<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997
REGISTRATION NO. 333-24319
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
TRACOR, INC.
(Exact name of registrant as specified in its charter)
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<C> <C> <C>
DELAWARE
(State or other jurisdiction 8711 74-2618088
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code No.) Identification No.)
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<TABLE>
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JAMES B. SKAGGS
6500 TRACOR LANE TRACOR, INC.
AUSTIN, TEXAS 78725 6500 TRACOR LANE
(512) 926-2800 AUSTIN, TEXAS 78725
(Address, including zip code, and (Address, including zip code, and
telephone number, including area code, of telephone number, including area code,
registrant's principal executive offices) of agent for service)
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Copies to:
DARREL A. RICE, ESQ.
WINSTEAD SECHREST & MINICK P.C.
1201 ELM STREET,
SUITE 5400
DALLAS, TEXAS 75270
(214) 745-5400
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS DESCRIBED IN THE ENCLOSED PROXY STATEMENT/PROSPECTUS HAVE BEEN
SATISFIED OR WAIVED.
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, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
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8 1/2% Senior Subordinated
Exchange Notes due 2007......... $249,005,000 $996.02 $249,005,000 $75,456
==================================================================================================================
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(1) Estimated pursuant to Rule 457(a) of the Securities Act of 1933, solely for
the purpose of calculating the registration fee.
---------------------
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> 2
TRACOR, INC.
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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LOCATION IN
FORM S-4 ITEM PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover of Prospectus............................... Facing Page of Registration Statement;
Cross Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Available Information; Incorporation of
Certain Documents by Reference; Table
of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. Summary; Selected Pro Forma and
Historical Financial Data; Risk
Factors
4. Terms of the Transaction............................ The Exchange Offer; Description of the
Notes; Certain Federal Income Tax
Considerations
5. Pro Forma Financial Information..................... Summary; Selected Pro Forma and
Historical Financial Data
6. Material Contacts with the Company Being Acquired... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed To Be Underwriters..... Not Applicable
8. Interests of Named Experts and Counsel.............. Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants......... Available Information; Incorporation of
Certain Documents by Reference;
Selected Pro Forma and Historical
Financial Data; Recent Developments
11. Incorporation of Certain Information by Reference... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants....................................... Not Applicable
13. Incorporation of Certain Information by Reference... Not Applicable
14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants............................ Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION IN
FORM S-4 ITEM PROXY STATEMENT/PROSPECTUS
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies........... Not Applicable
16. Information with Respect to S-2 or S-3 Companies.... Not Applicable
17. Information with Respect to Companies Other than S-2
or S-3 Companies.................................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorization
Are to be Solicited............................... Not Applicable
19. Information if Proxies, Consents or Authorization
Are Not to be Solicited, or in an Exchange
Offer............................................. Management; Certain Transactions;
Principal Stockholders
</TABLE>
<PAGE> 4
PROSPECTUS
OFFER TO EXCHANGE
8 1/2% SENIOR SUBORDINATED NOTES DUE 2007 (THE "EXCHANGE NOTES")
FOR ALL OUTSTANDING 8 1/2% SENIOR SUBORDINATED NOTES DUE 2007
(THE "ORIGINAL NOTES")
OF
[TRACOR LOGO]
------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON MAY 16, 1997
UNLESS EXTENDED.
Tracor, Inc., a Delaware corporation (the "Company" or "Tracor"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange $1,000 principal amount of its 8 1/2% Senior
Subordinated Notes due 2007 (the "Exchange Notes"), which exchange has 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 (the
"Registration Statement"), for each $1,000 principal amount of its outstanding
8 1/2% Senior Subordinated Notes due 2007 (the "Original Notes"), of which
$250.0 million in aggregate principal amount are outstanding as of the date
hereof. The form and terms of the Exchange Notes are the same as the form and
terms of the Original Notes except that (i) the exchange will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and hence the Exchange Notes will not bear legends restricting the transfer
thereof, and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of the Original Notes under the Registration Rights Agreement
(as defined herein), which rights will terminate upon the consummation of the
Exchange Offer. The Exchange Notes will evidence the same debt as the Original
Notes (which they replace) and will be entitled to the benefits of an indenture
dated as of March 14, 1997 governing the Original Notes and the Exchange Notes
(the "Indenture"). The Original Notes and the Exchange Notes are sometimes
referred to herein collectively as the "Senior Subordinated Notes" or the
"Notes." See "The Exchange Offer" and "Description of Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Original Notes. Consequently, the Exchange Notes will bear interest at
the rate of 8 1/2% per annum and the interest will be payable semi-annually on
March 1 and September 1 of each year commencing on September 1, 1997. The
Exchange Notes will bear interest from and including the date of issuance of the
Original Notes (March 14, 1997) (the "Issue Date"). Holders whose Original Notes
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Original Notes.
The Notes are redeemable, in whole or in part, at the option of the Company,
on or after March 1, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption. In addition, at any time,
or from time to time, on or prior to March 1, 2000, the Company, at its option,
may redeem up to $87.5 million of the aggregate principal amount of the Notes
originally issued, with the net cash proceeds of one or more Public Equity
Offerings (as defined herein), at the redemption price set forth herein, plus
accrued and unpaid interest, if any, thereon to the date of redemption; provided
that at least 65% of the principal amount of the Notes originally issued remains
outstanding immediately after giving effect to such redemption.
The Notes will be general unsecured obligations of the Company and will rank
subordinate in right of payment to all Senior Indebtedness (as defined herein)
of the Company. Pursuant to the terms of the Indenture (as defined herein), the
Notes will be guaranteed on a senior subordinated unsecured basis by the
Company's domestic wholly-owned subsidiaries (the "Subsidiary Guarantors"). The
Guarantees (as defined herein) will be general unsecured obligations of the
Subsidiary Guarantors and will be subordinated in right of payment to all
existing and future Guarantor Senior Indebtedness (as defined herein). At
December 31, 1996, after giving effect to the Transactions (as defined herein),
the aggregate amount of Senior Indebtedness outstanding would have been
approximately $104.7 million (including $32.1 million of issued but undrawn
letters of credit and $31.5 million of fully cash collateralized promissory
notes payable issued in conjunction with the acquisition of Cordant Holdings,
Inc. in September 1996) and the aggregate amount of Guarantor Senior
Indebtedness (excluding guarantees of Senior Indebtedness) outstanding would
have been approximately $5.9 million.
In the event of a Change of Control (as defined herein), (i) the Company
will have the option, at any time on or prior to March 1, 2002, to redeem the
Notes, in whole but not in part, at a redemption price equal to 100% of the
principal amount thereof, plus the Applicable Premium (as defined herein),
together with accrued and unpaid interest, if any, to the date of redemption,
and (ii) if the Company does not so redeem the Notes, each holder of the Notes
will have the right, subject to certain conditions, to require the Company to
repurchase such holder's Notes at a redemption price equal to 101% of the
principal amount thereof, plus accrued interest to the date of repurchase. In
addition, the Company will be obligated to make an offer to purchase Notes in
the event of certain asset sales. See "Description of Notes."
