
Aviation, Inc. as the general partner.
Garrett provides turbine-powered airframe maintenance and related services,
technical support and turbine engine repair, overhaul and related services on
turbine engine products to general aviation operators and regional commercial
airlines. The services are provided at airport hangar locations throughout the
United States.
Basis of Presentation
The financial statements include all accounts of Garrett and its 99 percent
owned subsidiary (see "Acquisitions" below) after elimination of all
significant intercompany transactions and balances.
Cash and Equivalents
Garrett maintains zero-balance accounts to maximize its cash flows through
its disbursement arrangements. At March 31, 1996, December 31, 1995 and 1994,
there was $19,208,000, $24,742,000, and $9,598,000, respectively, of checks
which had been drawn and are either being held by Garrett or have not yet been
presented for payment against Garrett's cash accounts. Such amounts are
included in accounts payable. Cash and equivalents include instruments with
remaining maturities of three months or less at the time of acquisition and at
March 31, 1996, December 31, 1995 and 1994 included $15,400,000, $11,200,000,
and $7,200,000, respectively, that was invested in money market mutual funds
consisting of bank certificates of deposit, repurchase agreements, bankers
acceptances, commercial paper and other short-term obligations. These
investments are stated at cost which approximates market.
Inventories
Materials inventory consists of purchased parts and is stated at the lower
of cost or market, with cost being determined on the average cost basis. Work-
in-process consists principally of maintenance and repair projects in process
and includes material, labor and related overhead. Consigned inventory of
engine parts is not reflected in the inventory balance of Garrett and is
purchased and immediately charged to cost of sales upon sale of the related
parts to the customer.
Property and Equipment
Property and equipment is recorded at cost, and depreciation is computed
over the estimated useful lives of the assets using the straight-line method.
Assets recorded under capital leases and leasehold improvements are amortized
over the shorter of their useful lives or the term of the related leases by
use of the straight-line method.
F-51
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
Excess of Purchase Price Over Net Assets
The excess of purchase price over net assets consists of the excess over
fair value on the purchase transactions which is amortized over fifteen years
based upon the life of the operating agreement between Garrett and
AlliedSignal (see Operating Agreements footnote) and direct acquisition costs
which are amortized over one to five years based on the nature of the cost.
Accumulated amortization at March 31, 1996, December 31, 1995, and 1994 was
$2,535,000, $2,319,000, and $976,000, respectively.
Concentration of Credit Risk
Substantially all of the revenues are derived from customers in the general
aviation market by direct sales and through repairs and overhaul operations.
Garrett also derives revenues from AlliedSignal for prepaid maintenance
service and warranty programs sponsored by AlliedSignal, who also is a major
supplier of virtually all of the related engine parts.
Revenue Recognition
Revenue from engine and airframe maintenance services is recognized upon
completion of the repair. Revenue from parts sales is recognized upon shipment
of the part to customers.
Advertising
The Company expenses advertising as incurred. Advertising expense during the
three months ended March 31, 1996 and March 31, 1995, the year ended December
31, 1995, and for the period from July 1, 1994 (date of inception) to December
31, 1994 was approximately $120,000, $70,000, $450,000, and $250,000,
respectively.
Income Taxes
Under the Internal Revenue Code, a partnership is not a taxable entity, and
accordingly, no provision for income taxes has been included in the
accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
During the quarter ended March 31, 1996, the Company performed a review of
certain of its completed contracts and determined that $1,000,000 worth of
credits that had been established for future costs were no longer required.
Accordingly, this amount was reflected as a reduction of cost of sales during
the three months ended March 31, 1996.
Reclassifications
Certain reclassifications have been made to the 1994 amounts to conform them
to the 1995 presentation.
ACQUISITIONS
Garrett entered into an agreement effective June 30, 1994 to acquire the
"Hangar Facilities" of AlliedSignal. The final price was $62,490,000 and was
financed through $12,000,000 of partners' capital with
F-52
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
the balance being funded with debt. The acquisition was accounted for as a
purchase. The purchase price was allocated to assets acquired based upon their
fair market values at the date of acquisition, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accounts receivable......................................... $29,236
Inventories................................................. 13,194
Prepaid expenses and other current assets................... 148
Property and equipment...................................... 24,434
Excess of purchase price over net assets.................... 6,762
Accounts payable............................................ (2,218)
Accrued expenses............................................ (3,934)
Capital lease obligations................................... (5,132)
-------
$62,490
=======
</TABLE>
On October 26, 1994, Garrett purchased 99 percent of certain assets and
assumed certain liabilities relating to an airframe maintenance, support and
fueling business known as "The Jet Center" for $2,420,000. The results of
operations of the acquired business have been included in the Garrett
financial statements from the date of acquisition. The one percent of The Jet
Center not owned by the Partnership is owned by CFC Aviation, Inc.
The acquisition of The Jet Center was accounted for by the purchase method
of accounting. The purchase price was allocated to assets acquired based upon
their fair market values at the date of acquisition, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash........................................................ $ 307
Accounts receivable......................................... 1,531
Inventories................................................. 1,324
Prepaid expenses and other current assets................... 64
Property and equipment...................................... 2,624
Excess of purchase price over net assets.................... 511
Accounts payable............................................ (2,327)
Accrued expenses............................................ (1,614)
-------
$ 2,420
=======
</TABLE>
OPERATING AGREEMENTS
In conjunction with the purchase of the Hangar Facilities, the Partnership
entered into an Operating Agreement with AlliedSignal for a minimum term of 15
years covering certain critical aspects of the business. As a result of the
agreement, Garrett conducts a significant amount of business with the seller.
Some of the key provisions of the agreement include:
CONSIGNED INVENTORY. Garrett is permitted to hold on consignment certain
new spares, repair parts and exchange parts supplied by the seller. Such
inventory is held under the control of Garrett but is not purchased by
Garrett until the part is sold to the ultimate customer. Included in cost
of sales for the three months ended March 31, 1996 and March 31, 1995, the
year ended December 31, 1995 and for the period from July 1, 1994 (date of
inception) to December 31, 1994, were purchases of approximately
$42,000,000, $38,000,000, $175,000,000, and $68,000,000, respectively,
under this arrangement.
PREPAID MAINTENANCE SERVICE PLANS. Garrett performs certain maintenance
services for eligible customers under the provisions of prepaid maintenance
service plans offered by AlliedSignal. Garrett is reimbursed for its costs
adjusted for performance incentives and disincentives as defined in the
Operating
F-53
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
Agreement. Total revenue from these plans was approximately $31,000,000,
$25,000,000, $101,000,000, and $43,000,000 for the three months ended March
31, 1996, March 31, 1995, the year ended December 31, 1995 and the period
from July 1, 1994 (date of inception) to December 31, 1994, respectively.
WARRANTY. Garrett also performs certain warranty services for the benefit
of the seller which is recorded as revenue based upon the agreed upon
repair schedule in the Operating Agreement. Revenue recognized on these
services for the three months ended March 31, 1996, and March 31, 1995, the
year ended December 31, 1995 and for the period from July 1, 1994 (date of
inception) to December 31, 1994, was approximately $9,000,000, $6,000,000,
$24,000,000, and $10,000,000, respectively.
The Operating Agreement is subject to termination subsequent to the
expiration of its 15-year term with one-year prior notice. It is further
subject to earlier termination under certain circumstances which include, but
are not limited to, mutual agreement, certain breaches, bankruptcy, customer
satisfaction deficiencies and other criteria. At March 31, 1996, December 31,
1995 and 1994, Garrett had accounts receivable from AlliedSignal
of $13,979,000, $4,228,000, and $15,782,000, respectively, and had accounts
payable to AlliedSignal of $21,271,000, $25,801,000, and $17,634,000,
respectively.
INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Materials......................................... $14,423 $10,259 $ 8,319
Work-in-process................................... 13,596 13,428 7,874
------- ------- -------
28,019 23,687 16,193
Less: reserves.................................... 2,404 2,406 1,711
------- ------- -------
$25,615 $21,281 $14,482
======= ======= =======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements.......................... $ 7,935 $ 7,946 $ 7,946
Machinery and equipment......................... 20,599 20,507 19,007
Information systems and data handling
equipment...................................... 6,174 6,038 431
Construction in progress........................ 1,075 530 1,850
------- ------- -------
35,783 35,021 29,234
Less: accumulated depreciation and
amortization................................... 8,030 6,619 2,008
------- ------- -------
$27,753 $28,402 $27,226
======= ======= =======
</TABLE>
F-54
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
Property and equipment held under capital leases consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 --------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements............................ $3,319 $3,319 $3,319
Accumulated amortization.......................... (251) (216) (72)
------ ------ ------
$3,068 $3,103 $3,247
====== ====== ======
</TABLE>
Amortization under capital leases is included with depreciation expense.
ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Customer progress payments....................... $ 6,101 $ 2,317 $ 1,643
Accrued vacation................................. 3,038 2,895 2,458
Other............................................ 6,628 8,163 6,847
------- ------- -------
$15,767 $13,375 $10,948
======= ======= =======
</TABLE>
REVOLVING CREDIT AGREEMENT
Garrett has a Revolving Credit Agreement (Revolver) as part of its primary
Bank Credit Agreement (the overall agreement collateralizes substantially all
of Garrett's assets), which matures December 31, 1999 unless it is in default,
and provides for maximum borrowings of up to $27,000,000, subject to reduction
for outstanding letters of credit of up to $5,000,000. Unused borrowings
available at March 31, 1996 and December 31, 1995 are $4,000,000 and
$17,000,000, respectively, which is further reduced by outstanding letters of
credit of $354,000 at both March 31, 1996 and December 31, 1995. Interest
rates are determined at the time of borrowing and are based on the lender's
base rate, plus a margin of 0.75 percent to 0.0 percent based on operating
performance measures, or a Eurodollar rate, plus a margin of 2.0 percent to
1.0 percent based on operating performance measures. Interest on outstanding
balances under the Revolver is payable either monthly, quarterly or
semiannually dependent upon whether the borrowing is a base rate or Eurodollar
rate loan. At March 31, 1996 and December 31, 1995, $23,000,000 and
$10,000,000, respectively, was outstanding under the Revolver of which the
interest rate was 6.94 percent. The weighted average interest rate of the
Revolver for the year ended December 31, 1995 and for the period from July 1,
1994 (date of inception) to December 31, 1994 was 7.65 percent and 7.20
percent, respectively. The Bank Credit Agreement contains various restrictive
covenants on financial ratios, capital expenditures and distributions among
other restrictions.
LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loan........................................ $22,000 $24,750 $27,000
Lease obligations................................ 5,396 5,358 5,209
------- ------- -------
27,396 30,108 32,209
Less current maturities.......................... 5,500 8,250 5,000
------- ------- -------
$21,896 $21,858 $27,209
======= ======= =======
</TABLE>
F-55
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
The Term Loan had an initial principal amount of $27,000,000 and annual
principal payments of $5,000,000 in 1995 and $5,500,000 thereafter. Interest
on the Term Loan is payable on the same basis and at the same rates as set
forth for the Revolving Credit Agreement. The term loan is part of the Bank
Credit Agreement that also includes the Revolving Credit Agreement.
Significant terms, interest and collateral are the same as set forth above in
the Revolving Credit Agreement footnote. At March 31, 1996 and December 31,
1995, the interest rate on the term loan was 6.56 and 8.50 percent on
$2,750,000 and $2,800,000, respectively, of the balance and 6.50 and 7.00
percent on $19,250,000 and $21,950,000, respectively, of the remaining
balance.
Garrett is required under the terms of its credit agreement to maintain an
interest rate swap to the extent of $20,000,000 from August 5, 1994 through
August 5, 1996, and has elected to enter into a $10,000,000 swap from August
6, 1996 to August 5, 1997 which effectively adjusts the variable interest rate
on this portion of Garrett's debt to a fixed 6.67 percent plus the margin as
defined in the Bank Credit Agreement (the actual rate as defined in the swap
at March 31, 1996 and December 31, 1995 was 5.31 and 5.91 percent,
respectively, plus the margin). Garrett is required to make quarterly
settlements on the rate differentials and records a charge or credit to
interest expense at the end of each period for the impact of the swap. At
March 31, 1996 and December 31, 1995, Garrett had accrued $24,000 and $23,000,
respectively, for the impact of the swap for the periods ended March 31, 1996
and December 31, 1995, respectively.
Lease obligations include two leases, the first of which relates to amounts
accrued in relation to a lease funded by a municipality through a $4,254,000
issue of tax-exempt bonds to finance certain hangar leasehold improvements
which is accounted for as a capital lease. These bonds were issued by the
respective city's airport authority prior to the acquisition and were
guaranteed by AlliedSignal. At the time of the acquisition, Garrett assumed
the $4,254,000 lease obligation and related leasehold improvement asset, and
under a sublease agreement, Garrett reimburses a monthly lease payment to
AlliedSignal in the amount of the monthly rental due on the lease which equals
the municipality's interest costs on the tax exempt bonds. This monthly
payment is recorded as interest expense. The $4,254,000 is due in October
2016. The second lease has a $4,400,000 balloon payment due in September 2018
and Garrett records annual rent expense in an amount which equals the lessor's
interest costs on the debt issued for the leasehold, and records an additional
expense of approximately $150,000 annually to establish the liability
necessary to satisfy the final payment. At March 31, 1996 and December 31,
1995, $1,142,000 and $1,104,000, respectively, has been accrued toward the
final obligation. Interest rates on both obligations are guaranteed by
AlliedSignal at four percent through June 1997 and five percent through
December 1999. Thereafter, the interest rates will be variable based on the
rate attached to the bonds.
Principal maturities on long-term debt at December 31, 1995, in the
aggregate are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996........................................................ $ 8,250
1997........................................................ 5,500
1998........................................................ 5,500
1999........................................................ 5,500
2000........................................................ --
Thereafter.................................................. 5,358
-------
$30,108
=======
</TABLE>
Total interest expense paid by Garrett for the three months ended March 31,
1996 and March 31, 1995, the year ended December 31, 1995 and for the period
from July 1, 1994 (date of inception) to December 31, 1994 on all forms of
borrowing was approximately $1,156,000, $1,343,000, $3,430,000, and $650,000,
respectively.
F-56
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
LEASE COMMITMENTS
The Company has various noncancelable operating leases relating principally
to real property, which expire at various dates through 2018. Rental expense
for the three months ended March 31, 1996 and March 31, 1995, the year ended
December 31, 1995 and for the period from July 1, 1994 (date of inception) to
December 31, 1994 was approximately $765,000, $772,000, $3,023,000, and
$1,374,000, respectively. At December 31, 1995, future minimum rental
commitments under noncancelable operating leases with a term in excess of one
year are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996........................................................ $ 2,621
1997........................................................ 2,282
1998........................................................ 2,100
1999........................................................ 1,527
2000........................................................ 725
Thereafter.................................................. 3,204
-------
$12,459
=======
</TABLE>
GENERAL CONTINGENCIES
From time to time, the Company is involved in certain litigation matters
through the normal course of business. Management does not believe that the
outcome of these matters will result in uninsured losses that will have a
material impact to the Company.
RELATED PARTIES
Garrett paid approximately $105,000, $75,000, $360,000, and $150,000,
respectively, for the three months ended March 31, 1996 and March 31, 1995,
the year ended December 31, 1995 and for the period from July 1, 1994 (date of
inception) to December 31, 1994 for management fees to entities that are
partners in Garrett. Such management fee arrangements call for payment of
$300,000 per year beginning July 1, 1994 to one of the partner groups which is
to continue as long as their ownership interest equals or exceeds 20 percent
of their initial ownership interest, and an additional $120,000 per year to
another of the partner groups beginning July 1, 1995 which is to continue as
long as their ownership interest exceeds 20 percent of their ownership
interest.
Under the terms of the Bank Credit Agreement, Garrett is permitted to
distribute to its partners an amount equal to the maximum federal and state
tax rates applied to taxable income from the partnership attributable to the
partners. For the three months ended March 31, 1996 and March 31, 1995, the
year ended December 31, 1995 and for the period from July 1, 1994 (date of
inception) to December 31, 1994, Garrett paid cash distributions of
approximately $1,476,000, $43,000, $6,164,000, and $22,000, respectively. At
March 31, 1996 and December 31, 1995, Garrett has accrued an additional
$1,893,000 and $1,437,000, respectively, which is scheduled to be paid
subsequent to that date relating to operating results as of each of the
respective dates.