SEE "RISK FACTORS" COMMENCING ON PAGE 11 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS WHICH HOLDERS OF ORIGINAL NOTES SHOULD CONSIDER IN CONNECTION
WITH THIS EXCHANGE OFFER.
The Company will accept for exchange any and all validly tendered Notes not
withdrawn prior to 5:00 p.m., New York City time, on May 16, 1997 unless
extended by the Company, in its sole discretion (the "Expiration Date"). Tenders
of Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer." Notes may be tendered only
in integral multiples of $1,000.
------------------------------
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 APRIL 18, 1997
<PAGE> 5
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to this
Exchange Offer in exchange for Original Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Original
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met.
Each broker-dealer that receives the Exchange Notes for its own account in
exchange for the Original Notes, where such Original 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. 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 Original Notes where such Original Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has indicated its intention to make this Prospectus (as
it may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 180 days after the Expiration
Date. See "Plan of Distribution." The Company believes that none of the
registered holders of the Original Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
Prior to this Exchange Offer, there has been no public market for the
Senior Subordinated Notes. The Company does not intend to list the Senior
Subordinated Notes on any securities exchange or to seek approval for quotations
through any automated quotation system. There can be no assurance that an active
market for the Senior Subordinated Notes will develop. To the extent that a
market for the Senior Subordinated Notes does develop, the market value of the
Senior Subordinated Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and other conditions. Such conditions might cause the Senior
Subordinated Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "Risk Factors -- Lack of Public
Market."
The Company will not receive any proceeds from this Exchange Offer. The
Company has agreed to bear the expenses of this Exchange Offer. No underwriter
is being used in connection with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus
or the accompanying Letter of Transmittal, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. Neither the delivery of this Prospectus or the accompanying
Letter of Transmittal, nor any exchange made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
i
<PAGE> 6
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof.
The Company files periodic reporting and other information requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act").
Periodic reports and other information filed by the Company with the Commission
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
In addition, copies of such material may be accessed electronically by means of
the Commission's home page on the Internet at http: //www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual consolidated financial statements only, a report thereof by the
Company's independent certified public accountants and (ii) all reports that
would be required to be filed on Form 8-K if it were required to file such
reports. In addition, for so long as any of the Notes remain outstanding, the
Company has agreed to make available to any prospective purchaser of the Notes
or beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144(d)(4) under the Securities Act.
CERTAIN INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission by the Company pursuant
to the Exchange Act are incorporated by reference into this Prospectus.
1. Annual Report of the Company on Form 10-K for the year ended December
31, 1996; and
2. Current Report of the Company on Form 8-K filed with the Commission on
February 14, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Exchange Offer shall be deemed to be
incorporated by reference in this Prospectus and the accompanying Prospectus and
to be a part hereof from the date of filing such documents.
Any statements contained herein or in a document incorporated by reference
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus and the accompanying Prospectus to
the extent that a statement contained in this Prospectus and the accompanying
Prospectus or in any other subsequently filed document that also is or is deemed
to be incorporated by reference in this Prospectus and the accompanying
Prospectus 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 and the accompanying Prospectus.
ii
<PAGE> 7
TABLE OF CONTENTS
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Available Information....................................... ii
Certain Information Incorporated By Reference............... ii
Prospectus Summary.......................................... 1
The Exchange Offer.......................................... 5
Summary Pro Forma and Historical Financial Data............. 10
Risk Factors................................................ 11
The Transactions............................................ 15
Use of Proceeds............................................. 15
Capitalization.............................................. 16
Selected Pro Forma and Historical Financial Data............ 17
Selected Pro Forma and Historical Sales Percentages......... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................. 19
Business.................................................... 23
Management.................................................. 37
Retirement Plan Benefits.................................... 43
Certain Transactions........................................ 47
Recent Developments......................................... 47
Principal Stockholders...................................... 48
Description of New Bank Credit Facility..................... 51
The Exchange Offer.......................................... 52
Description of Notes........................................ 62
Book-Entry; Delivery and Form............................... 85
Certain Federal Income Tax Considerations................... 87
Plan of Distribution........................................ 89
Legal Matters............................................... 90
Experts..................................................... 90
Audited Financial Statements................................ F-1
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iii
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. Certain capitalized terms used in this
summary are defined elsewhere in this Prospectus. See "Risk Factors" for a
discussion of certain factors that should be considered by potential investors.
THE COMPANY
Tracor, Inc. (collectively with its subsidiaries, "Tracor" or the
"Company") provides sophisticated electronic and information technology
products, systems and services to the U.S. Department of Defense ("DOD"), other
U.S. government agencies, foreign governments and commercial customers. The
Company's business units operate in the U.S. and foreign defense electronics,
information technology and systems engineering and integration markets and
largely support existing high-priority DOD weapons, platforms and systems. The
Company's products and services enable defense customers to enhance the
operational performance and readiness of existing weapons and platforms as well
as extend their useful lives and survivability. As a result, the Company
believes it is well positioned to benefit from fundamental changes in national
defense strategy precipitated by the end of the Cold War. Since August 1993, the
Company has made three substantial acquisitions as part of its strategy to take
advantage of a consolidating defense industry. With the Company's recent
acquisition of Cordant Holdings, Inc. and its subsidiaries (collectively,
"Cordant"), it has achieved a major presence, and substantially increased its
revenues in the information technology market serving a broad range of new DOD
and other government customers. Largely as a result of such acquisitions,
Tracor's revenues and operating income have increased from $261.8 million and
$11.1 million, respectively, in 1992 to $1,082.5 million and $92.6 million,
respectively, in 1996.
A key component of the Company's strategy has been establishing itself as
an industry leader in several high-priority DOD program areas, including:
- Navy Systems Engineering and Integration: Tracor is a major provider of
systems engineering and integration services to the U.S. Navy and is the
principal systems integrator for certain key programs, including both the
radio communication suite and the combatant systems for cruisers and
destroyers equipped with the AEGIS weapon system. Combatant systems
include anti-air defense missile systems, Tomahawk cruise missiles,
Harpoon missiles, undersea warfare systems and supporting systems. The
Company has a similar position in submarine ballistic missile programs.
- Imagery Exploitation and Mission Planning: Tracor develops enhanced image
interpretation and mission planning systems for the DOD and provides
these high-priority systems to several critical areas within the defense
and intelligence markets.
- Information Systems: Tracor is a leading provider of a wide range of
information technology products, systems and services to the DOD,
nondefense government agencies and the commercial market through its
newly formed Tracor Information Systems Company, which combined the
recently acquired Cordant with the Company's Quality Systems, Inc. and
Software Center of Excellence. The work in this area includes offering
information systems solutions to customers, which include certain
intelligence agencies, the U.S. Postal Service and the U.S. Department of
Justice.
- Electronic Warfare: The Company designed, and currently is the only
manufacturer of, the most advanced and widely used countermeasures
dispenser systems in the U.S. and is a major supplier of countermeasures
expendables in the domestic and international defense markets. The
Company is also a major supplier of communications and radar
countermeasures and radar warning receiver subsystems. These systems
provide an important, cost-effective means of protecting combat aircraft
and crews.
- Drones: Tracor designs, modifies and converts military aircraft into
remotely controlled aerial targets ("drones") and produces sub-scale
drones, both of which are critical elements of weapons testing and
evaluation and training. To date, the Company has produced more
full-scale target drones than any other DOD contractor.
<PAGE> 9
- Automatic Test Systems: The Company is the largest supplier of avionics
automatic test equipment to the U.S. Air Force which substantially
improves the readiness of advanced military aircraft, including the F-16
fighter. Tracor also is supplying test equipment for the new Japanese F-2
fighter.
The Company believes its established positions in high-priority programs
are due, in part, to its longstanding, consistently high-quality performance
under existing contracts. Tracor has a strong record of winning contract
recompetitions in which it has been involved in the last several years and is
the recipient of numerous performance awards, including 25 Blue Ribbon awards,
placing the Company among the approximately top one percent of contractors who
received these awards based on their individual records for on-schedule,
high-quality performance under existing contracts. For the high-priority AEGIS
program, Tracor provides primary support for a U.S. Navy unit which has been
selected to receive an unprecedented fourteenth AEGIS Excellence Award. All
Tracor units emphasize continuous improvement to increase efficiencies and
enhance competitiveness. Several operations have achieved ISO 9001
certification, enabling the Company to reduce costs associated with military
specifications and to comply with foreign customer requirements. Two of Tracor's
major subsidiaries also achieved the Software Engineering Institute ("SEI")
Level 3 certification, placing it in the elite class of the 10 percent of
software companies which have adopted a standard software process for both
management and engineering activities. The Company's competitive performance and
cost structure have allowed it to develop strong, long-lasting relationships
with its major customers. The Company has been the prime contractor for services
and products for many of the U.S. government's key existing programs for periods
ranging from 15 to 40 years, and in many cases has been involved in the
evolution of a program or weapons class since its inception. The Company
currently is performing under more than 700 contracts with approximately 100
separate agencies of the U.S. government. This existing business base led to a
firm backlog of $1.0 billion on December 31, 1996. Unexercised contract options
as of December 31, 1996 were $1.6 billion. This total backlog of $2.6 billion is
the highest in the Company's history and represents a 40% increase over total
backlog at December 31, 1995. Approximately 80% of firm backlog is expected to
be realized as sales within one year and approximately 76% represents contracts
with agencies of the U.S. government or its prime contractors.
A major portion of Tracor's business is in the operations and maintenance
segment of the U.S. defense budget. Operations and maintenance now exceed
procurement as the largest segment of the DOD budget. DOD operations and
maintenance expenditures emphasize maintaining the readiness of armed forces and
are focused on upgrading the effectiveness of existing combat systems and on
extending their useful lives. Because the Company is a major supplier of systems
and services which improve effectiveness, prolong the life of existing weapons
platforms and enhance the survivability of combat systems at a relatively low
cost, management believes the Company will benefit from these priorities in the
DOD budget. A modest increase in the procurement portion of the budget is
expected, and Tracor is also well positioned to benefit from this upturn.
A primary component of Tracor's business strategy has been selected
strategic acquisitions of companies with complementary business areas where
significant consolidation and cost reduction opportunities exist. The Company's
recent acquisitions have broadened and strengthened the Company's position in
core business areas and have created significant opportunities for cost savings.
The acquisition of Vitro Corporation and its subsidiaries (individually and
collectively, "Vitro") in August 1993 established the Company as a major
provider of engineering and management support to the U.S. Navy. The acquisition
of GDE Holdings, Inc. and its subsidiaries (individually and collectively,
"GDE") in November 1994 established Tracor as a major provider of advanced
digital imagery and mission planning technology and has made it the largest
supplier of avionics automatic test equipment to the U.S. Air Force. The
acquisitions of Vitro and GDE also established Tracor as a key supplier to the
intelligence organizations of the U.S. government. The acquisition of AEL
Industries, Inc. ("AEL") in February 1996 strengthened Tracor's position in
long-term electronic warfare production programs and added key capabilities in
radio frequency, antenna and microwave technologies. The acquisition of Cordant
in September 1996 strengthened Tracor's information systems integration
capabilities and established the Company with a new group of DOD and other
government customers. Concurrently with the Cordant acquisition, Tracor formed
Tracor Information Systems Company, consisting of Cordant, Quality Systems, Inc.
and Software Center of Excellence.
2
<PAGE> 10
The acquisitions of Vitro, GDE and AEL and the recent acquisition of
Cordant have broadened and strengthened the Company's position in core business
areas and enhanced the Company's ability to compete in new business areas. In
particular, the Company expects to have an increased ability to bid on contracts
in new business areas which draw upon complementary capabilities or customer
relationships of any or all of the acquired companies. In addition, since the
acquisition of Vitro, significant cost savings have been realized resulting from
the consolidation of facilities, staff reductions, process improvements and
elimination of other duplicative costs. While a substantial portion of such
savings have resulted in reductions in sales under cost-reimbursement contracts,
management believes the Company's cost competitiveness has been enhanced. The
Company has also realized significant net cost savings in connection with the
GDE and AEL acquisitions and has identified additional savings in connection
with the Cordant acquisition. As planned in connection with the AEL acquisition,
several excess facilities and two non-core lines of business at AEL have been
sold for $14 million and another facility is for sale. In addition to these
major acquisitions, the Company has acquired six small complementary business
units since 1994 which enhance the execution of its strategic plans. Although
there can be no assurance of the successful consummation of any further
acquisitions, management believes the continuing consolidation within the
defense industry will result in additional opportunities for the Company to make
attractive acquisitions.
Tracor is organized under the laws of Delaware with principal executive
offices located at 6500 Tracor Lane, Austin, Texas 78725 (telephone number:
(512) 926-2800).
3
<PAGE> 11
THE TRANSACTIONS
On March 14, 1997, the Company consummated its offer (the "Tender Offer")
to purchase for cash up to the entire outstanding principal amount of the
Company's 10 7/8 Senior Subordinated Notes due 2001 (the "Old Notes") and the
related solicitation of consents (the "Consent Solicitation") to modify certain
terms of the indentures under which the Old Notes were issued. Pursuant to the
Tender Offer $112,891,000 of Old Notes were tendered. The Company also
refinanced, as of March 14, 1997, its outstanding indebtedness under its
existing bank credit agreement and obtained a new bank credit facility (the "New
Bank Credit Facility") providing for a revolving line of credit in the initial
principal amount of $200 million (the Tender Offer and related Consent
Solicitation and the refinancing of such bank indebtedness are collectively
referred to as the "Transactions").
4
<PAGE> 12
THE EXCHANGE OFFER
THE EXCHANGE OFFER:........ The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Original Notes that
are properly tendered and accepted. The Company
will issue Exchange Notes on or promptly after
the Expiration Date. There is $250.0 million
aggregate principal amount of Original Notes
outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the
Securities and Exchange Commission (the
"Commission") set forth in no-action letters
issued to third parties, the Company believes
that the Exchange Notes issued pursuant to this
Exchange Offer in exchange for Original Notes may
be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to
Rule 144A or any other available exemptions under
the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that the holder is acquiring the
Exchange Notes in the ordinary course of its
business and is not participating, and had no
arrangement or understanding with any person to
participate, in the distribution of the Exchange
Notes. Each broker-dealer that receives the
Exchange Notes for its own account in exchange
for the Original 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.