BENEFIT PLAN
During 1994, Garrett established the Garrett Aviation Services Savings Plan
covering substantially all employees who have completed 12 consecutive months
of service with Garrett or its predecessor businesses. Under the terms of the
Plan, employees may make voluntary contributions up to 15 percent of their
base compensation subject to Internal Revenue Service limitations. The Company
will match 50 percent of employee contributions up to six percent of an
employee's base compensation. Contributions to the Plan for the three months
ended March 31, 1996 and 1995, the year ended December 31, 1995 and for the
period from July 1,
F-57
<PAGE>
GARRETT AVIATION SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED)
1994 (date of inception) to December 31, 1994 were approximately $190,000,
$182,000, $786,000, and $316,000, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long and short-term debt: The carrying amounts of the Company's
borrowings under its short-term revolving credit agreement approximates its
fair value. The fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. At
March 31, 1996 and December 31, 1995, the carrying amount of the Company's
long-term debt approximates its fair value.
SUBSEQUENT EVENT
In 1996, an unrelated third party has entered into a definitive agreement to
acquire substantially all of the assets and business of Garrett for
approximately $145 million in cash and the assumption of certain liabilities.
The transaction is subject to various matters so there is no assurance that it
will ultimately be consummated.
F-58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
UNC Incorporated:
We have audited the accompanying statements of earnings and cash flows of
certain of the hangar facilities (as described in Note 1, "the Hangars") of
AlliedSignal Engines-Hangar Operations, a division of AlliedSignal Inc., for
the six month period ended June 30, 1994 and the year ended December 31, 1993.
These financial statements are the responsibility of the Hangars 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, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Hangars for the six month period ended June 30, 1994 and the year ended
December 31, 1993, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
July 26, 1996
F-59
<PAGE>
ALLIEDSIGNAL ENGINES--HANGER OPERATIONS
(A DIVISION OF ALLIEDSIGNAL INC.)
STATEMENT OF EARNINGS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1994 AND FOR THE YEAR ENDED DECEMBER
31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
------------ --------
<S> <C> <C>
Net sales................................................ $253,191 $124,144
Cost of sales............................................ 162,575 80,522
-------- --------
Gross profit........................................... 90,616 43,622
Selling, general and administrative expenses............. 9,608 5,299
-------- --------
Operating profit....................................... 81,008 38,323
Interest expense......................................... (187) (93)
Other income (expense)................................... 47 (136)
-------- --------
Net earnings............................................. $ 80,868 $ 38,094
======== ========
</TABLE>
F-60
<PAGE>
ALLIEDSIGNAL ENGINES--HANGER OPERATIONS
(A DIVISION OF ALLIEDSIGNAL INC.)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1994 AND THE YEAR ENDED DECEMBER 31,
1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
------------ --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................... $ 80,868 $ 38,094
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization of property and
equipment........................................... 1,686 882
Loss on disposal of property and equipment........... 177
Changes in operating assets and liabilities:
Accounts receivable, trade......................... (2,117) (604)
Inventories........................................ 3,115 4,395
Prepaid and other current assets................... 196 (27)
Accounts payable, trade............................ (1,242) 1,638
Accrued expenses and other liabilities............. (273) 356
Due to affiliate................................... (758) 1,424
-------- --------
Net cash flows from operating activities............. 81,475 46,335
Cash flows used in investing activities:
Purchases of property and equipment.................. (471) (264)
-------- --------
Net cash flows used in investing activities.......... (471) (264)
Cash flows from financing activities:
Cash distributions to AlliedSignal Inc. ............. (81,008) (46,070)
-------- --------
Net cash flows used in financing activities.......... (81,008) (46,070)
-------- --------
Net increase (decrease) in cash and cash equivalents... (4) 1
Cash and cash equivalents, at beginning of period...... 49 45
-------- --------
Cash and cash equivalents, at end of period............ $ 45 $ 46
======== ========
</TABLE>
F-61
<PAGE>
ALLIEDSIGNAL ENGINES--HANGAR OPERATIONS
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of the Augusta, Ga.; Houston,
Tx.; Little Rock, Ark.; Los Angeles, Ca.; Ronkonkoma, NY.; and Springfield,
Ill. hangar facilities (those acquired by Garrett Aviation Services in July
1994, "the Hangars"), of AlliedSignal Engines--Hangar Operations, a wholly
integrated line of business of AlliedSignal Engines, a division of
AlliedSignal Inc. The financial results of operations of the Hangars, as
presented herein for the six month period ended June 30, 1994 and the year
ended December 31, 1993, would not be the same as would have occurred had the
Hangars been an independent entity. Certain costs, including certain employee
benefit costs, corporate expenses and income taxes were not allocated to these
facilities and are not included in the accompanying financial statements.
The Hangars provide turbine-powered airframe maintenance and related
services, technical support and turbine engine repair, overhaul and related
services on turbine engine products to general aviation operators and regional
commercial airlines. The services are provided at airport hangar locations
throughout the United States.
Revenue Recognition
Revenue from engine and airframe maintenance services is recognized upon
completion of the repair. Revenue from parts sales is recognized upon shipment
of the part to the customers.
Cash and Cash Equivalents
The Hangars consider all highly liquid investments with maturities of three
months or less to be cash equivalents for the purposes of the statement of
cash flows.
Inventories
Materials inventory is stated at the lower of cost or market, with cost
being determined on the average cost basis. Work-in-process includes material,
labor and related overhead.
Depreciation and Amortization
The cost of property and equipment are depreciated over the useful life of
the assets using the straight-line method. Leasehold improvements are
amortized over the shorter of their useful lives or the terms of the related
leases using the straight-line methods.
Concentration of Credit Risk
Substantially all of the revenues are derived from customers in the general
aviation market by direct sales and through repair and overhaul operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of revenues and expenses reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Statement of Cash Flows
During 1993 and the six months period ended June 30, 1994, no interest was
paid by the Hangars.
2. RENTAL EXPENSE
The Hangars have various noncancelable operating leases relating principally
to real property, which expire at various dates through 2018. Rental expense
for the six month period ended June 30, 1994 and the year ended December 31,
1993 was $1,155,000 and $2,219,000, respectively.
F-62
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING
CIRCULAR AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY INITIAL PURCHASER.
THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
----------------
PROSPECTUS
----------------
UNC INCORPORATED
$125,000,000
11% SENIOR SUBORDINATED NOTESDUE 2006
All tendered Old Notes, executed Letters of Transmittal, and other related
documents should be directed to the Exchange Agent, Request for assistance and
for additional copies of the Prospectus, the Letter of Transmittal and other
related documents should be directed to the Exchange Agent.
The Exchange Agent
for the Exchange Offer is:
THE BANK OF NEW YORK
Facsimile Transmissions:
(212) 571-3080
To Confirm by Telephone or for Information:
(212) 815-6333
By Hand Delivery: By Mail/Courier Service:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street-7E
Corporate Trust Service Window Ground New York, New York 10286
Level Attention: Reorganization Section
New York, New York 10286
Attention: Reorganization Section
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents By Reference.......................... 3
Prospectus Summary....................................................... 5
Risk Factors............................................................. 19
Use of Proceeds.......................................................... 22
Capitalization........................................................... 30
Pro Forma Combined Financial Data........................................ 31
Selected Historical Consolidated Financial Data.......................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Business................................................................. 53
Management............................................................... 67
Description of Certain Indebtedness...................................... 69
Description of the Preferred Stock....................................... 71
Description of Notes..................................................... 73
Certain Federal Income Tax Consequences.................................. 92
Plan of Distribution..................................................... 95
Legal Matters............................................................ 96
Experts.................................................................. 96
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law authorizes Delaware corporations to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Delaware General Corporation Law also authorizes a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit is brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
To the extent that a director, officer, employee or agent of the corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding discussed in the foregoing paragraphs, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith.
The registrant's Certificate of Incorporation does not limit the extent of
the indemnity provided by the Delaware General Corporation Law. The Amended
and Restated Bylaws of the registrant permit indemnification of directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, and the registrant's directors and officers are covered by certain
insurance policies maintained by the registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
3.1 Certificate of Incorporation as amended by Certificate of
Designations of Series A Preferred Stock, of the Company (filed
as Exhibit 4-H to the Company's Registration Statement No. 33-
13762 and incorporated herein by reference).
3.2 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Company (filed as Exhibit A to
the Company's Form 8-A dated October 9, 1987, and incorporated
herein by reference).
3.3 Amended and Restated Bylaws of the Company (including resolutions
of the Board of Directors of the Company on February 5, 1992
amending the By-Laws of the Company) (filed as Exhibit 3-C to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991--File No. 1-7795 and incorporated herein by
reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
4.1 Rights Agreement, dated as of September 25, 1987, between the
Company and Manufacturer Hanover Trust Company (filed as Exhibit
No. 1 to the Company's Form 8-A dated October 9, 1987 and
incorporated herein by reference).
4.2 Indenture, dated as of May 1, 1986, between the Company and
Maryland National Bank, Trustee, relating to the Company's 7 1/2%
Convertible Subordinated Debentures due 2006 (filed as Exhibit 4-
A to the Company's Registration Statement No. 33-5136 and
incorporated herein by reference).
4.3 First Supplemental Indenture, dated as of April 26, 1987, between
the Company and Maryland National Bank, Trustee (supplementing
the Indenture, dated May 1, 1986, between the Company and
Maryland National Bank, Trustee, relating to the Company's 7 1/2%
Convertible Subordinated Debentures due 2006) (filed as Exhibit
4-J to the Company's Registration Statement No. 33-13762 and
incorporated herein by reference).
4.4 Indenture, dated as of July 15, 1993, between the Company and
Continental Bank, National Association, Trustee, relating to the
Company's 9 1/8% Senior Notes due 2003 (filed as Exhibit 4-B to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993--File No. 1-7795 and incorporated herein by
reference).
4.5 First Supplemental Indenture, dated as of August 14, 1993, between
the Company and Continental Bank, National Association, Trustee
(supplementing the Indenture, dated July 15, 1993, between the
Company and Continental Bank, National Association, Trustee,
relating to the Company's 9 1/8% Senior Notes due 2003) (filed as
Exhibit 4.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995--File No. 1-7795 and
incorporated herein by reference).
4.6 Second Supplemental Indenture, dated as of November 5, 1993,
between the Company and Continental Bank, National Association,
Trustee (supplementing the Indenture, dated July 15, 1993,
between the Company and Continental Bank, National Association,
Trustee, relating to the Registrant's 9 1/8% Senior Notes due
2003) (filed as Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995--File No.
1-7795 and incorporated herein by reference).
4.7 Third Supplemental Indenture, dated as of May 15, 1996, among UNC
Incorporated, UNC Johnson Technology, Inc., UNC Parts Company,
the other corporations identified as Guarantors therein and
Chemical Bank, as Trustee (filed as Exhibit 4.11 to the Company's
registration statement on Form S-8, No. 333-6389 and incorporated
herein by reference).
4.8 Fourth Supplemental Indenture, dated as of May 30, 1996, among UNC
Incorporated, the corporations identified as Guarantors therein
and Chemical Bank, as Trustee (filed as Exhibit 4.12 to the
Company's registration statement on Form S-8, No. 333-6389 and
incorporated herein by reference).
4.9 Indenture dated as of May 30, 1996, among UNC Incorporated, the
other corporations identified therein as Guarantors and The Bank
of New York, as Trustee (relating to the Company's 11% Senior
Subordinated Notes due 2006) (filed as Exhibit 4.13 to the
Company's registration statement on Form S-8, No. 333-6389 and
incorporated herein by reference).
5 Opinion of Miles & Stockbridge, a Professional Corporation.
10.1 Purchase Agreement, dated May 23, 1996, by and among CS First
Boston Corporation, First Union Capital Markets Corp. and the
Company and its subsidiaries named therein.
10.2 Registration Rights Agreement, dated May 23, 1996, by and among CS
First Boston Corporation, First Union Capital Markets Corp. and
the Company and its subsidiaries named therein.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
12 Statement of Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
21 Subsidiaries of the Registrant (filed as Exhibit 21 to the
Company's annual report on Form 10-K, No. 1-7795 and incorporated
herein by reference).
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Miles & Stockbridge, a Professional Corporation
(included in Exhibit 5).
24 Power of Attorney.
25 Form T-1, Statement of Qualification and Eligibility Under the
Trust Indenture Act of 1939.
</TABLE>
ITEM 22(A). UNDERTAKINGS.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the 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 whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(j) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
ITEM 22(B),(C). UNDERTAKINGS.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ANNAPOLIS, STATE OF MARYLAND ON AUGUST 12, 1996.
UNC INCORPORATED
/s/ Robert L. Pevenstein
By: _________________________________
ROBERT L. PEVENSTEIN, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
* Chairman of the August 12, 1996
- ------------------------------------- Board, President
DAN A. COLUSSY and Chief Executive
Officer and
Director
/s/ Robert L. Pevenstein Senior Vice August 12, 1996
- ------------------------------------- President and Chief
ROBERT L. PEVENSTEIN Financial Officer
* Director August 12, 1996
- -------------------------------------
BERL BERNHARD
* Director August 12, 1996
- -------------------------------------
BEVERLY B. BYRON
* Director August 12, 1996
- -------------------------------------
JOHN K. CASTLE
* Director August 12, 1996
- -------------------------------------
JOHN W. GILDEA
II-4
<PAGE>
SIGNATURE TITLE DATE
* Director August 12, 1996
- -------------------------------------
FREEMAN A. HRABOWSKI, III
* Director August 12, 1996
- -------------------------------------
GEORGE V. MCGOWAN
* Director August 12, 1996
- -------------------------------------
JACK MOSELEY
* Director August 12, 1996
- -------------------------------------
LAWRENCE A. SKANTZE
*By: /s/ Richard H. Lange
--------------------------------
RICHARD H. LANGE
ATTORNEY-IN-FACT
II-5
<PAGE>
UNC INCORPORATED
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------- ------
<S> <C> <C>
5 Opinion of Miles & Stockbridge, a Professional Corporation.
10.1 Purchase Agreement, dated May 23, 1996, by and among CS First
Boston Corporation, First Union Capital Markets Corp. and
the Company and its subsidiaries named therein.
10.2 Registration Rights Agreement, dated May 23, 1996, by and
among CS First Boston Corporation, First Union Capital
Markets Corp. and the Company and its subsidiaries named
therein.
Statement of Computation of Ratio of Earnings to Fixed
12 Charges and Preferred Dividends.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP.
Consent of Miles & Stockbridge, a Professional Corporation
23.5 (included in Exhibit 5).
24 Power of Attorney.
Form T-1, Statement of Qualification and Eligibility Under
25 the Trust Indenture Act of 1939.
</TABLE>
II-6
<PAGE>
Exhibit 5
[MILES & STOCKBRIDGE LETTERHEAD]
August 12, 1996
UNC Incorporated
175 Admiral Cochrane Drive
Annapolis, Maryland 21401
Gentlemen:
We have acted as counsel to UNC Incorporated, a Delaware corporation (the
"Company"), in connection with the filing of a Registration Statement on Form
S-4 (as amended, the "Registration Statement") under the Securities Act of 1933
(the "Act") with regard to the 11% Senior Subordinated Notes Due June 1, 2006
(the "Notes") of the Company, in the principal amount of $125,000,000. In this
capacity, we have reviewed the Certificate of Incorporation and the Amended and
Restated Bylaws of the Company, the Indenture dated as of May 30, 1996, among
UNC Incorporated, the other corporations identified therein as Guarantors, and
The Bank of New York, as trustee (the "Trustee") (as supplemented or modified by
the Trust Indenture Act of 1939, collectively, the "Indenture"), the
Registration Statement including the exhibits thereto, the corporate proceedings
of the Company related to the authorization of the issuance of the Notes and
such other corporate records, certificates and documents as we deemed necessary
for the purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the Notes, when duly
executed in accordance with the terms of the resolutions adopted by the Board of
Directors of the Company and the terms of the Indenture, authenticated by the
Trustee in accordance with the terms of the Indenture and issued and delivered
against payment therefor, will be legally issued and will constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations promulgated by the
Securities and Exchange Commission thereunder.
Very truly yours,
Miles & Stockbridge,
a Professional Corporation
By: /s/ J.W. Thompson Webb
-----------------------
Principal
<PAGE>
CONFORMED COPY
EXHIBIT 10.1
$125,000,000
UNC INCORPORATED
11% Senior Subordinated Notes Due 2006
PURCHASE AGREEMENT
------------------
May 23, 1996
CS First Boston Corporation
First Union Capital Markets Corp.
c/o CS First Boston Corporation
Park Avenue Plaza
New York, New York 10055
Dear Sirs:
1. Introductory. UNC Incorporated, a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the several initial purchasers named in Schedule A hereto (the
"Purchasers") $125,000,000 principal amount of its 11% Senior Subordinated Notes
Due 2006 (the "Notes") to be issued under an Indenture, dated as of May 30, 1996
(the "Indenture"), among the Company, the Guarantors described therein and The
Bank of New York, as trustee (the "Trustee"). The Notes are to be fully and
unconditionally guaranteed, jointly and severally, by the Guarantors in
accordance with the terms of the Indenture. Such guarantees are hereinafter
referred to as the "Guarantees" and the Notes and the Guarantees are hereinafter
collectively referred to as the "Offered Securities." The United States
Securities Act of 1933, as amended, is herein referred to as the "Securities
Act."