REGISTRATION RIGHTS
AGREEMENT:............... The Original Notes were sold by the Company on
March 14, 1997 to the Initial Purchasers pursuant
to a Purchase Agreement dated February 28, 1997
by and among the Company and the Initial
Purchasers (the "Purchase Agreement"). Pursuant
to the Purchase Agreement, the Company and the
Initial Purchasers entered into a Registration
Rights Agreement dated as of March 14, 1997 (the
"Registration Rights Agreement") which grants the
holders of the Original Notes certain exchange
and registration rights. See "The Exchange
Offer -- Termination of Certain Rights." This
Exchange Offer is intended to satisfy such
rights, which terminate upon the consummation of
the Exchange Offer. The holders of the Exchange
Notes are not entitled to any exchange or
registration rights with respect to the Exchange
Notes.
EXPIRATION DATE:........... The Exchange Offer will expire at 5:00 p.m., New
York City time, on May 16, 1997, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND
ORIGINAL NOTES:.......... The Exchange Notes will bear interest from and
including the Issue Date. Holders whose Original
Notes are accepted for exchange will be
5
<PAGE> 13
deemed to have waived the right to receive any
interest accrued on the Original Notes.
CONDITIONS TO THE EXCHANGE
OFFER:................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company.
See "The Exchange Offer -- Certain Conditions to
the Exchange Offer." The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for
exchange.
PROCEDURES FOR TENDERING
NOTES:................... Each holder of Original Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with such Original Notes and any other
required documentation to U.S. Trust Company of
Texas, N.A., as Exchange Agent, at the address
set forth herein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, (i) the
Exchange Notes to be acquired by the holder of
the Original Note in connection with the Exchange
Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii)
the holder has no arrangement or understanding
with any person to participate in the
distribution of Exchange Notes, (iii) the holder
acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act
or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction of
the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the
Commission set forth in no-action letters (see
"The Exchange Offer -- Resale of Exchange
Notes"), (iv) the holder understands that a
secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes
obtained by such holder in exchange for Original
Notes acquired by such holder directly from the
Company should be covered by an effective
registration statement containing the selling
security holder information required by Item 507
or Item 508, as applicable, of Regulation S-K of
the Commission, and (v) the holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Company. If the holder is
a broker-dealer that will receive Exchange Notes
for its own account in exchange for Original
Notes that were acquired as a result of market-
making activities or other trading activities,
the holder is required to acknowledge in the
Letter of Transmittal 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 holder will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities act. See
"The Exchange Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS:......... Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Original Notes in
the Exchange Offer should contact such registered
holder promptly and instruct such
6
<PAGE> 14
registered holder to tender on such beneficial
owner's behalf. See "The Exchange
Offer -- Procedures for Tendering." If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering such owner's Original Notes, either
make appropriate arrangements to register
ownership of the Original 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
and may not be able to be completed prior to the
Expiration Date.
GUARANTEED DELIVERY
PROCEDURES:.............. Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to U.S. Trust Company of Texas, N.A., as Exchange
Agent, prior to the Expiration Date, must tender
their Original Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
ACCEPTANCE OF THE ORIGINAL
NOTES AND DELIVERY OF THE
EXCHANGE NOTES:.......... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all Original
Notes which are properly tendered in the Exchange
Offer prior to the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will
be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
WITHDRAWAL RIGHTS:......... Tenders of Original Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS:.......... For a discussion of certain federal income tax
considerations relating to the exchange of the
Exchange Notes for the Original Notes, see
"Certain Federal Income Tax Considerations."
EXCHANGE AGENT:............ U.S. Trust Company of Texas, N.A. is serving as the
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
CONSEQUENCES OF FAILURE TO
EXCHANGE:................ The Original Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Notes may be resold
only (i) to the Company, (ii) pursuant to Rule
144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
7
<PAGE> 15
THE NOTES
THE EXCHANGE NOTES......... The Exchange Offer applies to $250.0 million
aggregate principal amount of the Original Notes.
The form and terms of the Exchange Notes are the
same as the form and terms of the Original Notes
except that (i) the exchange will have been
registered under the Securities Act and,
therefore, the Exchange Notes will not bear
legends restricting their transfer pursuant to
the Securities Act, and (ii) holders of the
Exchange Notes will not be entitled to certain
rights of holders of the Original Notes under the
Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange
Offer. The Exchange Notes will evidence the same
debt as the Notes (which they replace) and will
be issued under, and be entitled to the benefits
of, the Indenture. See "Description of Notes" for
further information and for definitions of
certain capitalized terms used below.
MATURITY DATE.............. March 1, 2007.
INTEREST PAYMENT DATES..... Interest on the Exchange Notes will accrue from the
date of original issuance (the "Issue Date") and
is payable semi-annually on each March 1 and
September 1, commencing September 1, 1997.
RANKING.................... The Exchange Notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Company.
The Exchange Notes will rank pari passu with the
Original Notes and any future senior subordinated
indebtedness of the Company and will rank senior
to all other subordinated indebtedness of the
Company. As of December 31, 1996, after giving
effect to the Transactions, the Company would
have had approximately $104.7 million of Senior
Indebtedness (including $32.1 million of issued
but undrawn letters of credit and $31.5 million
of fully cash collateralized promissory notes
payable issued in conjunction with the
acquisition of Cordant).
OPTIONAL REDEMPTION........ The Exchange Notes are redeemable in whole or in
part, at the option of the Company on or after
March 1, 2002, at the redemption prices set forth
herein plus accrued interest to the date of
redemption. In addition, prior to March 1, 2000,
the Company, at its option, may redeem up to
$87.5 million of the aggregate principal amount
of the Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings,
at the redemption prices set forth herein plus
accrued interest to the date of redemption;
provided that at least 65% of the principal
amount of the Notes originally issued remains
outstanding immediately after giving effect to
any such redemption.
CHANGE OF CONTROL.......... Upon a Change of Control (as defined), (i) the
Company will have the option, at any time on or
prior to March 1, 2002, to redeem the Notes in
whole but not in part, at a redemption price
equal to 100% of the principal amount thereof,
plus the Applicable Premium as of, and accrued
and unpaid interest, if any, to, the date of
redemption, and (ii) if the Company does not so
redeem the Notes, each holder will have the
right, subject to certain conditions, to require
the Company to repurchase such holder's Notes at
a price equal to 101% of the principal amount
thereof plus accrued interest to the date of
repurchase.
GUARANTEES................. The Exchange Notes will be guaranteed on a senior
subordinated basis by the Subsidiary Guarantors.
The Guarantees will be general un-
8
<PAGE> 16
secured obligations of the Subsidiary Guarantors
and will be subordinated in right of payment to
all existing and future Guarantor Senior
Indebtedness. As of December 31, 1996, after
giving effect to the Transactions, the Subsidiary
Guarantors collectively would have had
approximately $5.9 million of Guarantor Senior
Indebtedness (excluding guarantees of Senior
Indebtedness).