For purposes of this Agreement, (i) "Acquisition Agreement" shall mean the
Asset Purchase Agreement, dated as of January 15, 1996, among the Company,
UNC/CFC Acquisition Co., CFC Aviation Services, L.P., CFC Aviation Company,
L.L.C., CFC Aviation, Inc., Carlisle Enterprises, L.P., First Capital
Corporation of Chicago and Cross Creek Partners III, (ii) the "Acquisition"
shall mean the acquisition by Buyer (as defined in the Acquisition Agreement) of
the Assets (as defined in the Acquisition Agreement) contemplated by the
Acquisition Agreement, (iii) "Garrett" shall mean the Assets (as defined in the
Acquisition Agreement), (iv) "Sabreliner Agreement" shall mean the Purchase and
Sale Agreement, dated as of April 23, 1996, between Sabreliner Corporation
("Sabreliner") and the Company and (v) "AlliedSignal Agreement" shall mean the
Agreement, dated as of April 23, 1996, among the Company, UNC Airwork
Corporation, CFC Aviation Services, L.P. and AlliedSignal Inc.
Holders (including subsequent transferees) of the Offered Securities will
have the registration rights set forth in the Registration Rights Agreement of
even date herewith (the "Registration Rights Agreement"), among the Company, the
Guarantors and the Purchasers. Pursuant to the Registration Rights Agreement,
the Company and the Guarantors have agreed to file with the Securities and
Exchange Commission (the "Commission") (i) a registration statement under the
Securities Act registering the offering of senior subordinated notes (the
"Exchange Securities") identical in all material respects to the Offered
Securities
<PAGE>
(except that the Exchange Securities will not contain terms with respect to
transfer restrictions) to be offered in exchange for the Offered Securities and
(ii) under certain circumstances, a shelf registration statement pursuant to
Rule 415 under the Securities Act.
The Company and the Guarantors hereby agree with the several Purchasers as
follows:
2. Representations and Warranties of the Company and the Guarantors. The
Company and the Guarantors jointly and severally represent and warrant to, and
agree with, the several Purchasers that:
(i) A preliminary offering circular and an offering circular
relating to the Offered Securities to be offered by the Purchasers have
been prepared by the Company and the Guarantors. Such preliminary offering
circular and offering circular, as supplemented as of the date of this
Agreement, together with all material incorporated by reference therein and
any other document approved by the Company and the Guarantors for use in
connection with the contemplated resale of the Offered Securities are
hereinafter collectively referred to as the "Offering Document." The
Offering Document does not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The preceding sentence does not apply to statements
in or omissions from the Offering Document based upon written information
furnished to the Company and the Guarantors by any Purchaser through CS
First Boston Corporation ("CSFBC") specifically for use therein, it being
understood and agreed that the only such information is that described as
such in Section 7(b). Except as disclosed in the Offering Document, on the
date of this Agreement, the Company's Annual Report on Form 10-K most
recently filed with the Commission and all subsequent reports
(collectively, the "Exchange Act Reports") which have been filed by the
Company with the Commission or sent to stockholders pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") do not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such documents,
when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
(ii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Offering Document; and the Company is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership, leasing or operation of property requires such
qualification, except to the extent that the failure to be so qualified or
in good standing would not have a material adverse effect on the Company
and its Subsidiaries (as defined below), taken as a whole.
(iii) The Company's only subsidiaries are listed on Schedule B
hereto (collectively, the "Subsidiaries"). Each Subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Document and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership, leasing or operation
of property requires such qualification, except to the extent that the
failure to be so qualified or in good standing would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole. All
of the outstanding capital stock of each Subsidiary has been duly
authorized and validly issued and is fully paid and non-assessable and is
owned by the Company, directly or through Subsidiaries, free and clear of
any mortgage, pledge, lien, perfected security interest, claim or
encumbrance of any kind or, to the knowledge of the Company, any
unperfected security interest.
2
<PAGE>
(iv) All outstanding shares of capital stock of the Company have
been duly authorized, are validly issued, fully paid and non-assessable and
have been issued in compliance with applicable federal and state securities
laws; the Company has an authorized and outstanding capital stock as set
forth in the Offering Document under the caption "Capitalization;" and the
stockholders of the Company have no preemptive or similar rights with
respect to the capital stock or any other securities of the Company.
(v) This Agreement has been duly authorized, executed and
delivered by the Company and the Guarantors.
(vi) The Indenture has been duly authorized by the Company and the
Guarantors, will be substantially in the form heretofore delivered to you
and, when duly executed and delivered by the Company, the Guarantors and
the Trustee, will constitute a valid and binding obligation of the Company
and the Guarantors, enforceable against the Company and the Guarantors in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws relating to creditors' rights generally
and by general principles of equity; and the Indenture conforms in all
material respects to the description thereof contained in the Offering
Document.
(vii) The Registration Rights Agreement has been duly authorized by
the Company and the Guarantors, will be substantially in the form
heretofore delivered to you and, when duly executed and delivered by the
Company, the Guarantors and you, will constitute a valid and binding
obligation of the Company and the Guarantors, enforceable against the
Company and the Guarantors in accordance with its terms, except to the
extent that enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
relating to creditors' rights generally and by general principles of
equity; and the Registration Rights Agreement conforms in all material
respects to the description thereof contained in the Offering Document.
(viii) The Notes and the Guarantees have been duly authorized by the
Company or the Guarantors, as the case may be, and when executed,
authenticated, issued and delivered in the manner provided for in the
Indenture and sold and paid for as provided in this Agreement, the Notes
and the Guarantees will constitute valid and binding obligations of the
Company or the Guarantors, as the case may be, entitled to the benefits of
the Indenture and enforceable against the Company and the Guarantors, as
the case may be, in accordance with their terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws relating to
creditors' rights generally and by general principles of equity; and the
Offered Securities conform in all material respects to the description
thereof contained in the Offering Document.
(ix) No consent, approval, authorization, order, registration or
qualification of or with any natural person, corporation, partnership,
trust, firm, association or other entity, whether acting in an individual,
fiduciary or other capacity ("Person"), or any court or government agency
or body is required for the issuance of the Offered Securities or for the
consummation of the other transactions contemplated by this Agreement, the
Sabreliner Agreement or the AlliedSignal Agreement or, except as described
in the Offering Document, for the use of the proceeds to be received by the
Company from such sale in the manner contemplated by the description under
the caption "Use of Proceeds" contained in the Offering Document, including
without limitation the Acquisition, except (i) such as may be required
under state securities laws in connection with the offer and sale of the
Offered Securities and (ii) such other consents to the transactions
contemplated by the Acquisition Agreement or the Sabreliner Agreement the
failure of which to obtain would not, singly or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole, Garrett, or the consummation of any transaction contemplated
3
<PAGE>
by this Agreement, the Offering Document, the Acquisition Agreement, the
Sabreliner Agreement or the AlliedSignal Agreement.
(x) The execution and delivery of, and performance by the Company
and the Guarantors of their obligations under, the Indenture, the
Registration Rights Agreement and this Agreement and the issuance and sale
of the Notes and Guarantees and the compliance with the terms and
provisions thereof and hereof by the Company and the Guarantors, as the
case may be, and the consummation of the transactions contemplated by the
Acquisition Agreement, the Sabreliner Agreement and the AlliedSignal
Agreement will not contravene any provision of the charter or by-laws of
the Company or any of its Subsidiaries, or conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any assets or property of the Company or any of its
Subsidiaries under, any statute, rule, regulation, order or decree of any
governmental agency or body or any court having jurisdiction over the
Company or any of its Subsidiaries or any of their properties or any
indenture, mortgage, loan agreement, note, lease, permit, license or other
agreement or instrument material to the Company and its Subsidiaries taken
as a whole to which the Company or any such Subsidiary is bound or to which
any of the properties of the Company or any such Subsidiary is subject, and
the Company and the Guarantors, as the case may be, have full power and
authority to authorize, issue and sell the Notes and the Guarantees as
contemplated by this Agreement. The consummation of the transactions
contemplated by the Acquisition Agreement, the Sabreliner Agreement and the
AlliedSignal Agreement will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any assets or property of Garrett under, any statute,
rule, regulation, order or decree of any governmental agency or body or any
court having jurisdiction over Garrett or any of its properties or any
indenture, mortgage, loan agreement, note, lease, permit, license or other
agreement or instrument material to Garrett to which Garrett is bound or to
which any of its properties is subject.
(xi) Neither the Company nor any of its Subsidiaries is (i) in
violation of its charter or by-laws, or (ii) in violation of any applicable
law, ordinance, administrative or governmental rule or regulation, or any
order of any court or governmental agency or body having jurisdiction over
the Company or any Subsidiary except, with respect to this clause (ii), for
such violations that would not, singly or in the aggregate, have a material
adverse effect on the financial condition, results of operations or general
affairs of the Company and its Subsidiaries, taken as a whole; and no event
of default or event that, but for the giving of notice or the lapse of time
or both, would constitute an event of default exists, or upon the use of
proceeds from the sale of the Offered Securities in the manner contemplated
by the description under the caption "Use of Proceeds" contained in the
Offering Document or upon the consummation of the other transactions
contemplated by the Offering Document (including, without limitation, the
transactions contemplated by the Acquisition Agreement, the Sabreliner
Agreement and the AlliedSignal Agreement) will exist, under any agreement
or instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or any lease, permit, license or other
agreement or instrument to which the Company or any of its Subsidiaries is
a party or to which any of the properties or assets of the Company or any
such Subsidiary is subject, except for such defaults that would not, singly
or in the aggregate, have a material adverse effect on the financial
condition, results of operations or general affairs of the Company and its
Subsidiaries, taken as a whole. Garrett is not in violation of any
applicable law, ordinance, administrative or governmental rule or
regulation, or any order of any court or governmental agency or body having
jurisdiction over Garrett except for such violations that would not, singly
or in the aggregate, have a material adverse effect on the financial
condition, results of operations or general affairs of Garrett; and no
event of default or event that, but for the giving of notice or the lapse
of time or both, would constitute an event of default exists or upon
consummation of the transactions contemplated by the
4
<PAGE>
Acquisition Agreement, the Sabreliner Agreement and the AlliedSignal
Agreement will exist, under any agreement or instrument for borrowed money,
any guarantee thereof or any lease, permit, license or other agreement or
instrument to which Garrett is a party or to which any of the properties or
assets of Garrett is subject, except for such defaults that would not,
singly or in the aggregate, have a material adverse effect on the financial
condition, results of operations or general affairs of Garrett.
(xii) The Company and its Subsidiaries and Garrett have such
permits, licenses, franchises, consents, approvals, authorizations and
clearances ("Licenses") and are in compliance with all applicable laws and
regulations of federal, state, local and foreign governmental or regulatory
authorities, including, without limitation, the Federal Aviation
Administration, as are necessary to own, lease or operate their properties
and to conduct their businesses in the manner described in the Offering
Document and all such Licenses are in full force and effect, except for any
such License the failure to possess or any such law or regulation the
failure to comply with could not, singly or in the aggregate, reasonably be
expected to have a material adverse affect on the financial condition,
results of operations or general affairs of the Company and its
Subsidiaries, taken as a whole or of Garrett, as the case may be. The
Company and its Subsidiaries and Garrett are in compliance in all material
respects with their respective obligations under such Licenses and no event
has occurred that allows, or after notice or lapse of time would allow,
revocation or termination of such Licenses or violation of such laws or
regulations.
(xiii) The Company and its Subsidiaries have good and marketable
title to all properties (real and personal) owned by the Company and its
Subsidiaries, free and clear of all liens, claims, security interests or
other encumbrances that may materially interfere with the conduct of the
business of the Company and its Subsidiaries, taken as a whole, and all
material properties held under lease by the Company and its Subsidiaries
are held under valid, subsisting and enforceable leases.
(xiv) The Company and its Subsidiaries and Garrett carry or are
entitled to the benefits of insurance, including, without limitation,
product liability insurance, in such amounts and covering such risks as the
Company reasonably believes is generally maintained by companies of
established repute engaged in the same or similar business, and all such
insurance is in full force and effect.
(xv) The property, assets and operations of the Company and its
Subsidiaries and Garrett comply with all applicable Environmental Laws (as
defined below), except to the extent that failure so to comply would not,
singly or in the aggregate, have a material adverse effect on the financial
condition, results of operations or general affairs of the Company and its
Subsidiaries, taken as a whole or of Garrett, as the case may be. Except
as described in the Offering Document, none of the property, assets or
operations of the Company or its Subsidiaries or Garrett is the subject of
any investigation by any federal, state, local or foreign governmental
agency evaluating whether any remedial action is needed to respond to a
release of any Hazardous Materials (as defined below) into the environment
or that is in contravention of any federal, state, local or foreign law,
order or regulation that could, singly or in the aggregate, reasonably be
expected to have a material adverse effect on the financial condition,
results of operations or general affairs of the Company and its
Subsidiaries, taken as a whole or of Garrett, as the case may be, and
neither the Company nor any Subsidiary has received notice of any such
investigation. Neither the Company, any Subsidiary or Garrett has received
any notice or claim, nor are there pending, reasonably anticipated or, to
the best knowledge of the Company, threatened lawsuits against any of them,
with respect to violations of an Environmental Law or in connection with
any release of any Hazardous Materials into the environment that, if
adversely determined, could reasonably be expected to have a material
adverse effect on the financial condition, results of operations or general
affairs of the Company and its Subsidiaries, taken as a whole or of
Garrett, as the case may
5
<PAGE>
be. Except as disclosed in the Offering Document, with respect to the
business of the Company and its Subsidiaries and Garrett, including any
previously or currently owned, leased, or used properties or operations,
there are no past, present, or, to the best knowledge of the Company and
the Guarantors, reasonably anticipated future events, conditions,
circumstances, activities, practices, incidents, actions or plans that may
interfere with or prevent compliance or continued compliance with the
Environmental Laws in any manner that could reasonably be expected to have
a material adverse effect on the financial condition, results of operations
or general affairs of the Company and its Subsidiaries, taken as a whole or
of Garrett, as the case may be. As used herein, "Environmental Laws" means
any federal, state, local or foreign law, common law, doctrine, rule,
order, decree, judgment, injunction, license, permit or regulation relating
to public health or safety or to pollution, contamination or other types of
damage to the natural environment, and "Hazardous Materials" means those
substances that are regulated by or form the basis of liability under any
Environmental Laws.
(xvi) Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings against or affecting the Company, any
of its Subsidiaries, Garrett or any of their properties that could
reasonably be expected, singly or in the aggregate, to have a material
adverse effect on the financial condition, results of operations or general
affairs of the Company and its Subsidiaries, taken as a whole, or Garrett,
as the case may be, or could reasonably be expected, singly or in the
aggregate, to have a material adverse effect on the ability of the Company
or the Guarantors to perform their respective obligations under this
Agreement, the Acquisition Agreement, the Sabreliner Agreement, the
AlliedSignal Agreement, the Indenture, the Registration Rights Agreement or
the Offered Securities; and, to the Company's and the Guarantors' best
knowledge, no such actions, suits or proceedings are threatened or
contemplated.
(xvii) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Company or any
Guarantor and any person entitling such person to any fee, commission or
payment from the Company or any Guarantor in connection with the Offered
Securities to be sold hereunder.
(xviii) Coopers & Lybrand L.L.P., who are reporting upon the audited
financial statements and schedules of the Company incorporated by reference
or included in the Offering Document, and Ernst & Young, LLP, who are
reporting upon the audited financial statements and schedules of CFC
Aviation Services, L.P. (d/b/a Garrett Aviation Services) included or
incorporated by reference in the Offering Document, are each independent
public accountants within the meaning of the Securities Act and the Rules
and Regulations.
(xix) The financial statements and related schedules and notes
included or incorporated by reference in the Offering Document were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and fairly present the
financial condition and results of operations of each of the Company and
Garrett on a consolidated basis, as the case may be, at the dates and for
the periods presented. The financial information and statistical data set
forth in the Offering Document present fairly the information shown therein
and have been compiled on a basis consistent with the financial statements
included or incorporated by reference in the Offering Document. The pro
forma financial statements and other pro forma financial information
included or incorporated by reference in the Offering Document present
fairly the information shown therein, the assumptions used in preparing
such pro forma financial statements and information provide a reasonable
basis for presenting the significant effects attributable to the
transactions or events described therein, the related pro forma adjustments
give appropriate effect to those assumptions, and the pro forma information
reflects the proper application of those adjustments to the corresponding
historical financial statement amounts.
6
<PAGE>
(xx) Since the dates as of which information is given in the
Offering Document, (A) except as specifically described in the Offering
Document, neither the Company, its Subsidiaries nor Garrett has incurred
any material liability or obligation (indirect, direct or contingent) or
entered into any material verbal or written agreement or other transaction
that is not in the ordinary course of business or that could reasonably be
expected to result in a material reduction in the future earnings of the
Company and its Subsidiaries, taken as a whole or of Garrett, as the case
may be; (B) neither the Company, its Subsidiaries nor Garrett has sustained
any loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance)
which could reasonably be expected, singly or in the aggregate, to have a
material adverse effect on the financial condition, results of operations
or general affairs of the Company and its Subsidiaries, taken as a whole or
of Garrett, as the case may be; (C) other than borrowings under the
Company's Revolving Credit Facility (as defined in the Offering Document)
and the incurrence of trade obligations in the ordinary course of business,
and except as contemplated by the Offering Document, there has been no
change in the indebtedness of the Company and its Subsidiaries, and, other
than (x) the issuance of common stock to employees of the Company upon
exercise of stock options pursuant to the terms of employee benefit plans
in effect on the date hereof and (y) the issuance of up to 700,000 shares
of common stock to executives of Garrett in connection with the
Acquisition, no change in the capital stock of the Company and no dividend
or distribution of any kind declared, paid or made by the Company on any
class of its capital stock; and (D) there has been no material adverse
change, nor any development that could reasonably be expected to result in
a material adverse change, in the financial condition, results of
operations or general affairs of the Company and its Subsidiaries, taken as
a whole or of Garrett.
(xxi) The Company and its Subsidiaries have not at any time during
the last five years made any payment to any federal or state governmental
officer or official or other person charged with similar public or quasi-
public duties, other than payments required or permitted by the laws of the
United States or any jurisdiction thereof.
(xxii) None of the Company or the Guarantors is an open-end
investment company, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
United States Investment Company Act of 1940 (the "Investment Company
Act"), nor is any of them a closed-end investment company required to be
registered, but not registered, thereunder; and none of the Company or the
Guarantors is and, after giving effect to the offering and sale of the
Offered Securities and the application of the proceeds thereof as described
in the Offering Document, will be an "investment company" as defined in the
Investment Company Act.
(xxiii) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Offered Securities are listed
on any national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
(xxiv) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement will be exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof and
Regulation S thereunder; and it is not necessary to qualify an indenture in
respect of the Offered Securities under the United States Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act").
(xxv) There are no restrictions on transfers of the Offered
Securities except as required by (A) applicable federal and state
securities laws, including Rule 144A under the Securities Act or (B) the
restrictions on transfer contained in the Purchaser's Letter (as
hereinafter defined) with respect to Offered Securities purchased by
Institutional Accredited Investors (as hereinafter defined).
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(xxvi) Neither the Company or any Guarantor, nor any of their
affiliates, nor any person acting on their behalf (i) has, within the six-
month period prior to the date hereof, offered or sold in the United States
or to any U.S. person (as such terms are defined in Regulation S under the
Securities Act) the Offered Securities, or any security of the same class
or series as the Offered Securities or (ii) has offered or will offer or
sell the Offered Securities (A) in the United States by means of any form
of general solicitation or general advertising within the meaning of Rule
502(c) under the Securities Act or (B) with respect to any such securities
sold in reliance on Rule 903 of Regulation S ("Regulation S") under the
Securities Act, by means of any directed selling efforts within the meaning
of Rule 902(b) of Regulation S. The Company, the Guarantors, their
affiliates and any person acting on their behalf have complied and will
comply with the offering restrictions requirement of Regulation S. The
Company has not entered and will not enter into any contractual arrangement
with respect to the distribution of the Offered Securities.
(xxvii) The Company and the Guarantors are subject to Section 13 or
15(d) of the Exchange Act.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Purchasers, and the Purchasers agree, severally and not jointly, to purchase
from the Company, at a purchase price of 97.125% of the principal amount thereof
plus accrued interest from May 30, 1996 to the Closing Date (as hereinafter
defined), the respective principal amounts of Offered Securities set forth
opposite the names of the several Purchasers in Schedule A hereto.
The Company will deliver against payment of the purchase price the Offered
Securities to be purchased by each Initial Purchaser hereunder and to be offered
and sold by each Initial Purchaser in reliance on Rule 144A or Regulation S
under the Securities Act in the form of one permanent global security in
definitive form (the "Restricted Global Security") deposited with the Trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee for DTC. The Restricted Global Security shall include
the legend regarding restrictions on transfer set forth under "Transfer
Restrictions" in the Offering Document. Interests in the Restricted Global
Security will be held only in book-entry form through DTC except in the limited
circumstances described in the Offering Document.
Payment for the Securities to be evidenced by the Restricted Global
Security shall be made by the Initial Purchasers by wire transfer to an account
at a bank acceptable to CSFBC previously designated to CSFBC by the Company, at
the offices of Miles & Stockbridge, 10 Light Street, Baltimore, Maryland 21202,
at 10:00 a.m. (New York time), on May 30, 1996, or at such other time and date
not later than seven full business days thereafter as CSFBC and the Company
determine, such time and date being herein referred to as the "Closing Date,"
against delivery to the Trustee as custodian for DTC of the Restricted Global
Security. The Restricted Global Security will be made available for checking at
the above offices of Dewey Ballantine at least 24 hours prior to the Closing
Date.
Notwithstanding the foregoing, any Offered Securities sold to Institutional
Accredited Investors (as hereinafter defined) pursuant to Section 4(c) shall be
issued in definitive, fully registered form and shall bear the legend relating
thereto set forth under "Transfer Restrictions" in the Offering Document, but
shall be paid for in the same manner as any Offered Securities to be purchased
by the Purchasers hereunder and to be offered and sold by them in reliance on
Rule 144A under the Securities Act.
4. Representations by Purchasers; Resale by Purchasers. (a) Each
Purchaser severally represents and warrants to the Company that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(b) Each Purchaser severally acknowledges that the Offered Securities
have not been registered under the Securities Act and may not be offered or
sold within the United States or to, or for the
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account or benefit of, U.S. persons except in accordance with Regulation S
or pursuant to an exemption from the registration requirements of the
Securities Act. Each Purchaser severally represents and agrees that it has
offered and sold the Offered Securities, and will offer and sell the
Offered Securities only in accordance with Rule 903 or Rule 144A under the
Securities Act ("Rule 144A") or in the case of CSFBC or any other Purchaser
authorized by CSFBC to a limited number of Institutional Accredited
Investors in accordance with subsection (c). Accordingly, neither such
Purchaser nor its affiliates, nor any persons acting on its or their
behalf, have engaged or will engage in any directed selling efforts with
respect to the Offered Securities, and such Purchaser, its affiliates and
all persons acting on its or their behalf have complied and will comply
with the offering restrictions requirement of Regulation S. Each Purchaser
severally agrees that, at or prior to confirmation of sale of the Offered
Securities, other than a sale pursuant to Rule 144A or a sale to an
Institutional Accredited Investor in accordance with subsection (c), such
Purchaser will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases the Offered
Securities from it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their distribution at any
time or (ii) otherwise until 40 days after the date of the
commencement of the offering and the closing date, except in either
case in accordance with Regulation S (or Rule 144A if available) under
the Securities Act. Terms used above have the meanings given to them
by Regulation S."
Terms used in this subsection (b) have the meanings given to them by
Regulation S.
(c) CSFBC and any other Purchaser authorized by CSFBC may offer and
sell Offered Securities in definitive, fully registered form to a limited
number of institutions, each of which is reasonably believed by such
Purchaser to be an "accredited investor" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act or an entity in which all of
the equity owners are accredited investors within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act (each, an "Institutional
Accredited Investor"); provided, that each such Institutional Accredited
Investor executes and delivers to such Purchaser and the Company, prior to
the consummation of any sale of Offered Securities to such Institutional
Accredited Investor, a Purchaser's letter in substantially the form
attached hereto as Schedule C (a "Purchaser's Letter").
(d) Each Purchaser severally agrees that it and each of its
affiliates has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities
except for any such arrangements with the other Purchaser or affiliates of
the other Purchaser or with the prior written consent of the Company.
(e) Each Purchaser severally confirms that it and each of its
affiliates has not, and agrees that it and each of its affiliates will not,
offer or sell the Offered Securities in the United States by means of any
form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act, including, but not limited to (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
or (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising. Each Purchaser severally
agrees, with respect to resales made in reliance on Rule 144A of any of the
Offered Securities, to deliver either with the confirmation of such resale
or otherwise prior to settlement of such resale a notice to the effect that
the resale of such Offered Securities has been made in reliance upon the
exemption from the registration requirements of the Securities Act provided
by Rule 144A.
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<PAGE>
(f) Each of the Purchasers severally represents and agrees that (i)
it has not offered or sold and prior to the date six months after the date
of issuance of the Offered Securities, will not offer or sell any Offered
Securities to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Offered Securities in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the Offered Securities to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom such document may otherwise
lawfully be issued or passed on.
5. Certain Agreements of the Company and the Guarantors. The Company, and
unless otherwise specified, each Guarantor, jointly and severally agree with the
Purchasers that:
(a) The Company and the Guarantors will advise CSFBC promptly of any
proposal to amend or supplement the Offering Document and will not effect
such amendment or supplementation without CSFBC's consent. If, at any time
prior to the completion of the resale of the Offered Securities by the
Purchasers, any event occurs as a result of which the Offering Document as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, the Company and the Guarantors promptly will
notify CSFBC of such event and promptly will prepare, at the Company's own
expense, an amendment or supplement which will correct such statement or
omission. Neither CSFBC's consent to, nor the Purchasers' delivery to
offerees or investors of, any such amendment or supplement shall constitute
a waiver of any of the conditions set forth in Section 6.
(b) The Company and the Guarantors will furnish to CSFBC copies of
any preliminary offering circular, the Offering Document and all amendments
and supplements to such documents, in each case as soon as available and in
such quantities as CSFBC requests, and the Company will furnish to CSFBC on
the date hereof three copies of the Offering Document signed by a duly
authorized officer of the Company, one of which will include the
independent accounts' reports therein manually signed by such independent
accountants. At any time when the Company and the Guarantors are not
subject to Section 13 or 15(d) of the Exchange Act, the Company and the
Guarantors will promptly furnish or cause to be furnished to CSFBC (and,
upon request, to the other Purchaser) and, upon request of holders and
prospective purchasers of the Offered Securities, to such holders and
purchasers, copies of the information required to be delivered to holders
and prospective purchasers of the Offered Securities pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto) in
order to permit compliance with Rule 144A in connection with resales by
such holders of the Offered Securities. The Company will pay the expenses
of printing and distributing to the Purchasers all such documents.
(c) The Company and the Guarantors will arrange for the qualification
of the Offered Securities for sale and the determination of their
eligibility for investment under the laws of such jurisdictions in the
United States and Canada as CSFBC designates and will continue such
qualifications in effect so long as required for the resale of the Offered
Securities by the Purchasers, provided that the Company and the Guarantors
will not be required to qualify as foreign corporations or to file a
general consent to service of process in any such jurisdiction.
(d) During the period of five years hereafter, the Company will
furnish to CSFBC and, upon request, to the other Purchaser, as soon as
practicable after the end of each fiscal year, a copy of its annual report
to stockholders for such year; and the Company will furnish to CSFBC and,
upon request,
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<PAGE>
to the other Purchaser (i) as soon as available, a copy of each report and
any definitive proxy statement of the Company filed with the Commission
under the Exchange Act or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.
(e) During the period of three years after the Closing Date, the
Company will, upon request, furnish to CSFBC, the other Purchaser and any
holder of Offered Securities a copy of the restrictions on transfer
applicable to the Offered Securities.
(f) During the period of three years after the Closing Date, the
Company and the Guarantors will not, and will not permit any of their
affiliates (as defined in Rule 144 under the Securities Act) to, resell any
of the Offered Securities that have been reacquired by any of them.
(g) During the period of three years after the Closing Date, the
Company and the Guarantors will not be or become an open-end investment
company, unit investment trust or face-amount certificate company that is
or is required to be registered under Section 8 of the Investment Company
Act, and are not, and will not be or become, a closed-end investment
company required to be registered, but not registered, under the Investment
Company Act.
(h) The Company will pay all expenses incidental to the performance
of the Company's and the Guarantors' obligations under this Agreement, the
Indenture and the Registration Rights Agreement, including (i) the fees and
expenses of the Trustee and its professional advisers; (ii) all expenses in
connection with the execution, issue, authentication, packaging and initial
delivery of the Offered Securities, the preparation and printing of this
Agreement, the Indenture, the Registration Rights Agreement, the Offered
Securities, the Offering Document and amendments and supplements thereto,
and any other document relating to the issuance, offer, sale and delivery
of the Offered Securities; (iii) the cost of qualifying the Offered
Securities for trading in the Private Offerings, Resale and Trading through
Automated Linkages (PORTAL) market and any expenses incidental thereto; and
(iv) the cost of any advertising approved by the Company in connection with
the issue of the Offered Securities. The Company will also pay or
reimburse the Purchasers (to the extent incurred by them) for any expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions in the United States and Canada as CSFBC designates and the
printing of memoranda relating thereto, for any fees charged by investment
rating agencies for the rating of the Offered Securities, for all travel
expenses of the Purchasers, the Company's and the Guarantors' officers and
employees and any other expenses of the Purchasers, the Company and the
Guarantors in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities from the Purchasers and
for expenses incurred in distributing preliminary offering circulars and
the Offering Document (including any amendments and supplements thereto) to
the Purchasers. Except as otherwise provided in this Agreement or the
Registration Rights Agreement, the Purchasers shall pay the fees and
expenses of their counsel and other professional advisors in connection
with the offering and sale of the Offered Securities.
(i) In connection with the offering, until CSFBC shall have notified
the Company and the other Purchaser of the completion of the resale of the
Offered Securities, none of the Company, the Guarantors nor any of their
affiliates has or will, either alone or with one or more other persons, bid
for or purchase for any account in which it or any of its affiliates has a
beneficial interest any Offered Securities or attempt to induce any person
to purchase any Offered Securities; and none of them nor any of their
affiliates will make bids or purchases for the purpose of creating actual,
or apparent, active trading in, or of raising the price of, the Offered
Securities.
(j) For the period beginning the date of the initial offering of the
Offered Securities by the Purchasers and ending 30 days thereafter, the
Company and the Guarantors will not offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, any United States dollar-
denominated debt securities issued or guaranteed by the Company or the
Guarantors and having a maturity of more than
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<PAGE>
one year from the date of issue, or publicly disclose the intention to make
any such offer, sale, pledge or disposal, without the prior written consent
of CSFBC. The Company will not at any time offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, pledge, contract or disposition
would cause the exemption afforded by Section 4(2) of the Securities Act or
the safe harbor of Regulation S thereunder to cease to be applicable to the
offer and sale of the Offered Securities.
(k) The Company will apply the net proceeds of the offering and the
sale of the Offered Securities in the manner set forth in the Offering
Document under the caption "Use of Proceeds."
(l) The Company will use its reasonable best efforts to have the
Offered Securities be eligible for the PORTAL Market of the Nasdaq Stock
Market, Inc.
(m) The Company will comply with all the terms and conditions of the
Registration Rights Agreement.