CERTAIN COVENANTS.......... The Indenture governing the Notes (the "Indenture")
will contain certain covenants that limit the
ability of the Company and its subsidiaries to,
among other things, incur additional
indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, incur indebtedness that is
subordinate in right of payment to any Senior
Indebtedness and senior in right of payment to
the Notes, incur liens, impose restrictions on
the ability of a subsidiary to pay dividends or
make certain payments to the Company and its
subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all
of the assets of the Company.
For additional information regarding the Exchange Notes, see "Description of
Notes."
9
<PAGE> 17
SUMMARY PRO FORMA AND HISTORICAL FINANCIAL DATA
The following summary financial data should be read in conjunction with the
historical consolidated financial statements of Tracor, Inc. and the related
notes, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
TRANSACTIONS HISTORICAL
------------- ----------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996(1) 1996(1) 1995 1994(1) 1993(1) 1992
------------- ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $1,082,505 $1,082,505 $886,920 $694,037 $407,495 $261,835
Cost of sales........................... 866,234 866,234 713,802 568,020 333,852 214,070
Selling, administrative, and general
expenses.............................. 123,681 123,681 104,928 78,201 49,889 36,639
---------- ---------- -------- -------- -------- --------
Earnings before interest, income taxes
and extraordinary item................ 92,590 92,590 68,190 47,816 23,754 11,126
Interest expense, net................... 22,464 26,470 19,496 16,771 8,277 3,746
---------- ---------- -------- -------- -------- --------
Income before income taxes and
extraordinary item.................... 70,126 66,120 48,694 31,045 15,477 7,380
Income taxes............................ 31,148 29,506 20,831 12,498 6,200 2,850
---------- ---------- -------- -------- -------- --------
Income before extraordinary item........ 38,978 36,614 27,863 18,547 9,277 4,530
Extraordinary loss from early
extinguishment of debt, net of income
tax benefit of $6,109................. (8,791) -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Net income.............................. $ 30,187 $ 36,614 $ 27,863 $ 18,547 $ 9,277 $ 4,530
========== ========== ======== ======== ======== ========
SHARE DATA:
Income per common and common equivalent
share:
Primary:
Income before extraordinary item.... $ 1.55 $ 1.46 $ 1.23 $ 0.96 $ 0.56 $ 0.32
Extraordinary loss.................. (0.35) -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Net income.......................... $ 1.20 $ 1.46 $ 1.23 $ 0.96 $ 0.56 $ 0.32
========== ========== ======== ======== ======== ========
Fully diluted:
Income before extraordinary item.... $ 1.55 $ 1.46 $ 1.23 $ 0.93 $ 0.54 $ 0.32
Extraordinary loss.................. (0.35) -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Net income.......................... $ 1.20 $ 1.46 $ 1.23 $ 0.93 $ 0.54 $ 0.32
========== ========== ======== ======== ======== ========
Weighted average common and common
equivalent shares................... 25,353 25,353 24,168 22,113 22,069 21,953
OPERATING AND OTHER DATA:
Capital expenditures.................... $ 19,623 $ 19,623 $ 13,676 $ 11,007 $ 8,435 $ 7,360
Depreciation and amortization........... 30,361 30,361 22,854 14,746 9,614 6,814
Firm backlog............................ 1,030,472 1,030,472 923,978 806,228 590,366 301,502
BALANCE SHEET DATA:
Working capital......................... $ 170,092 $ 140,430 $129,129 $ 95,392 $ 87,140 $ 45,977
Total assets............................ 746,522 744,954 467,456 444,086 305,733 139,771
Total long-term debt.................... 330,622(2) 316,884(2) 191,175 205,738 144,302 50,194
Shareholders' equity.................... 212,457 222,917 136,965 90,592 63,167 52,345
</TABLE>
- ---------------
(1) Reflects the acquisitions of Cordant on September 26, 1996, AEL on February
22, 1996, GDE on November 17, 1994 and Vitro on August 25, 1993.
(2) Debt includes $31.5 million of fully cash collateralized promissory notes
payable issued in conjunction with the acquisition of Cordant.
10
<PAGE> 18
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors prior to making an
investment in the Exchange Notes offered hereby.
HIGH LEVERAGE
The Company is highly leveraged. The Company's leverage could have the
following consequences for holders of the Exchange Notes: (a) additional
financing for working capital, capital expenditures, acquisitions, or other
purposes may be difficult to obtain; (b) a substantial portion of cash flow from
operations must be dedicated to the payment of principal and interest on
indebtedness; and (c) the Company may be more vulnerable to defense industry or
general economic downturns which may limit its ability to withstand competitive
pressures.
As of December 31, 1996, after giving effect to the Transactions, the
Company's total indebtedness (including $31.5 million of fully cash
collateralized promissory notes payable issued in conjunction with the
acquisition of Cordant) and stockholders' equity were $330.6 million and $212.5
million, respectively. See "Capitalization." The Company's ability to pay
interest on the Exchange Notes, and to meet other debt service obligations and
to reduce total debt will be dependent upon its future performance, which, in
turn, will be subject to general conditions in the defense industry and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control.
SUBORDINATION OF EXCHANGE NOTES AND THE GUARANTEES
The Exchange Notes and the Guarantees will be subordinated in right of
payment to all Senior Indebtedness of the Company and Guarantor Senior
Indebtedness of the Subsidiary Guarantors, respectively. In the event of
bankruptcy, liquidation or reorganization of the Company or the Subsidiary
Guarantors, the assets of the Company and the Subsidiary Guarantors will be
available to pay obligations on the Exchange Notes only after all Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be, has been paid
in full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Exchange Notes then outstanding. As of December 31, 1996,
after giving effect to the Transactions, the Company would have had
approximately $104.7 million of Senior Indebtedness (including $32.1 million of
issued but undrawn letters of credit and $31.5 million of fully cash
collateralized promissory notes payable issued in conjunction with the
acquisition of Cordant) and the Subsidiary Guarantors would have had
approximately $5.9 million of Guarantor Senior Indebtedness (excluding
guarantees of Senior Indebtedness). Additional Senior Indebtedness and Guarantor
Senior Indebtedness may be incurred by the Company and the Subsidiary Guarantors
from time to time subject to certain restrictions contained in its New Bank
Credit Facility and the Indenture. See "Description of New Bank Credit Facility"
and "Description of Notes."
COMPETITION
Declining defense budgets and increasing pressures for cost reductions have
precipitated a major consolidation in the defense industry. This consolidation
has resulted in program cancellations, scope reductions, delays in contract
funding or awards and significant predatory pricing pressures associated with
increased competition and reduced funding. Because some of the Company's current
and potential future competitors may have significantly greater resources than
the Company, the Company's ability to compete effectively in the consolidating
defense industry could be adversely impacted.
RISKS OF REDUCTIONS OR CHANGES IN MILITARY EXPENDITURES
The primary customers of the Company are the U.S. Navy, Air Force, Army and
other agencies of the DOD. Sales under contracts with the DOD or under
subcontracts that identified the DOD as the ultimate purchaser represented
approximately 78% of the Company's 1996 sales. The U.S. defense budget declined
in real terms since the mid-1980s, resulting in some delays in new program
starts, program stretch-outs and program cancellations. The U.S. defense budget
has begun to stabilize and, for the first time since the mid-1980s, increased in
1996, adjusted for inflation. A major portion of the Company's DOD business is
funded by the operations and maintenance portion of the defense budget, which
has declined less than any other segment
11
<PAGE> 19
and is expected to comprise approximately one-third of the defense budget over
the next decade. A significant decline in U.S. military expenditures,
particularly in the operations and maintenance portion of the defense budget, or
a reapportioning of such expenditures reducing the operations and maintenance
segment, might materially and adversely affect the Company's sales and earnings.
The loss or significant curtailment of the Company's material U.S. military
contracts would materially and adversely affect the Company's future sales and
earnings. See "Business -- Major Customers."
UNCERTAINTY ASSOCIATED WITH GOVERNMENT CONTRACTS
The Company's contracts with the U.S. government and its prime contractors
are subject to termination either upon default by the Company or at the
convenience of the U.S. government. Termination for convenience provisions
generally entitle the Company to recover costs incurred, settlement expenses and
profit on work completed prior to termination. In addition to the right of the
U.S. government to terminate, U.S. government contracts are conditioned upon the
continuing availability of congressional appropriations. Congress usually
appropriates funds for a given program on a fiscal year basis even though
contract performance may take more than one year. Consequently, at the outset of
a major program, the contract is usually partially funded, and additional monies
are normally, incrementally, committed to the contract by the procuring agency
from appropriations made by Congress for future fiscal years. See
"Business -- Government Contracts."
The Company in the ordinary course of its business occasionally performs
under contracts for which funding authorization from the U.S. government has
either expired or not been obtained. No assurance can be given that the Company
will realize the revenue expected from performing under such contracts.
Because the Company contracts to supply goods and services to the U.S.
government, it is also subject to other risks, including contract suspensions,
protests by disappointed bidders of contract awards which can result in the
reopening of the bidding process and changes in government policies or
regulations. See "Business -- Government Contracts."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will restrict, among other things, the Company and the
Subsidiary Guarantors' ability to incur additional indebtedness, incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, incur indebtedness
that is subordinate in right of payment to any Senior Indebtedness or Guarantor
Senior Indebtedness and senior in right of payment to the Exchange Notes or the
Guarantees, as the case may be, impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to the Company, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. In
addition, the Company's New Bank Credit Facility will contain other and more
restrictive covenants and will prohibit the Company from prepaying its other
indebtedness (including the Exchange Notes). See "Description of
Notes -- Certain Covenants" and "Description of New Bank Credit Facility." The
New Bank Credit Facility also will require the Company to maintain specified
financial ratios and satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those tests. A breach of any of these covenants could result in a default under
the New Bank Credit Facility and/or the Indenture. Upon the occurrence of an
event of default under the New Bank Credit Facility, the lenders thereunder
could elect to declare all amounts outstanding under the New Bank Credit
Facility, together with accrued interest, to be immediately due and payable,
which would, in turn, result in an event of default under the Indenture.
FRAUDULENT TRANSFER STATUTES
The incurrence by the Company and the Subsidiary Guarantors of indebtedness
such as the Exchange Notes and the Guarantees may be subject to review under
relevant state and federal fraudulent conveyance laws if a bankruptcy case or
lawsuit is commenced by or on behalf of unpaid creditors of the Company or the
Subsidiary Guarantors. Under these laws, if a court were to find that, after
giving effect to the sale of the Exchange Notes and the application of the net
proceeds therefrom, either (a) the Company or the Subsidiary
12
<PAGE> 20
Guarantors incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors or (b) the Company or the Subsidiary Guarantors received
less than reasonably equivalent value or consideration for incurring such
indebtedness and (i) was insolvent or was rendered insolvent by reason of such
transactions, (ii) was engaged in a business or transaction for which the assets
remaining with the Company or the Subsidiary Guarantors constituted unreasonably
small capital or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, such court may subordinate
such indebtedness to presently existing and future indebtedness of the Company
or the Subsidiary Guarantors, as the case may be, avoid the issuance of such
indebtedness and direct the repayment of any amounts paid thereunder to the
Company's or the Subsidiary Guarantors', as the case may be, creditors or take
other action detrimental to the holders of such indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
Each of the Company and the Subsidiary Guarantors believe that they will
receive equivalent value at the time the indebtedness under the Exchange Notes
and the Guarantees is incurred. Pursuant to the terms of the Guarantees, the
liability of each Subsidiary Guarantor is limited to the maximum amount of
indebtedness permitted, at the time of the grant of such Guarantee, to be
incurred in compliance with fraudulent conveyance or similar laws. In addition,
neither the Company nor any Subsidiary Guarantor believes that it, after giving
effect to the Transactions, (i) was or will be insolvent or rendered insolvent,
(ii) was or will be engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital or (iii) intends or intended to
incur, or believes or believed that it will or would incur, debts beyond its
ability to pay such debts as they mature. These beliefs are based on the
Company's operating history and analysis of internal cash flow projections and
estimated values of assets and liabilities of the Company and the Subsidiary
Guarantors as of the date hereof. There can be no assurance, however, that a
court passing on these issues would make the same determination.
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Original Notes. The Original Notes have not been registered under the Securities
Act and will be subject to restrictions on transferability to the extent that
they are not exchanged for Exchange Notes by holders who are entitled to
participate in the Exchange Offer. The Exchange Notes will constitute a new
issue of securities with no established trading market. The Company does not
intend to list the Exchange Notes on any national securities exchange or to seek
approval for quotation through any automated quotation system. [The Initial
Purchasers of the Original Notes currently make a market in the Notes, but they
are not obligated to do so and may discontinue such market making at any time.
In addition, such market making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer.] Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of the
trading market for the Exchange Notes. If a trading market does not develop or
is not maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may be discontinued at any
time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
13
<PAGE> 21
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Notes as set forth in the legend thereon and in
the Offering Memorandum, dated February 28, 1997, because the Notes were issued
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 Original Notes may not be offered or sold unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom, or in a transaction not subject to the Securities Act and
applicable state securities laws. The Company does not intend to register the
Original Notes under the Securities Act and, after consummation of the Exchange
Offer will not be obligated to do so except under limited circumstances. See
"The Exchange Offer -- Purpose of the Exchange Offer." Based on an
interpretation by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Original Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business,
such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes and neither such holders nor any such other
person is engaging in or intends to engage in a distribution of such Exchange
Notes. Any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that received
Exchange Notes for its own account in exchange for Original Notes, where such
Original 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." To the extent the Original Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Original Notes could be adversely affected. See "The Exchange Offer."
EXCHANGE OFFER PROCEDURES
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Original Notes desiring to tender such Original
Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. Original Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
addition, any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Original Notes,
where such Original Notes were acquired by such broker-dealer as a result of
market-making activities or any other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Original Notes could be adversely affected. See "The
Exchange Offer."