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Offered Securities will be
subject to the accuracy of the representations and warranties on the part of the
Company and the Guarantors herein, to the accuracy of the statements of officers
of the Company and the Guarantors made pursuant to the provisions hereof, to the
performance by the Company and the Guarantors of their obligations hereunder and
to the following additional conditions precedent:
(a) The Purchasers shall have received a letter, dated the date of
this Agreement, of Coopers & Lybrand L.L.P. in form and substance
satisfactory to the Purchasers confirming that they are independent public
accountants within the meaning of the AICPA's Code of Professional Conduct
(the "AICPA Code") and its interpretations and rulings and to the effect
that:
(i) in their opinion the financial statements of the Company
examined by them and included in the Offering Document and in the
Exchange Act Reports comply as to form in all material respects with
generally accepted accounting principles;
(ii) on the basis of the review referred to in clause (i) above,
a reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than five days prior to the date of this Agreement, there was any
change in the capital stock or any increase in short-term
indebtedness or long-term debt of the Company and its
consolidated Subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any decrease in
consolidated net current assets or total assets, as compared with
amounts shown on the latest balance sheet included in the
Offering Document; or
(B) for the period from the closing date of the latest
income statement included in the Offering Document to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period of
corresponding length ended the date of the latest income
statement included in the Offering Document, in consolidated
sales and operating revenues, the total or per share amounts of
net operating income, income before extraordinary items or net
income or in the ratio of earnings to fixed charges;
12
<PAGE>
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Offering Document discloses
have occurred or may occur or which are described in such letter;
(iii) they are unable to and do not express any opinion on the
pro forma financial statements and other pro forma financial
information included or incorporated by reference in the Offering
Document (collectively, the "Pro Forma Information"); however, for
purposes of such letter they have:
(a) read the Pro Forma Information;
(b) made inquiries of certain officials of the Company who
have responsibility for financial and accounting matters about
the basis for the pro forma adjustments; and
(c) proved the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts in the Pro
Forma Information; and
(d) on the basis of such procedures, and such other
inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that
the Pro Forma Information included in the Offering Document has
not been properly compiled and that the pro forma adjustments
have not been properly applied to the historical amounts in the
compilation of those statements; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Offering Document and the Exchange Act
Reports (in each case to the extent that such dollar amounts,
percentages and other financial information are derived from the
general accounting records of the Company and its Subsidiaries subject
to the internal controls of the Company's accounting system or are
derived from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting records
and other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
(b) The Purchasers shall have received a letter, dated the date of
this Agreement, of Ernst & Young LLP in form and substance satisfactory to
the Purchasers confirming that they are independent public accountants
within the meaning of the AICPA Code and to the effect that:
(i) in their opinion the financial statements of CFC Aviation
Services, L.P. (d/b/a Garrett Aviation Services) examined by them and
included in the Offering Document and in the Exchange Act Reports
comply as to form in all material respects with generally accepted
accounting principles;
(ii) on the basis of the review referred to in clause (i)
above, a reading of the latest available interim financial statements
of Garrett, inquiries of officials of Garrett who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than five days prior to the date of this Agreement, there was any
increase in long-term debt of Garrett or, at the date of the
latest available balance sheet read by such accountants, there
was any
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<PAGE>
decrease in total current assets, total assets or partners'
capital, as compared with amounts shown on the latest balance
sheet included in the Offering Document; or
(B) for the period from the closing date of the latest
income statement included in the Offering Document to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period of
corresponding length ended the date of the latest income
statement included in the Offering Document, in net sales or net
income;
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Offering Document discloses
have occurred or may occur or which are described in such letter;
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information relating to Garrett contained in the Offering Document (in
each case to the extent that such dollar amounts, percentages and
other financial information are derived from the general accounting
records of Garrett subject to the internal controls of Garrett's
accounting system or are derived from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of CSFBC, be reasonably likely to
prejudice materially the success of the proposed issue, sale or
distribution of the Offered Securities, whether in the primary market or in
respect of dealings in the secondary market, or (ii) (A) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of the
Company, the Guarantors or their direct or indirect Subsidiaries or Garrett
which, in the reasonable judgment of a majority in interest of the
Purchasers including CSFBC, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the offering or
the sale of and payment for the Offered Securities; (B) any downgrading in
the rating of any debt securities or preferred stock of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act), or any public
announcement that any such organization has under surveillance or review
its rating of any debt securities or preferred stock of the Company (other
than an announcement with positive implications of a possible upgrading,
and no implication of a possible downgrading, of such rating); (C) any
suspension or limitation of trading in securities generally on the New York
Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; (D) any banking moratorium
declared by U.S. Federal or New York authorities; or (E) any outbreak or
escalation of major hostilities in which the United States is involved, any
declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the reasonable judgment of a
majority in interest of the Purchasers including CSFBC, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the offering or
sale of and payment for the Offered Securities.
(d) The Purchasers shall have received an opinion, dated the Closing
Date, of Miles & Stockbridge, a Professional Corporation, counsel for the
Company and the Guarantors, that:
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(i) this Agreement has been duly authorized, executed and
delivered by the Company and the Guarantors (other than the Guarantors
listed on Schedule D hereto);
(ii) the Indenture has been duly authorized, executed and
delivered by the Company and the Guarantors (other than the Guarantors
listed on Schedule D hereto); and the Notes and the Guarantees have
been duly authorized, executed and (assuming they have been duly
authenticated in accordance with the terms of the Indenture) issued,
and constitute legal, valid and binding obligations of the Company and
the Guarantors (other than the Guarantors listed on Schedule D
hereto), as the case may be; and the Indenture and the Offered
Securities conform in all material respects to the descriptions
thereof contained in the Offering Document;
(iii) the Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and the Guarantors
(other than the Guarantors listed on Schedule D hereto), constitutes a
legal, valid and binding obligation of the Company and the Guarantors
(other than the Guarantors listed on Schedule D hereto) and conforms
in all material respects to the description thereof contained in the
Offering Document;
(iv) none of the Company or the Guarantors is and, after
giving effect to the offering and sale of the Offered Securities and
the application of the proceeds thereof as described in the Offering
Document, none of such entities will be an "investment company" as
defined in the Investment Company Act;
(v) no consent, approval, authorization, or order of, or
filing with, any Person or any court or governmental agency or body is
required for the issuance of the Offered Securities or for the
consummation of the other transactions contemplated by this Agreement
or to the knowledge of such counsel for the consummation of the
transactions contemplated by the Acquisition Agreement, the Sabreliner
Agreement or the AlliedSignal Agreement, other than (i) as may be
required under state securities laws in connection with the offer and
sale of the Offered Securities and (ii) consents and approvals to the
transactions contemplated by the Acquisition Agreement and the
Sabreliner Agreement, the receipt of which are not required as a
condition to the obligations of any party under such agreements or the
receipt of which have been waived by the Company;
(vi) the execution, delivery and performance of the Indenture,
the Registration Rights Agreement, and this Agreement and the issuance
and sale of the Notes and the Guarantees and the compliance with the
terms and provisions thereof and hereof and the consummation of the
transactions contemplated by the Acquisition Agreement, the Sabreliner
Agreement or the AlliedSignal Agreement by the Company and the
Guarantors, as the case may be (other than the Guarantors listed on
Schedule D hereto), will not contravene any provision of the charter
or by-laws of the Company or any of its Subsidiaries;
(vii) to the knowledge of such counsel, other than as
specifically described in the Offering Document, there are no pending
actions, suits or proceedings against or affecting the Company, any of
the Subsidiaries or any of their properties that could reasonably be
expected, singly or in the aggregate, to have a material adverse
effect on the financial condition, results of operations or general
affairs of the Company and its Subsidiaries, taken as a whole, or
could reasonably be expected, singly or in the aggregate, to have a
material adverse effect on the ability of the Company and the
Guarantors to perform their obligations under this Agreement, the
Indenture, the Registration Rights Agreement, the Offered Securities,
the Acquisition Agreement, the Sabreliner Agreement or the
AlliedSignal Agreement;
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(viii) the descriptions in the Offering Document of statutes,
legal and governmental proceedings and contracts and other documents
are accurate and fairly present the information required to be shown;
and
(ix) it is not necessary in connection with (i) the offer,
sale and delivery of the Offered Securities by the Company to the
Purchasers pursuant to this Agreement or (ii) the resales of the
Offered Securities by the Purchasers in the manner contemplated by
this Agreement to register the Offered Securities under the Securities
Act or to qualify an indenture in respect thereof under the Trust
Indenture Act.
In rendering such opinion, such counsel may rely as to matters of fact
on certificates of responsible officers of the Company and its Subsidiaries
and public officials. In addition, in rendering such opinion, such counsel
may state that their opinion is limited to matters governed by the Federal
laws of the United States of America, the laws of the State of Maryland and
the General Corporation Law of the State of Delaware.
In addition, such counsel shall state in its opinion that, while they
have not themselves checked the accuracy and completeness of or otherwise
verified, and are not passing upon and assume no responsibility for the accuracy
or completeness of, the statements contained in the Offering Document (other
than as set forth in clauses (d)(ii), (iii) and (viii) above), in the course of
their review and discussion of the contents of the Offering Document with
certain officers and employees of the Company and the Guarantors and its
independent auditors, but without independent check or verification, no facts
have come to their attention which cause them to believe that the Offering
Document, or any amendment or supplement thereto, as of the date hereof, and as
of the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no view as to (x) the business and
operations of Garrett and (y) the financial statements and other financial and
statistical data contained in the Offering Document).
(e) The Purchasers shall have received an opinion, dated the Closing
Date, of Richard H. Lange, Esquire, General Counsel for the Company, to the
effect that:
(i) this Agreement has been duly authorized, executed and
delivered by the Guarantors listed on Schedule D hereto;
(ii) the Indenture has been duly authorized, executed and
delivered by the Guarantors listed on Schedule D hereto and, assuming
due authorization, execution and delivery by the Trustee, constitutes
a valid and binding obligation of the Company and the Guarantors,
enforceable against the Company and the Guarantors in accordance with
its terms, subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity; and
the Notes and the Guarantees have been duly authorized, executed and
(assuming they have been duly authenticated in accordance with the
terms of the Indenture) issued, constitute legal, valid and binding
obligations of the Company and the Guarantors, as the case may be,
enforceable against the Company and the Guarantors, as the case may
be, in accordance with their terms, subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar
laws relating to creditors' rights generally and by general principles
of equity;
(iii) the Registration Rights Agreement has been duly
authorized, executed and delivered by the Guarantors listed on
Schedule D hereto and constitutes a valid and binding obligation of
the Company and the Guarantors, enforceable against the Company and
the Guarantors in accordance with its terms, subject to bankruptcy,
insolvency, reorganization,
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fraudulent conveyance, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity;
(iv) the execution, delivery and performance of the Indenture,
the Registration Rights Agreement and this Agreement and the issuance
and sale of the Guarantees and the compliance with the terms and
provisions thereof and hereof by the Guarantors listed on Schedule D
hereto will not contravene any provision of the charter or by-laws of
the Company or any of its Subsidiaries;
(v) each of the Company and the Subsidiaries has been duly
incorporated and is a validly existing corporation in good standing
under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own and lease its properties and
conduct its business as described in the Offering Document; and each
of the Company and its Subsidiaries is duly qualified to transact
business as a foreign corporation in good standing in all other
jurisdictions in which it owns or leases property or in which the
conduct of its business requires such qualification, except in such
jurisdictions where the failure to be so qualified or in good standing
would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; and all of the outstanding shares of
capital stock of the Company's Subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable and are owned by
the Company, directly or through Subsidiaries, free and clear of any
mortgage, pledge, lien, perfected security interest, claim or
encumbrance of any kind or, to the knowledge of such counsel, any
unperfected security interest;
(vi) all outstanding shares of capital stock of the Company
have been duly authorized and validly issued, and are fully paid and
non-assessable; the authorized and outstanding shares of capital stock
of the Company are as set forth in the Offering Document under the
caption "Capitalization"; and the stockholders of the Company have no
preemptive or, to the knowledge of such counsel, similar rights with
respect to the capital stock or any other securities of the Company;
(vii) the execution, delivery and performance of the Indenture,
the Registration Rights Agreement and this Agreement and the issuance
and sale of the Notes and the Guarantees and compliance with the terms
and provisions thereof and hereof by the Company and the Guarantors,
as the case may be, and the consummation of the transactions
contemplated by the Acquisition Agreement, the Sabreliner Agreement or
the AlliedSignal Agreement will not conflict with or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, or result in the creation or imposition or
encumbrance upon any assets or property of the Company or any of its
Subsidiaries under, any statute, rule, regulation, order or decree of
any governmental agency or body or any court having jurisdiction over
the Company or any of its Subsidiaries or any of their properties or
any indenture, mortgage, loan agreement, note, lease, permit, license
or other agreement or instrument to which the Company or any such
Subsidiary is bound or to which any of the properties of the Company
or any such Subsidiary is subject, except for breaches, violations,
defaults or encumbrances that could not, singly or in the aggregate,
reasonably be expected to have a material adverse effect on the
financial condition, results of operations or general affairs of the
Company and its Subsidiaries, taken as a whole; and the Company and
the Guarantors have full power and authority to authorize, issue and
sell the Offered Securities as contemplated by this Agreement;
(viii) neither the Company nor any of its Subsidiaries is in
violation of its charter or by-laws or any applicable law, ordinance,
administrative or governmental rule or regulation, or, to the
knowledge of such counsel, any order of any court or governmental
agency or body having jurisdiction over the Company or any Subsidiary
or, to the knowledge of such counsel,
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is in default in the performance or observance of any material
obligation, agreement or condition in any agreement or instrument to
which the Company or any of its Subsidiaries is a party or to which
any of the properties or assets of the Company or any such Subsidiary
is subject;
(ix) the Company and its Subsidiaries have such Licenses and
are in compliance with all applicable laws and regulations of federal,
state, local and foreign governmental or regulatory authorities,
including, without limitation, the Federal Aviation Administration, as
are necessary to own or lease their properties and to conduct their
businesses in the manner described in the Offering Document and all
such Licenses are in full force and effect, except for any such
License the failure to possess or any such rule or regulation the
failure to comply with could not, singly or in the aggregate,
reasonably be expected to have a material adverse affect on the
financial condition, results of operations or general affairs of the
Company and its Subsidiaries taken as a whole. The Company and its
Subsidiaries are in compliance in all material respects with their
respective obligations under such Licenses and no event has occurred
that allows, or after notice or lapse of time would allow, revocation
or termination of such Licenses or violation of such laws or
regulations;
(x) the property, assets and operations of the Company and
its Subsidiaries comply with all applicable Environmental Laws, except
to the extent that failure so to comply would not, singly or in the
aggregate, have a material adverse effect on the financial condition,
results of operations or general affairs of the Company and its
Subsidiaries, taken as a whole. Except as specifically described in
the Offering Document, none of the property, assets or operations of
the Company or its Subsidiaries is the subject of any investigation by
any federal, state, local or foreign governmental agency evaluating
whether any remedial action is needed to respond to a release of any
Hazardous Materials into the environment or that is in contravention
of any federal, state, local or foreign law, order or regulation that
could, singly or in the aggregate, reasonably be expected to have a
material adverse effect on the financial condition, results of
operations or general affairs of the Company and its Subsidiaries,
taken as a whole and neither the Company nor any Subsidiary has
received any notice of any such investigation;
(xi) no consent, approval, authorization or order of, or
filing with, any Person or any court or governmental agency or body is
required for the use of the proceeds received by the Company from the
sale of the Offered Securities in the manner contemplated by the
description under the caption "Use of Proceeds" contained in the
Offering Document, including without limitation consummation of the
Acquisition or for the consummation of the transactions contemplated
by the Sabreliner Agreement or the AlliedSignal Agreement, other than
consents and approvals to the transactions contemplated by the
Acquisition Agreement and the Sabreliner Agreement, the failure of
which to obtain would not, singly or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries, taken as a whole,
or the consummation of any transaction contemplated by this Agreement,
the Offering Document, the Acquisition Agreement, the Sabreliner
Agreement or the AlliedSignal Agreement; and
(xii) such counsel has no reason to believe that the Offering
Document contains an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading; it being understood that
such counsel need express no opinion as to the financial statements or
other financial data contained in the Offering Document.
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<PAGE>
(f) The Purchasers shall have received an opinion, dated the Closing
Date, of Gray Cary Ware & Freidenrich, a Professional Corporation, counsel
to the Sellers (as defined in the Acquisition Agreement), substantially to
the effect set forth in Section 9.2(c) of the Acquisition Agreement.
(g) The Purchasers shall have received from Dewey Ballantine, counsel
for the Purchasers, such opinion or opinions, dated the Closing Date, with
respect to the incorporation of the Company, the validity of the Offered
Securities, the Offering Document, the exemption from registration for the
offer and sale of the Offered Securities by the Company to the several
Purchasers and the resales by the several Purchasers as contemplated hereby
and other related matters as CSFBC may require, and the Company and the
Guarantors shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such matters.
(h) The Purchasers shall have received a certificate, dated the
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that (A) the representations and warranties of the Company and the
Guarantors in this Agreement are true and correct, (B) the Company and the
Guarantors have complied with all agreements and satisfied all conditions
on their part to be performed or satisfied hereunder at or prior to the
Closing Date, (C) they have carefully examined the Offering Document, and
the Offering Document does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, (D) subsequent to the date of the most recent
financial statements of the Company in the Offering Document, there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties, results of operations or general affairs of the
Company and the Subsidiaries, taken as a whole, except as set forth in the
Offering Document and (E) subsequent to the date of the most recent
financial statements of the Company in the Offering Document, there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties, results of operations or general affairs of each
Guarantor that is a "significant subsidiary" as such term is defined in
Rule 1-02(v) of Regulation S-X.
(i) The Purchasers shall have received a certificate, dated the
Closing Date, of L. David Clemons and James E. Greenslade in their
capacities as officers of UNC/CFC Acquisition Co. in which such officers,
to the best of their knowledge after reasonable investigation, shall state
that (A) they have carefully examined the information in the Offering
Document relating to Garrett, and such information does not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) subsequent to
the date of the most recent financial statements of Garrett in the Offering
Document, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties, results of operations or
general affairs of Garrett, except as set forth in the Offering Document
and (C) no consent, approval, authorization or order of, or filing with,
any Person or any court or governmental agency or body is required for the
consummation of the transactions contemplated by the Acquisition Agreement
or the AlliedSignal Agreement other than consents and approvals the failure
of which to obtain would not, singly or in the aggregate, have a material
adverse effect on Garrett or the consummation of any transaction
contemplated by this Agreement, the Acquisition Agreement or the
AlliedSignal Agreement.
(j) The Purchasers shall have received a copy of the certificate,
dated the Closing Date, of each of the Sellers and CFC (as defined in the
Acquisition Agreement) delivered pursuant to Section 7.3 of the Acquisition
Agreement.
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(k) The Purchasers shall have received a letter, dated the Closing
Date, of each of Coopers & Lybrand L.L.P. and Ernst & Young LLP which meets
the requirements of subsections (a) and (b) of this Section, respectively,
except that the specified date referred to in such subsection will be a
date not more than five days prior to the Closing Date for the purposes of
this subsection.
(l) At the Closing Date, the Acquisition and the sale of the
AlliedSignal TFE 731 compressor zone inspection heavy maintenance business
by the Company to Sabreliner shall have been consummated and, after giving
effect thereto, no event of default or event that, but for the giving of
notice or the lapse of time or both, would constitute an event of default
shall exist, under the Company's revolving credit facility. The Company
shall have provided to the Purchasers copies of all documents with respect
to the consummation of such transactions as they may reasonably request.
(m) At the Closing Date, the Company shall have issued and sold
250,000 shares of its Series B Senior Cumulative Convertible Preferred
Stock at a purchase price of $100 per share pursuant to the Stock Purchase
Agreement, dated as of October 4, 1995, among the Company and the
Purchasers signatory thereto, and shall have used the proceeds of such sale
to finance, in part, the Acquisition.
(n) At the Closing Date, the AlliedSignal Agreement shall be
effective and the Company shall have provided to the Purchasers copies of
all documents with respect thereto as they may reasonably request.
(o) At the Closing Date, the supplemental indenture effecting the
amendments to the indenture governing the Company's 9-1/8% Senior Notes due
2003, contemplated by the Company's consent solicitation described in the
Offering Document, shall have been executed and become effective, and the
Company shall have provided to the Purchasers copies of all documents with
respect thereto as they may reasonably request.
(p) At the Closing Date, the $110 million senior secured revolving
credit facility of the Company, as contemplated by the Amended and Restated
Credit Agreement, dated as of May 22, 1996, between First Union Commercial
Corporation, First Union National Bank of North Carolina and the Company,
shall have been executed and become effective and all conditions to
borrowing thereunder shall have been satisfied, and the Company shall have
provided to the Purchasers copies of all documents with respect thereto as
they may reasonably request.
The Company will furnish the Purchasers with such conformed copies of such
opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive on behalf of the Purchasers
compliance with any conditions to the obligations of the Purchasers hereunder.
7. Indemnification and Contribution. (a) The Company and the Guarantors,
on a joint and several basis, will indemnify and hold harmless each Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may become subject, under the Securities Act or the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Offering
Document, or any amendment or supplement thereto, or any related preliminary
offering circular or the Exchange Act Reports, or arise out of or are based upon
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and will reimburse each Purchaser for any
legal or other expenses reasonably incurred by such Purchaser in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company and the
Guarantors will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company and the Guarantors by any Purchaser through CSFBC specifically
for use therein, it being understood and agreed that the only such information
consists of the
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information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary offering circular the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Purchaser that sold the Offered Securities concerned to the
person asserting any such losses, claims, damages or liabilities, to the extent
that such sale was an initial resale by such Purchaser and any such loss, claim,
damage or liability of such Purchaser results from the fact that there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such Offered Securities to such person, a copy of the Offering Document
(exclusive of any material included therein but not attached thereto) if the
Company had previously furnished copies thereof to such Purchaser.
(b) Each Purchaser will, severally and not jointly, indemnify and hold
harmless the Company and the Guarantors against any losses, claims, damages or
liabilities to which the Company may become subject, under the Securities Act or
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Offering Document, or any amendment or supplement thereto, or any related
preliminary offering circular, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company and the Guarantors by such Purchaser through CSFBC
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company and the Guarantors in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Purchaser consists of the following information in
the Offering Document furnished on behalf of each Purchaser: the last paragraph
at the bottom of the cover page concerning the terms of the offering by the
Purchasers, the legends concerning over-allotments and stabilizing and Exchange
Act exemptions on the inside front cover page and the information appearing in
the third sentence of the second paragraph, the fifth paragraph and the third
and fourth sentences of the seventh paragraph, all under the caption "Plan of
Distribution."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above except to the extent that the omission so to
notify the indemnifying party actually prejudices the indemnifying party's
ability to defend the action. In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Guarantors on the one hand and the Purchasers on the other from the offering of
the
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Offered Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Guarantors on the one hand and the Purchasers on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Guarantors on the one hand and the Purchasers on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Guarantors bear to the total
discounts and commissions received by the Purchasers from the Company and the
Guarantors under this Agreement. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Guarantors or the
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Purchaser shall be required to contribute
any amount in excess of the amount by which the total price at which the Offered
Securities purchased by it were resold exceeds the amount of any damages which
such Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. The Purchasers' obligations in
this subsection (d) to contribute are several in proportion to their respective
purchase obligations and not joint.
(e) The obligations of the Company and the Guarantors under this Section
shall be in addition to any liability which the Company or the Guarantors may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Purchaser within the meaning of the Securities
Act or the Exchange Act; and the obligations of the Purchasers under this
Section shall be in addition to any liability which the respective Purchaser may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls the Company or a Guarantor within the meaning of
the Securities Act or the Exchange Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in their
obligations to purchase Offered Securities hereunder and the aggregate principal
amount of Offered Securities that such defaulting Purchaser or Purchasers agreed
but failed to purchase does not exceed 10% of the total principal amount of
Offered Securities, CSFBC may make arrangements satisfactory to the Company for
the purchase of such Offered Securities by other persons, including any of the
Purchasers, but if no such arrangements are made by the Closing Date, the non-
defaulting Purchasers shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Purchasers agreed but failed to purchase. If any Purchaser or
Purchasers so default and the aggregate principal amount of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
principal amount of Offered Securities and arrangements satisfactory to CSFBC
and the Company for the purchase of such Offered Securities by other persons are
not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Purchaser, the Company or
any Guarantor, except as provided in Section 9. As used in this Agreement, the
term "Purchaser" includes any person substituted for a Purchaser under this
Section. Nothing herein will relieve a defaulting Purchaser from liability for
its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company and the Guarantors or its officers and of the several Purchasers set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Purchaser, the Company, any Guarantor or any of
their respective representatives, officers or directors or any controlling
person, and will survive delivery of and payment for the Offered Securities. If
this Agreement is terminated pursuant to Section 8 or if for any reason the
purchase of the Offered Securities by the Purchasers is not consummated, the
Company
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shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company, the
Guarantors and the Purchasers pursuant to Section 7 shall remain in effect. If
the purchase of the Offered Securities by the Purchasers is not consummated for
any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (C),
(D) or (E) of Section 6(c)(ii), the Company will reimburse the Purchasers for
all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the Offered
Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Purchasers will be mailed, delivered or telegraphed and confirmed to the
Purchasers, c/o CS First Boston Corporation, Park Avenue Plaza, New York, NY
10055, Attention: Investment Banking Department - Transactions Advisory Group,
or, if sent to the Company or any Guarantor, will be mailed, delivered or
telegraphed and confirmed to it at UNC Incorporated, 175 Admiral Cochrane Drive,
Annapolis, MD 21401, Attention: Richard H. Lange, Esquire; provided, however,
that any notice to a Purchaser pursuant to Section 7 will be mailed, delivered
or telegraphed and confirmed to such Purchaser.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
and third sentences of Section 5(b) hereof against the Company and the
Guarantors as if such holders were parties thereto.
12. Representation of Purchasers. You will act for the several Purchasers
in connection with this purchase, and any action under this Agreement taken by
you will be binding upon all the Purchasers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
The Company and the Guarantors hereby submit to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
23
<PAGE>
If the foregoing is in accordance with the Purchasers' understanding of our
agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
Purchasers in accordance with its terms.
Very truly yours,
UNC Incorporated
By /s/ Gregory M. Bubb
----------------------------
Gregory M. Bubb
Vice President, Treasurer
UNC HOLDINGS INC. UNC/LEAR SERVICES, INC.
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC ALL FAB, INC. UNC METCALF SERVICING, INC.
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC JOHNSON TECHNOLOGY, INC. UNC ARTEX, INC.
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC CAMCO INCORPORATED UNC TEXAS CAMCO INCORPORATED
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC ARDCO INCORPORATED UNC ENGINE & ENGINE PARTS, INC.
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
<PAGE>
UNC ACCESSORY OVERHAUL GROUP, INC. UNC AVIATION SERVICES, INC.
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC TRI-INDUSTRIES, INC. UNC AIRWORK CORPORATION
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC PACIFIC AIRMOTIVE
CORPORATION, INC. UNC PARTS COMPANY
By /s/ Richard H. Lange By /s/ Richard H. Lange
---------------------------- ----------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC/CFC ACQUISITION CO.
By /s/ Richard H. Lange
----------------------------
Richard H. Lange
Vice President
<PAGE>
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
CS First Boston Corporation
First Union Capital Markets Corp.
By: CS First Boston Corporation
By /s/ Harold Bogle
---------------------------------
Harold Bogle
Managing Director
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount of
Purchaser Offered Securities
- --------- -------------------
<S> <C>
CS First Boston Corporation........ $100,000,000
First Union Capital Markets Corp... 25,000,000
------------
Total $125,000,000
============
</TABLE>
<PAGE>
SCHEDULE B
Subsidiaries of the Company
UNC Holdings Inc.
UNC/Lear Services, Inc.
UNC All Fab, Inc.
UNC Metcalf Servicing, Inc.
UNC Johnson Technology, Inc.
UNC Artex, Inc.
UNC CAMCO Incorporated
UNC Texas CAMCO Incorporated
UNC ARDCO Incorporated
UNC Engine & Engine Parts, Inc.
UNC Accessory Overhaul Group, Inc.
UNC Aviation Services, Inc.
UNC Tri-Industries, Inc.
UNC Airwork Corporation
UNC Pacific Airmotive Corporation, Inc.
UNC Parts Company
UNC/CFC Acquisition Co.
UNC International, Inc.
United Nuclear Corporation
UNC Recovery Corporation
UNC Nuclear Industries, Inc.
ASW Liquidating, Inc.
CDI Dissolution Corp.
Burnside-Ott Aviation Training Center, Inc.
Reclamation, Inc.
UNC Air Capital, Inc.
<PAGE>
SCHEDULE C
Form of Letter to be Delivered by Accredited Investors
UNC Incorporated
175 Admiral Cochrane Drive
Annapolis, Maryland 21401
CS First Boston Corporation
As Representative of the Several Purchasers
Park Avenue Plaza
New York, New York 10055
Dear Sirs:
We are delivering this letter in connection with an offering of 11% Senior
Subordinated Notes Due 2006 (the "Securities") of UNC Incorporated, a Delaware
corporation (the "Company"), as described in the Confidential Offering Circular
(the "Offering Circular") relating to the offering.
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule 501(a)(1),
(2) or (3) under the Securities Act of 1933, as amended (the "Securities Act"),
or an entity in which all of the equity owners are accredited investors within
the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (an
"Institutional Accredited Investor");
(ii) (A) any purchase of the Securities by us will be for our own account
or for the account of one or more other Institutional Accredited Investors or a
fiduciary for the account of one or more trusts, each of which is an "accredited
investor" within the meaning of Rule 501(a)(7) under the Securities Act and for
each of which we exercise sole investment discretion or (B) we are a "bank",
within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and
loan association" or other institution described in Section 3(a)(5)(A) of the
Securities Act that is acquiring the Securities as fiduciary for the account of
one or more institutions for which we exercise sole investment discretion;
(iii) in the event that we purchase any of the Securities, we will acquire
Securities having a minimum purchase price of not less than $500,000 for our own
account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing the
Securities;
(v) we are not acquiring the Securities with a view to distribution
thereof or with any present intention of offering or selling any of the
Securities, except inside the United States in accordance with Rule 144A under
the Securities Act or outside the United States in accordance with Regulation S
under the Securities Act, as provided below; provided that the disposition of
our property and the property of any accounts for which we are acting as
fiduciary shall remain at all times within our control; and
(vi) we have received a copy of the Offering Circular relating to the
offering of the Securities and acknowledge that we have had access to such
financial and other information, and have been afforded the opportunity to ask
such questions of representatives of the Company and receive answers thereto, as
we deem necessary in connection with our decision to purchase the Securities.
<PAGE>
We understand that the Securities are being offered in a transaction not
involving any public offering within the United States within the meaning of the
Securities Act and that the Securities have not been and will not be registered
under the Securities Act, and we agree, on our own behalf and on behalf of each
account for which we acquire any Securities, that if in the future we decide to
resell, pledge or otherwise transfer such Securities, such Securities may be
offered, resold, pledged or otherwise transferred only (i) pursuant to an
effective registration statement under the Securities Act, (ii) inside the
United States to a person who we reasonably believe is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, or (iii) outside the United
States in a transaction meeting the requirements of Rule 904 under the
Securities Act and (iv) in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction. We understand that the registrar and transfer agent for the
Securities will not be required to accept for registration of transfer any
Securities acquired by us, except upon presentation of evidence satisfactory to
the Company and the transfer agent that the foregoing restrictions on transfer
have been complied with. We further understand that any Securities acquired by
us will be in the form of definitive physical certificates and that such
certificates will bear a legend reflecting the substance of this paragraph.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Date: [Name of Purchaser]
-----------------------
By:
-------------------------------------
Name:
Title:
Address:
<PAGE>
SCHEDULE D
Guarantors Incorporated in Delaware
UNC Holdings, Inc.
UNC/Lear Services, Inc.
UNC All Fab, Inc.
UNC Metcalf Servicing, Inc.
UNC Johnson Technology, Inc.
UNC Artex, Inc.
UNC CAMCO Incorporated
UNC Texas CAMCO Incorporated
UNC ARDCO Incorporated
UNC Engine & Engine Parts, Inc.
UNC Accessory Overhaul Group, Inc.
UNC Aviation Services, Inc.
UNC Tri-Industries, Inc.
UNC Airwork Corporation
UNC Pacific Airmotive Corporation, Inc.
UNC/CFC Acquisition Co.
<PAGE>
CONFORMED COPY
EXHIBIT 10.2
UNC Incorporated
$125,000,000 Senior Subordinated Notes Due 2006
REGISTRATION RIGHTS AGREEMENT
-----------------------------
May 23, 1996
CS First Boston Corporation
First Union Capital Markets Corp.
c/o CS First Boston Corporation
Park Avenue Plaza
New York, New York 10055
Ladies and Gentlemen:
UNC Incorporated, a Delaware corporation ("UNC"), proposes to issue and
sell to CS First Boston Corporation and First Union Capital Markets Corp.
(collectively, the "Initial Purchasers"), upon the terms set forth in a purchase
agreement of even date herewith (the "Purchase Agreement"), $125,000,000
principal amount of its 11% Senior Subordinated Notes Due 2006 (the "Notes") to
be guaranteed by UNC's subsidiaries that are guarantors of UNC's obligations
under its revolving credit facility (the "Guarantors" and together with UNC, the
"Company"). The Notes will be issued pursuant to an Indenture, dated as of May
30, 1996 (the "Indenture"), among the Company, the Guarantors and The Bank of
New York, as trustee (the "Trustee"). As an inducement to the Initial
Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to your obligations thereunder, the Company agrees with the Initial
Purchasers, for the benefit of the holders of the Notes (including, without
limitation, the Initial Purchasers), the Exchange Notes (as defined below) and
the Private Exchange Notes (as defined below) (collectively the "Holders"), as
follows:
1. Registered Exchange Offer. The Company shall, at its cost, prepare
-------------------------
and, not later than 75 days after (or if the 75th day is not a business day, the
first business day thereafter) the date of original issue of the Notes, file
with the Securities and Exchange Commission (the "Commission") a registration
statement (the "Exchange Offer Registration Statement") on an appropriate form
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to a proposed offer (the "Registered Exchange Offer") to the Holders of
Transfer Restricted Notes (as defined in Section 6
<PAGE>
hereof), who are not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer, to issue and deliver to such
Holders, in exchange for the Notes, a like aggregate principal amount of debt
securities (the "Exchange Notes") of the Company issued under the Indenture and
identical in all material respects to the Notes (except for the transfer
restrictions relating to the Notes). The Company shall use its reasonable best
efforts to cause such Exchange Offer Registration Statement to become effective
under the Securities Act within 150 days (or if the 150th day is not a business
day, the first business day thereafter) after the date of original issue of the
Notes and shall keep the Exchange Offer Registration Statement effective for not
less than 30 days (or longer, if required by applicable law) after the date
notice of the Registered Exchange Offer is mailed to the Holders (such period
being called the "Exchange Offer Registration Period").