14
<PAGE> 22
THE TRANSACTIONS
The Company has completed a series of related financing transactions which
have reduced debt service costs and provide the Company with greater financing
flexibility. On March 14, 1997, Tracor consummated the Tender Offer and
purchased for cash $112,891,000 of the Old Notes and completed the related
Consent Solicitation to modify certain terms of the indentures for the Old Notes
on February 13, 1997. The purchase price paid in respect of validly tendered Old
Notes and related consents was 106 1/2% of the aggregate principal amount, plus
accrued interest up to, but not including the date of purchase. The Company also
refinanced its outstanding indebtedness under its existing bank credit agreement
and entered into the New Bank Credit Facility providing for a revolving line of
credit in the initial principal amount of $200 million. The revolving credit
commitments under the New Bank Credit Facility are available for a period of
five years subject to reductions in total availability in years three and four.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in like principal amount, the terms of which are identical to the
Exchange Notes. The Original Notes surrendered in exchange for Exchange Notes
will be retired and cancelled and cannot be reissued. Accordingly, issuance of
the Exchange Notes will not result in any increase in the indebtedness of the
Company.
15
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, on a historical basis and on a pro forma basis giving effect
to the Transactions as if they had occurred on December 31, 1996. This table
should be read in conjunction with the "Selected Pro Forma and Historical
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ADJUSTED
FOR THE
TRANSACTIONS HISTORICAL
------------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 36.8 $ 36.8
====== ======
Long-term debt:
New Bank Credit Facility.................................. $ 40.8 $ --
Existing Bank Credit Facility............................. -- 163.2
Old Notes................................................. 3.1 115.9
Notes offered hereby...................................... 249.0 --
Other(1).................................................. 37.7 37.7
------ ------
Total long-term debt........................................ 330.6 316.8
Shareholders' equity........................................ 212.5(2) 222.9
------ ------
Total capitalization.............................. $543.1 $539.7
====== ======
</TABLE>
- ---------------
(1) Debt includes $31.5 million of fully cash collateralized promissory notes
payable issued in conjunction with the acquisition of Cordant.
(2) Reflects the following charge:
<TABLE>
<S> <C>
Premium paid to retire Old Notes............................ $ 7.5
Unamortized deferred debt issuance costs:
Existing Bank Credit Facility............................. 7.5
Old Notes................................................. 2.7
Income tax benefit.......................................... (7.3)
-----
$10.4
=====
</TABLE>
16
<PAGE> 24
SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical and pro forma
financial data of Tracor. The historical data as of December 31, 1996, 1995,
1994, 1993 and 1992 has been derived from the audited consolidated financial
statements of the Company. The pro forma data has been derived from the
Unaudited Pro Forma Statement of Income of Tracor which is not included in this
document and reflects the effect of the Transactions as if they had occurred on
January 1, 1996. The information below should be read in conjunction with the
consolidated financial statements of the Company and the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
TRANSACTIONS HISTORICAL
------------ --------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996(1) 1996(1) 1995 1994(1) 1993(1) 1992
------------ ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $1,082,505 $1,082,505 $886,920 $694,037 $407,495 $261,835
Cost of sales.............................. 866,234 866,234 713,802 568,020 333,852 214,070
Selling, administrative and general
expenses................................. 123,681 123,681 104,928 78,201 49,889 36,639
---------- ---------- -------- -------- -------- --------
Earnings before interest, income taxes and
extraordinary item....................... 92,590 92,590 68,190 47,816 23,754 11,126
Interest expense, net...................... 22,464(2) 26,470 19,496 16,771 8,277 3,746
---------- ---------- -------- -------- -------- --------
Income before income taxes and
extraordinary item....................... 70,126 66,120 48,694 31,045 15,477 7,380
Income taxes............................... 31,148 29,506 20,831 12,498 6,200 2,850
---------- ---------- -------- -------- -------- --------
Income before extraordinary item........... 38,978 36,614 27,863 18,547 9,277 4,530
Extraordinary loss from early
extinguishment of debt, net of income tax
benefit of $6,109........................ (8,791)(3) -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Net income................................. $ 30,187 $ 36,614 $ 27,863 $ 18,547 $ 9,277 $ 4,530
========== ========== ======== ======== ======== ========
SHARE DATA:
Income per common and common equivalent
share:
Primary:
Income before extraordinary item....... $ 1.55 $ 1.46 $ 1.23 $ 0.96 $ 0.56 $ 0.32
Extraordinary loss..................... (0.35) -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Net income............................. $ 1.20 $ 1.46 $ 1.23 $ 0.96 $ 0.56 $ 0.32
========== ========== ======== ======== ======== ========
Fully diluted:
Income before extraordinary item....... $ 1.55 $ 1.46 $ 1.23 $ 0.93 $ 0.54 $ 0.32
Extraordinary loss..................... (0.35) -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Net income............................. $ 1.20 $ 1.46 $ 1.23 $ 0.93 $ 0.54 $ 0.32
========== ========== ======== ======== ======== ========
Weighted average common and common
equivalent shares...................... 25,353 25,353 24,168 22,113 22,069 21,953
OPERATING AND OTHER DATA:
Capital expenditures....................... $ 19,623 $ 19,623 $ 13,676 $ 11,007 $ 8,435 $ 7,360
Depreciation and amortization.............. 30,361 30,361 22,854 14,746 9,614 6,814
Firm backlog............................... 1,030,472 1,030,472 923,978 806,228 590,366 301,502
Ratio of earnings to fixed charges(4)...... 3.3x 2.9x 2.8x 2.4x 2.5x 2.4x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................ $ 170,092 $ 140,430 $129,129 $ 95,392 $ 87,140 $ 45,977
Total assets............................... 746,522 744,954 467,456 444,086 305,733 139,771
Total long-term debt....................... 330,622(5) 316,884(5) 191,175 205,738 144,302 50,194
Shareholders' equity....................... 212,457(6) 222,917 136,965 90,592 63,167 52,345
</TABLE>
- ---------------
(1) Reflects the acquisitions of Cordant on September 26, 1996, AEL on February
22, 1996, GDE on November 17, 1994 and Vitro on August 25, 1993.
(2) Historical interest expense is reduced by $1,478 reflecting pro forma
interest on the Notes of 8 1/2% and 7% for the New Bank Credit Facility.
Additionally, amortization of deferred financing costs included in interest
expense is reduced by $2,528 as a result of the write-off of unamortized
deferred financing costs.
(3) The extraordinary loss is comprised of a $7,496 premium to retire the Old
Notes and $7,404 in unamortized deferred debt issuance costs.
(4) For the purpose of calculating the ratios of earnings to fixed charges,
"earnings" represents income before income taxes plus fixed charges. "Fixed
charges" consist of interest expense, excluding interest income and,
including amortization of debt issuance costs, and the portion of operating
lease rental expense which management believes is representative of the
interest component of lease expense.
(5) Debt includes $31.5 million of fully cash collateralized promissory notes
payable issued in conjunction with the acquisition of Cordant.
(6) See Note (2) to Capitalization table on Page 16 of this Prospectus.