If the Company effects the Registered Exchange Offer, the Company will be
entitled to close the Registered Exchange Offer 30 days after the commencement
thereof provided that the Company has accepted all the Notes theretofore validly
tendered in accordance with the terms of the Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Notes (as defined in Section 6 hereof)
electing to exchange the Notes for Exchange Notes (assuming that such Holder is
not an affiliate of the Company within the meaning of the Securities Act,
acquires the Exchange Notes in the ordinary course of such Holder's business and
has no arrangements with any person to participate in the distribution of the
Exchange Notes and is not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer) to trade such Exchange Notes
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States.
The Company acknowledges that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder which is a broker-dealer
electing to exchange Notes, acquired for its own account as a result of market
making activities or other trading activities, for Exchange Notes (an
"Exchanging Dealer"), is required to deliver a prospectus containing information
set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange
2
<PAGE>
Offer" section, and in Annex C hereto in the "Plan of Distribution" section of
such prospectus in connection with a sale of any such Exchange Notes received by
such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an
Initial Purchaser that elects to sell Exchange Notes acquired in exchange for
Notes constituting any portion of an unsold allotment is required to deliver a
prospectus containing the information required by Items 507 or 508 of Regulation
S-K under the Securities Act, as applicable, in connection with such sale.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein, in order to permit such prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Notes; provided, however, that (i)
-------- -------
in the case where such prospectus and any amendment or supplement thereto must
be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall
be the lesser of 180 days and the date on which all Exchanging Dealers and the
Initial Purchasers have sold all Exchange Notes held by them (unless such period
is extended pursuant to Section 3(j) below and (ii) the Company shall make such
prospectus and any amendment or supplement thereto, available to any broker-
dealer for use in connection with any resale of any Exchange Notes for a period
not less than 90 days after the consummation of the Registered Exchange Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Notes acquired by it as part of its initial distribution, the
Company, simultaneously with the delivery of the Exchange Notes pursuant to the
Registered Exchange Offer, shall issue and deliver to such Initial Purchaser
upon the written request of such Initial Purchaser, in exchange (the "Private
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
of debt securities of the Company issued under the Indenture and identical in
all material respects (including the existence of restrictions on transfer under
the Securities Act and the securities laws of the several states of the United
States) to the Notes (the "Private Exchange Notes"). The Notes, the Exchange
Notes and the Private Exchange Notes are herein collectively called the
"Securities."
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of
the Exchange Offer Registration
3
<PAGE>
Statement, together with an appropriate letter of transmittal and related
documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer, if required by applicable law or Section 3(j) hereof)
after the date notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of the Registered Exchange
Offer or the Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancellation all the Notes so
accepted for exchange; and
(c) cause the Trustee to authenticate and deliver promptly to each
Holder of the Notes, Exchange Notes or Private Exchange Notes, as the case
may be, equal in principal amount to the Notes of such Holder so accepted
for exchange.
The Indenture will provide that the Exchange Notes will not be subject
to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on each Exchange Note and Private Exchange Note issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the date of original issue of the Notes.
4
<PAGE>
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will be
acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act,
(iii) such Holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, such Holder will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is
not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes and (v) if such Holder is a broker-dealer, that it will receive
Exchange Notes for its own account in exchange for Notes that were acquired as a
result of market-making activities or other trading activities and that it will
be required to acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or in
------------------
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to effect a Registered Exchange Offer, as contemplated by
Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within
180 days of the date of this Agreement, (iii) any Initial Purchaser so requests
with respect to the Notes (or the Private Exchange Notes) not eligible to be
exchanged for Exchange Notes in the Registered Exchange Offer and held by it
following consummation of the Registered Exchange Offer or (iv) any Holder
(other than an Exchanging Dealer) is not eligible to participate in the
Registered Exchange Offer or, in the case of any Holder (other than an
5
<PAGE>
Exchanging Dealer) that participates in the Registered Exchange Offer, such
Holder does not receive freely tradeable Exchange Notes on the date of the
exchange, the Company shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable (but
in no event more than 30 days after so required or requested pursuant to
this Section 2) file with the Commission and thereafter shall use its
reasonable best efforts to cause to be declared effective a registration
statement (the "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, a "Registration Statement") on an
appropriate form under the Securities Act relating to the offer and sale of
the Transfer Restricted Notes by the Holders thereof from time to time in
accordance with the methods of distribution set forth in the Shelf
Registration Statement and Rule 415 under the Securities Act (hereinafter,
the "Shelf Registration"); provided, however, that no Holder (other than an
-------- -------
Initial Purchaser) shall be entitled to have the Securities held by it
covered by such Shelf Registration Statement unless such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to
such Holder.
(b) The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective (it being understood
that the effectiveness of the Registration Statement may be suspended in
order to have any post-effective amendment contemplated by Section 3(j)
below declared effective by the Commission) in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, for a period of three years (or for such longer period
if extended pursuant to Section 3(j) below) from the date of its
effectiveness or such shorter period that will terminate when all the
Securities covered by the Shelf Registration Statement have been sold
pursuant thereto.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
6
<PAGE>
3. Registration Procedures. In connection with any Shelf Registration
-----------------------
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior
to the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and, in the event that an Initial Purchaser
(with respect to any portion of an unsold allotment from the original
offering) is participating in the Registered Exchange Offer or the Shelf
Registration Statement, shall use its best efforts to reflect in each such
document when so filed with the Commission, such comments as such Initial
Purchaser reasonably may propose; (ii) include the information set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in
Annex C hereto in the "Plan of Distribution" section of the prospectus
forming a part of the Exchange Offer Registration Statement and include the
information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; (iii) if requested by
an Initial Purchaser, include the information required by Items 507 or 508
of Regulation S-K under the Securities Act, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement;
(iv) include within the prospectus contained in the Exchange Offer
Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a
summary statement of the positions taken or policies made by the staff of
the Commission with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
Exchange Notes received by such broker-dealer in the Registered Exchange
Offer (a "Participating Broker-Dealer"), whether such positions or policies
have been publicly disseminated by the staff of the Commission or such
positions or policies, in the reasonable judgment of the Initial Purchasers
based upon advice of counsel (which may be in-house counsel), represent the
prevailing views of the staff of the Commission; and (v) in the case of a
Shelf Registration Statement, include the names of the Holders, who propose
to sell Securities pursuant to the Shelf Registration Statement, as selling
securityholders.
7
<PAGE>
(b) The Company shall give written notice to the Initial
Purchasers, the Holders of the Securities and any Participating Broker-
Dealer from whom the Company has received prior written notice that it will
be a Participating Broker-Dealer in the Registered Exchange Offer (which
notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an
instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of
any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event (which notice need not
contain details concerning the substance of the event if such
details constitute material nonpublic information the disclosure of
which to the recipient of the notice would adversely effect the
Company) that requires the Company to make changes in the
Registration Statement or the prospectus in order that the
Registration Statement or the prospectus do not contain an untrue
statement of a material fact nor omit to state a material fact
required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading.
(c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
8
<PAGE>
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one
copy of the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder
so requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without charge,
at least one copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if any Initial Purchaser or any such Holder requests, all
exhibits thereto (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of the
Shelf Registration, without charge, as many copies of the prospectus
(including each preliminary prospectus) included in the Shelf Registration
Statement and any amendment or supplement thereto as such person may
reasonably request. The Company consents, subject to the provisions of
this Agreement, to the use of the prospectus or any amendment or supplement
thereto by each of the selling Holders of the Securities in connection with
the offering and sale of the Securities covered by the prospectus, or any
amendment or supplement thereto, included in the Shelf Registration
Statement.
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement and any amendment or supplement
thereto as such persons may reasonably request. The Company consents,
subject to the provisions of this Agreement, to the use of the prospectus
or any amendment or supplement thereto by any Initial Purchaser, if
necessary, any Participating Broker-Dealer and such other persons required
to deliver a prospectus following the Registered Exchange Offer in
connection with the offering and sale of the Exchange Notes covered by the
prospectus, or any amendment or supplement thereto, included in such
Exchange Offer Registration Statement.
(h) Prior to any public offering of the Securities pursuant to any
Registration Statement, the
9
<PAGE>
Company shall register or qualify or cooperate with the Holders of the
Securities included therein and their respective counsel in connection with
the registration or qualification of the Securities for offer and sale
under the securities or "blue sky" laws of such states of the United States
as any Holder of the Securities reasonably requests in writing and do any
and all other acts or things necessary or advisable to enable the offer and
sale in such jurisdictions of the Securities covered by such Registration
Statement; provided, however, that the Company shall not be required to (i)
-------- -------
qualify generally to do business in any jurisdiction where it is not then
so qualified or (ii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not then
so subject.
(i) The Company shall cooperate with the Holders of the Securities
to facilitate the timely preparation and delivery of certificates
representing the Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as the Holders may request a reasonable period of
time prior to sales of the Securities pursuant to such Registration
Statement.
(j) Upon the occurrence of any event contemplated by paragraphs
(ii) through (v) of Section 3(b) above during the period for which the
Company is required to maintain an effective Registration Statement, the
Company shall as promptly as reasonably possible prepare and file a post-
effective amendment to the Registration Statement or supplement to the
related prospectus and any other required document so that, as thereafter
delivered to Holders of the Notes or purchasers of Securities, the
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. If the Company notifies the Initial Purchasers,
the Holders of the Securities and any known Participating Broker-Dealer in
accordance with paragraphs (ii) through (v) of Section 3(b) above to
suspend the use of the prospectus until the requisite changes to the
prospectus have been made, then the Initial Purchasers, the Holders of the
Securities and any such Participating Broker-Dealers shall suspend use of
such prospectus, and the period of effectiveness of the Shelf Registration
Statement provided for in Section 2(b) above and the Exchange Offer
Registration Statement provided for in Section 1 above shall each be
extended by the number of days from and including the date of the giving of
such notice to and including the date when the Initial
10
<PAGE>
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer shall have received such amended or supplemented prospectus
pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for the
Notes, the Exchange Notes or the Private Exchange Notes, as the case may
be, and provide the applicable trustee with printed certificates for the
Notes, the Exchange Notes or the Private Exchange Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make generally
available to its security holders (or otherwise provide in accordance with
Section 11(a) of the Securities Act) an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act, no later than 45 days
after the end of a 12-month period (or 90 days, if such period is a fiscal
year) beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement, which
statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), in a
timely manner and containing such changes, if any, as shall be necessary
for such qualification. In the event that such qualification would require
the appointment of a new trustee under the Indenture, the Company shall
appoint a new trustee thereunder pursuant to the applicable provisions of
the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of the Securities as
the Company may from time to time reasonably require for inclusion in the
Shelf Registration Statement, and the Company may exclude from such
registration the Securities of any Holder that unreasonably fails to
furnish such information within a reasonable time after receiving such
request.
(o) The Company shall enter into such customary agreements
(including if requested an underwriting agreement in customary form) and
take all such other action, if any, as any Holder of the Securities shall
11
<PAGE>
reasonably request in order to facilitate the disposition of the Securities
pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall (i)
make reasonably available for inspection by the Holders of the Securities,
any underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney, accountant or other agent retained
by the Holders of the Securities or any such underwriter all relevant
financial and other records, pertinent corporate documents and properties
of the Company and (ii) cause the Company's officers, directors, employees,
accountants and auditors to supply all relevant information reasonably
requested by the Holders of the Securities or any such underwriter,
attorney, accountant or agent in connection with the Shelf Registration
Statement, in each case, as shall be reasonably necessary to enable such
persons, to conduct a reasonable investigation within the meaning of
Section 11 of the Securities Act; provided, however, that the foregoing
-------- -------
inspection and information gathering shall be coordinated on behalf of the
Initial Purchasers by you and on behalf of the other parties, by one
counsel designated by and on behalf of such other parties as described in
Section 4 hereof.
(q) In the case of any Shelf Registration, the Company, if
requested by any Holder of Securities covered thereby, shall cause (i) its
counsel to deliver an opinion and updates thereof relating to the
Securities in customary form addressed to such Holders and the managing
underwriters, if any, thereof and dated, in the case of the initial
opinion, the effective date of such Shelf Registration Statement (it being
agreed that the matters to be covered by such opinion shall include,
without limitation, the due incorporation and good standing of the Company
and its subsidiaries; the qualification of the Company and its subsidiaries
to transact business as foreign corporations; the due authorization,
execution and delivery of the relevant agreement of the type referred to in
Section 3(o) hereof; the due authorization, execution, authentication and
issuance, and the validity and enforceability, of the applicable
Securities; the absence of material legal or governmental proceedings
involving the Company and its subsidiaries; the absence of governmental
approvals required to be obtained in connection with the Shelf Registration
Statement, the offering and sale of the applicable Securities, or any
agreement of the type referred to in Section 3(o) hereof; the compliance as
to form of such Shelf Registration Statement and any documents incorporated
by reference therein and of the Indenture with the requirements of the
Securities Act and the Trust
12
<PAGE>
Indenture Act, respectively; and, as of the date of the opinion and as of
the effective date of the Shelf Registration Statement or most recent
posteffective amendment thereto, as the case may be, the absence from such
Shelf Registration Statement and the prospectus included therein, as then
amended or supplemented, and from any documents incorporated by reference
therein of an untrue statement of a material fact or the omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of any such documents,
in the light of the circumstances existing at the time that such documents
were filed with the Commission under the Exchange Act); (ii) its officers
to execute and deliver all customary documents and certificates and updates
thereof requested by any underwriters of the applicable Securities and
(iii) its independent public accountants and the independent public
accountants with respect to any other entity for which financial
information is provided in the Shelf Registration Statement to provide to
the selling Holders of the applicable Securities and any underwriter
therefor a comfort letter in customary form and covering matters of the
type customarily covered in comfort letters in connection with primary
underwritten offerings, subject to receipt of appropriate documentation as
contemplated by Statement of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested by
any Initial Purchaser or any known Participating Broker-Dealer, the Company
shall cause (i) its counsel to deliver to such Initial Purchaser or such
Participating Broker-Dealer a signed opinion in the form set forth in
Sections 6(d) and (e) of the Purchase Agreement with such changes as are
customary in connection with the preparation of a Registration Statement
and (ii) its independent public accountants and the independent public
accountants with respect to any other entity for which financial
information is provided in the Registration Statement to deliver to such
Initial Purchaser or such Participating Broker-Dealer a comfort letter, in
customary form, meeting the requirements as to the substance thereof as set
forth in Sections 6(a) and (b) of the Purchase Agreement, with appropriate
date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Notes by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or caused to be marked, on the Notes so exchanged that such Notes are
being cancelled in
13
<PAGE>
exchange for the Exchange Notes or the Private Exchange Notes, as the case
may be; in no event shall the Notes be marked as paid or otherwise
satisfied.
(t) The Company will use its reasonable best efforts to either (i)
confirm that the ratings obtained for the Notes prior to the initial sale
of such Notes will apply to the Securities covered by a Registration
Statement or (ii) cause the Securities covered by a Registration Statement
to be rated with the appropriate rating agencies at a rating at least as
favorable as the rating obtained prior to the initial sale of the Notes (it
being understood, however, that such new ratings may be more or less
favorable than the ratings obtained prior to the initial sale of the
Notes), if so requested by Holders of a majority in aggregate principal
amount of Securities covered by such Registration Statement, or by the
managing underwriters, if any.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member of
an underwriting syndicate or selling group or "participate in the
distribution" (within the meaning of the Rules of Fair Practice and the By-
Laws of the National Association of Securities Dealers, Inc. ("NASD"))
thereof, whether as a Holder of such Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, assist such broker-dealer in complying with the requirements of
such Rules and By-Laws, including, without limitation, by (i) if such Rules
or By-Laws, including Schedule E thereto, shall so require, engaging a
"qualified independent underwriter" (as defined in such Schedule) to
participate in the preparation of the Registration Statement relating to
such Securities, to exercise usual standards of due diligence in respect
thereto and, if any portion of the offering contemplated by such
Registration Statement is an underwritten offering or is made through a
placement or sales agent, to recommend the yield of such Securities, (ii)
indemnifying any such qualified independent underwriter to the extent of
the indemnification of underwriters provided in Section 5 hereof and (iii)
providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the Rules
of Fair Practice of the NASD.
(v) The Company shall use its reasonable best efforts to take all
other steps necessary to effect the registration of the Securities covered
by a Registration Statement contemplated hereby.
14
<PAGE>
4. Registration Expenses. The Company shall bear all fees and
---------------------
expenses incurred in connection with the performance of its obligations under
Sections 1 through 3 hereof (including the reasonable fees and expenses, if any,
of Dewey Ballantine, counsel for the Initial Purchasers, incurred in connection
with the Registered Exchange Offer), whether or not the Registered Exchange
Offer or a Shelf Registration is filed or becomes effective, and, in the event
of a Shelf Registration, shall bear or reimburse the Holders of the Securities
covered thereby for the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Securities
covered thereby to act as counsel for the Holders of the Securities in
connection therewith.
5. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless each Holder of the Securities, any Participating Broker-Dealer and each
person, if any, who controls such Holder or such Participating Broker-Dealer
within the meaning of the Securities Act or the Exchange Act (each Holder, any
Participating Broker-Dealer and such controlling persons are referred to
collectively as the "Indemnified Parties") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement not misleading, and shall reimburse, as
incurred, the Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereto; provided, however, that
-------- -------
(i) the Company shall not be liable in any such case to the extent that 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 in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration in reliance
upon and in conformity with written information pertaining to such Holder and
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein and (ii) with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus relating
to a
15
<PAGE>
Shelf Registration Statement, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Holder or Participating
Broker-Dealer from whom the person asserting any such losses, claims, damages or
liabilities purchased the Securities concerned, to the extent that a prospectus
relating to such Securities was required to be delivered by such Holder or
Participating Broker-Dealer under the Securities Act in connection with such
purchase and any such loss, claim, damage or liability of such Holder or
Participating Broker-Dealer results from the fact that there was not sent or
given to such person, at or prior to the written confirmation of the sale of
such Securities to such person, a copy of the final prospectus if the Company
had previously furnished a sufficient number of copies thereof to such Holder or
Participating Broker-Dealer; provided further, however, that this indemnity
-------- ------- -------
agreement will be in addition to any liability which the Company may otherwise
have to such Indemnified Party. The Company shall also indemnify underwriters,
selling brokers, dealer-managers and similar securities industry professionals
participating in the distribution (as described in such Registration Statement),
their officers and directors and each person who controls such persons within
the meaning of the Securities Act or the Exchange Act to the same extent as
provided above with respect to the indemnification of the Holders of the
Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act from
and against any losses, claims, damages or liabilities or any actions in respect
thereof, to which the Company or any such controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein;
and, subject to the limitation set forth immediately preceding this clause,
shall reimburse, as incurred, the Company for any legal or other expenses
reasonably incurred by the Company or any such controlling person in connection
with investigating or defending any loss, claim, damage, liability or action in
16
<PAGE>
respect thereof. This indemnity agreement will be in addition to any liability
which such Holder may otherwise have to the Company or any of its controlling
persons.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the Notes
pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred
17
<PAGE>
to in clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Holder or such other indemnified person, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 5(d), the Holders of the Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Securities pursuant to a
Registration Statement exceeds the amount of damages which such Holders have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each person,
if any, who controls such indemnified party within the meaning of the Securities
Act or the Exchange Act shall have the same rights to contribution as such
indemnified party and each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Additional Interest Under Certain Circumstances. (a) Additional
-----------------------------------------------
interest (the "Additional Interest") with respect to the Securities shall be
assessed as follows if any of the following events occur (each such event in
clauses (i) through (iii) below a "Registration Default"):
18
<PAGE>
(i) If by August 13, 1996, neither the Exchange Offer
Registration Statement nor a Shelf Registration Statement has been
filed with the Commission;
(ii) If by November 26, 1996, neither the Registered
Exchange Offer is consummated nor, if required in lieu thereof, the
Shelf Registration Statement is declared effective by the
Commission; or
(iii) If after either the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared effective
(A) such Registration Statement thereafter ceases to be effective;
or (B) such Registration Statement or the related prospectus ceases
to be usable (except as permitted in paragraph (b)) in connection
with resales of Transfer Restricted Notes during the periods
specified herein because either (1) any event occurs as a result of
which the related prospectus forming part of such Registration
Statement would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were
made not misleading, or (2) it shall be necessary to amend such
Registration Statement or supplement the related prospectus, to
comply with the Securities Act or the Exchange Act or the
respective rules thereunder.
Additional Interest shall accrue on the Notes over and above the interest set
forth in the title of the Notes from and including the date on which any such
Registration Default shall occur to but excluding the date on which all such
Registration Defaults have been cured, at a rate of 0.50% per annum.
(b) A Registration Default referred to in Section 6(a)(iii)(B) shall
be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events with respect
to the Company that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf
19
<PAGE>
Registration Statement and related prospectus to describe such events; provided,
--------
however, that in any case if such Registration Default occurs for a continuous
- -------
period in excess of 45 days, Additional Interest shall be payable in accordance
with the above paragraph from the day such Registration Default occurs until
such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause (a)(i),
(a)(ii) or (a)(iii) of Section 6 above will be payable in cash on the regular
interest payment dates with respect to the Notes. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
(d) "Transfer Restricted Notes" means each Security until (i) the date
on which such Transfer Restricted Note has been exchanged by a person other than
a broker-dealer for a freely transferrable Exchange Note in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered
Exchange Offer of a Transfer Restricted Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such broker-
dealer on or prior to the date of such sale a copy of the prospectus contained
in the Exchange Offer Registration Statement, (iii) the date on which such
Transfer Restricted Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Transfer Restricted Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act.
7. Rules 144 and 144A. The Company shall use its best efforts to
------------------
file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not required
to file such reports, it will, upon the request of any Holder of Transfer
Restricted Notes, make publicly available other information so long as necessary
to permit sales of their securities pursuant to Rules 144 and 144A. The Company
covenants that it will take such further action as any Holder of Transfer
Restricted Notes may reasonably request, all to the extent required from time to
time to enable such Holder to sell Transfer Restricted Notes without
registration under the Securities Act within the limitation of the exemptions
provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)).
The Company will provide a copy of this Agreement to prospective purchasers of
Notes identified to the Company by the Initial Purchasers upon request. Upon
the
20
<PAGE>
request of any Holder of Transfer Restricted Notes, the Company shall deliver to
such Holder a written statement as to whether it has complied with such
requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be
deemed to require the Company to register any of its securities pursuant to the
Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
--------------------------
Notes covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("Managing Underwriters") will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Notes to be included in such offering.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Notes on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the Holders of a majority in principal amount of the Securities
affected by such amendment, modification, supplement, waiver or consents.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current
address given by such Holder to the Company in accordance with the
provisions of this Section 9(b), which address initially is, with
respect to each Holder, the address of such Holder to which
confirmation of the sale of the Notes to such Holder was first sent
by the Initial Purchasers, with a copy in like manner to you as
follows:
21
<PAGE>
CS First Boston Corporation
Park Avenue Plaza
New York, New York 10055
Fax No.: (212) 318-0532
Attention: Transactions Advisory Group
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019-6092
Fax No.: (212) 259-6333
Attention: Morton A. Pierce, Esq.
(2) if to the Initial Purchasers, at the addresses specified
in Section 9(b)(1);
a. if to the Company, at its address as follows:
UNC Incorporated
175 Admiral Cochrane Drive
Annapolis, Maryland 21401-7394
Fax No: (410) 266-7471
Attention: Richard H. Lange, Esq.
with a copy to:
Miles & Stockbridge
10 Light Street
Baltimore, Maryland 21202-1487
Fax No: (410) 385-3700
Attention: John B. Frisch, Esq.
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
--------------------------
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding upon
----------------------
the Company and its successors and assigns.
22
<PAGE>
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or approval
------------------------------
of Holders of a specified percentage of principal amount of Securities is
required hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
23
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the several Initial Purchasers and the Company in accordance with its
terms.
Very truly yours,
UNC Incorporated
By: /s/ Gregory M. Bubb
---------------------------
Gregory M. Bubb
Vice President, Treasurer
UNC HOLDINGS INC. UNC/LEAR SERVICES, INC.
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC ALL FAB, INC. UNC METCALF SERVICING, INC.
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC JOHNSON TECHNOLOGY, INC. UNC ARTEX, INC.
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
<PAGE>
UNC CAMCO INCORPORATED UNC TEXAS CAMCO INCORPORATED
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC ARDCO INCORPORATED UNC ENGINE & ENGINE
PARTS, INC.
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC ACCESSORY OVERHAUL UNC AVIATION SERVICES, INC.
GROUP, INC.
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC TRI-INDUSTRIES, INC. UNC AIRWORK CORPORATION
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
UNC PACIFIC AIRMOTIVE UNC PARTS COMPANY
CORPORATION, INC.
By: /s/ Richard H. Lange By: /s/ Richard H. Lange
------------------------ ------------------------
Richard H. Lange Richard H. Lange
Vice President Vice President
<PAGE>
UNC/CFC ACQUISITION CO.
By: /s/ Richard H. Lange
------------------------
Richard H. Lange
Vice President
<PAGE>
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of the date first above
written.
CS FIRST BOSTON CORPORATION
FIRST UNION CAPITAL MARKETS CORP.
By: CS FIRST BOSTON CORPORATION
By: /s/ Harold Bogle
------------------------
Harold Bogle
Managing Director
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging 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. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such 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 Exchange
Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until ______________, 199__,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.*
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange 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 Exchange 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 or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission 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.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus
- -----------------------
* In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed to
pay all expenses incident to the Exchange Offer (including the expenses of one
counsel for the Holders of the Notes) other than commissions or concessions of
any brokers or dealers and will indemnify the Holders of the Securities
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
C-2
<PAGE>
ANNEX D
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------
------------------------------------------------------------------
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 Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for 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 Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE>
<TABLE>
<CAPTION>
Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends EXHIBIT 12
(Dollars in thousands)
Year Ended December 31, Six Months Ended June 30,
---------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1995 1996
Earnings (loss) from continuing operations
before provision for income taxes ($24,133) $12,851 $7,751 ($81,415) 2,958 $1,551 $2,750
Add:
Portion of rents representative of the
interest factor 2,332 2,049 1,901 2,907 3,062 1,531 1,628
Interest excluding capitalized interest 17,531 11,431 13,865 18,549 19,514 10,223 11,145
Amortization of debt expense and discount 664 305 292 417 417 209 270
-------- ------- ------- -------- ------- ------- -------
Earnings (loss) as adjusted ($3,606) $26,636 $23,809 ($59,542) $25,951 $13,514 $15,793
======== ======= ======= ========= ======= ======= =======
Preferred dividend requirements $187
Ratio of income before provision for Income
taxes to net income (1) 143%
Preferred dividend factor on pretax basis 267
Fixed Charges
Interest including capitalized interest (2) $20,050 $11,987 $14,150 $18,908 $19,837 $10,429 11,145
Amortization of debt expense and discount 664 305 292 417 417 209 270
Portion of rents representative of the interest
factor 2,332 2,049 1,901 2,907 3,062 1,531 1,628
------- ------- ------- ------- ------- ------- -------
Fixed charges and preferred dividends $23,046 $14,341 $16,343 $22,232 $23,316 $12,169 $13,310
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges and
preferred dividends - 1.86 1.46 - 1.11 1.11 1.19
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------
(1) Represents income from continuing operations before provision for income
taxes divided by income from continuing operations, which adjust dividends
on preferred stock to a pre-tax basis.
(2) The ratio of earnings to fixed charges shown above include, as a fixed
charge, interest expense allocated to discontinued operations.
<PAGE>
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
--------------------------------
The Board of Directors and Shareholders
UNC Incorporated:
We consent to the inclusion in the registration statement of UNC Incorporated on
Form S-4 (File No. 33- ) of our report dated February 26, 1996, on our audits
of the consolidated financial statements of UNC Incorporated and subsidiaries as
of December 31, 1995 and 1994, and for the years then ended, which report also
appears in the December 31, 1995 Annual Report on Form 10-K of UNC Incorporated.
We also consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Washington, D.C.
August 9, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
--------------------------------
The Board of Directors and Shareholders
UNC Incorporated:
We consent to the inclusion in the registration statement of UNC Incorporated on
Form S-4 (File No. 33- ) of our report dated July 26, 1996, on our audits of the
statements of earnings and cash flows of certain of the Hangar facilities (as
described in Note 1 to the financial statements) of AlliedSignal Engines -Hangar
Operations, a division AlliedSignal Inc., for the six month period ended June
30, 1994 and the year ended December 31, 1993. We also consent to the reference
to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Washington, D.C.
August 9, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors and Shareholders
UNC Incorporated:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Washington, D.C.
August 9, 1996
<PAGE>
Exhibit 23.4
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 1, 1996, with respect to the consolidated
financial statements of Garrett Aviation Services and subsidiary included herein
and in the Current Report on Form 8-K of UNC Incorporated, incorporated by
reference in the Registration Statement of UNC Incorporated (Form S-4)
pertaining to the Exchange Offer for the 11% Senior Subordinated Notes.
ERNST & YOUNG LLP
Phoenix, Arizona
August 9, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors and officers of UNC Incorporated, a Delaware
corporation (the "Company"), hereby constitute and appoint each of Richard H.
Lange and Robert L. Pevenstein, with power of substitution, our true and lawful
attorneys-in-fact with full power to sign for us, in our names and in the
capacities indicated below, a registration statement on Form S-4, and any and
all amendments thereto (including post-effective amendments), for the purpose of
registering under the Securities Act of 1933, as amended, its 11% Senior
Subordinated Notes Due June 1, 2006 in the principal amount of $125,000,000.
SIGNATURES
----------
Signature Title Date
- --------- ----- ----
/s/ Dan A. Colussy Chairman of the July 26, 1996
- --------------------------------- Board, Chief
Dan A. Colussy Executive Officer
and Director
/s/ Berl Bernhard Director July 26, 1996
- ---------------------------------
Berl Bernhard
/s/ Beverly B. Byron Director July 26, 1996
- ---------------------------------
Beverly B. Byron
/s/ John K. Castle Director July 26, 1996
- ---------------------------------
John K. Castle
/s/ John W. Gildea Director July 26, 1996
- ---------------------------------
John W. Gildea
/s/ Freeman A. Hrabowski, III Director July 26, 1996
- ---------------------------------
Freeman A. Hrabowski, III
<PAGE>
/s/ George V. McGowan Director July 26, 1996
- ---------------------------
George V. McGowan
/s/ Jack Moseley Director July 26, 1996
- ---------------------------
Jack Moseley
/s/ Lawrence A. Skantze Director July 26, 1996
- ---------------------------
Lawrence A. Skantze
2
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
================================================================================
EXHIBIT 25
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
UNC INCORPORATED
(Exact name of obligor as specified in its charter)
Delaware 54-1078297
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
175 Admiral Cochrane Drive
Annapolis, MD 21401
(Address of principal executive offices) (Zip code)
______________________
11% Senior Subordinated Notes Due June 1, 2006
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 3.)
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of
the Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 7th day of August, 1996.
THE BANK OF NEW YORK
By: /s/ ROBERT F. MCINTYRE
----------------------------
Name: ROBERT F. MCINTYRE
Title: VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10296
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System at
the close of business March 31, 1996, published in accordance with a call made
by the Federal Reserve Bank of the District XX to the provisions of the Federal
Reserve Act.
Dollar Amounts
in Thousands
ASSETS
Cash and balances due from depository Institutions
bearing balances and currency $ 2,461.560
Interest-bearing balances 835.563
Securities
XXXX
Federal Funds
XX
Loans
XX
27,309.342
Assets in trading accounts 837.118
Premises and XX assets (including XXXX) 614.X57
Over XX grace period 51.631
XXXX......
Customer XX
XX 436.668
XX1 1,247.908
Total XX 41,558.682
LIABILITIES
Deposits
XXXXX
XXXXX
$224.086
29.728
2,713.248
803.292
XXXXX
EQUITY CAPITAL
Common Stock 642.294
Surplus 526.666
2,079.197
3.197
Total Equity Capital 3,543.579
$41,XX8.682
L. Robert E. XX, Senior Vice President and XX of the XX bank XX hereby XX 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 XX.
Robert E. XX
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 be XX has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and XXXX and
correct.
J. Carter XX
Thomas A. XX Directors
XX P. XX