17
<PAGE> 25
SELECTED PRO FORMA AND HISTORICAL SALES PERCENTAGES
The following table presents certain income statement data as a percentage
of net sales for the years ended December 31, 1996, 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
TRANSACTIONS HISTORICAL
------------ -------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1996 1995 1994 1993 1992
------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 80.0 80.0 80.5 81.8 81.9 81.8
----- ----- ----- ----- ----- -----
Gross profit.......................... 20.0 20.0 19.5 18.2 18.1 18.2
Operating expenses...................... 10.3 10.3 10.8 10.9 12.0 14.0
Intangible amortization................. 1.1 1.1 1.0 0.4 0.3 --
----- ----- ----- ----- ----- -----
Total selling, administrative,
and general expenses........ 11.4 11.4 11.8 11.3 12.3 14.0
----- ----- ----- ----- ----- -----
Earnings before interest, income taxes
and extraordinary item................ 8.6 8.6 7.7 6.9 5.8 4.2
Interest expense, net................... 2.1 2.5 2.2 2.4 2.0 1.4
----- ----- ----- ----- ----- -----
Income before income taxes and
extraordinary item.................... 6.5 6.1 5.5 4.5 3.8 2.8
Income taxes............................ 2.9 2.7 2.4 1.8 1.5 1.1
----- ----- ----- ----- ----- -----
Income before extraordinary item........ 3.6 3.4 3.1 2.7 2.3 1.7
Extraordinary loss...................... (.8) -- -- -- -- --
----- ----- ----- ----- ----- -----
Net income.................... 2.8% 3.4% 3.1% 2.7% 2.3% 1.7%
===== ===== ===== ===== ===== =====
</TABLE>
18
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
Approximately 86% of the products, systems, and services of Tracor, Inc.
and its subsidiaries (Tracor or the Company) are sold to the U.S. government
through direct contracts, primarily with agencies of the U.S. Department of
Defense (DOD), or through subcontracts with other U.S. government contractors.
Beginning in the mid-1980s, the defense industry in general was negatively
impacted by the perceived reduction of threats from the former Soviet Union and
eastern European countries and, more recently, by competing demands upon the
federal budget. While this has resulted in a U.S. defense budget that has
decreased in real dollars, adjusted for inflation, over the last decade, it has
recently begun to stabilize. A major portion of the Company's DOD sales are
funded by the operations and maintenance segment of the defense budget in areas
which are among today's top priorities. This segment has declined less than
other segments of the budget as readiness priorities have emerged. It is now the
largest segment of the defense budget and is projected to comprise more than
one-third of the defense budget over the next decade. The electronic content of
the operations and maintenance segment, as well as the procurement portion of
the budget, is expected to experience a modest increase over this same time
frame. Tracor's ability to benefit from this upturn is enhanced by its
substantial position in the electronic warfare, mission planning, and imagery
markets.
Budget reductions have also driven the DOD and other U.S. government
agencies to pursue products and services which rapidly improve their operating
efficiency. This, in turn, has triggered a substantial increase in the demand
for state-of-the-art computer equipment and software systems and a major change
in the government's method for acquiring information technology, moving to large
government-wide acquisition contract vehicles. Following the acquisition of
Cordant Holdings, Inc. (Cordant), the Company formed Tracor Information Systems
Company, by uniting Cordant, Quality Systems, Inc., and the Software Center of
Excellence. This consolidation strengthens Tracor's ability to effectively
address the rapidly growing information technology market for both DOD and
nondefense customers. Information systems has been the fastest growing business
area within Tracor.
The contraction of the defense budget in recent years and the resulting
excess capacity and increase in competition for contracts among defense
companies have resulted in a significant consolidation in the industry. Through
internal growth and several acquisitions, the Company has substantially
increased its revenue base. It has also reduced combined overhead costs through
staff reductions, facilities consolidations, process improvements, and the
elimination of certain other duplicative costs. These efficiencies and increased
revenue base have enhanced Tracor's cost competitiveness in bidding on new
contracts and recompetes of existing contracts. While acquisition price
expectations have increased, management believes the ongoing consolidation
within the defense industry will continue to present opportunities for
additional selected acquisitions at prices which meet the Company's objectives.
While the long-term impact of changes in the defense budget and the
industry consolidation cannot be predicted with certainty, management believes
the Company is well positioned to continue to leverage its strengths and
successes in electronic and information technology products, systems, and
services for the U.S. defense and intelligence marketplaces and increase its
ongoing diversification efforts into foreign defense markets, nondefense U.S.
government markets, and selected commercial markets.
RESULTS OF OPERATIONS
The Company's results of operations were affected by major acquisitions
during 1996 and 1994. Each acquired company's results of operations are included
only from its respective date of acquisition. (See Note A to the Consolidated
Financial Statements.)
Year Ended December 31, 1996, Versus Year Ended December 31, 1995
On February 22, 1996, Tracor purchased all of the outstanding common stock
of AEL Industries, Inc. (AEL). AEL designs and manufactures sophisticated
countermeasures, simulation, and radar warning
19
<PAGE> 27
receiver systems; installs and integrates electronic avionics equipment in
military and commercial aircraft; and provides state-of-the-art antenna,
microwave, and integrated circuit components. The acquisition was accounted for
using the purchase method, and, accordingly, the purchase price ($103.1 million)
and the liabilities assumed ($64 million) were allocated to the assets acquired
($98.1 million) based on their respective fair values on the date of
acquisition. The resulting excess of the purchase price over the fair value of
the net assets acquired ($69 million) is being amortized over 30 years.
On September 26, 1996, Tracor purchased all of the outstanding shares of
Cordant, an employee-owned information systems company. Cordant focuses on the
design, development, and integration of information systems for a variety of
applications, including mail processing, records management, and CAD/GIS
(computer-aided design/geographic information systems). The purchase price of
$65.7 million is subject to a contingent payment of up to an additional $10
million based upon the potential award of a large contract. The acquisition was
financed by the use of $34.2 million cash on hand and the issuance of two
promissory notes totaling $31.5 million. The promissory notes are supported by
irrevocable standby letters of credit, which are fully collateralized by cash
escrow deposits. The acquisition has been accounted for using the purchase
method, and, accordingly, the purchase price including transaction expenses ($66
million), and the liabilities assumed ($39 million) have been allocated to the
assets acquired ($44.9 million) based on a preliminary estimate of their
respective fair values as of the date of acquisition. This preliminary estimate
is subject to change based on finalization of certain fair value determinations
which are not expected to have a material effect on the consolidated financial
position or results of operations of Tracor. The resulting excess of the
purchase price over the preliminary estimate of the fair value of the net assets
acquired ($60.1 million) is being amortized over 25 years.
Tracor experienced a 22% growth in sales compared to the prior year. AEL
and Cordant contributed 14% while Tracor companies excluding AEL and Cordant
contributed 8%. The sales increases occurred throughout the Company in the
following business areas and product lines: intelligence information systems,
imagery and mapping products, automatic test equipment, QF-4 drones, engineering
services, mine detection and neutralization systems, digital imagery
workstations, and chaff and flare expendables.
Selling, general, and administrative ("SG&A") expenses decreased as a
percentage of sales from 11.8% in 1995 to 11.4% in 1996. Amortization expense,
included in SG&A expenses, remained constant at approximately 1% of sales.
However, operating expenses, the major component of SG&A expenses, decreased
from 10.8% of sales in 1995 to 10.3% of sales in 1996 due to the increased
revenue base and reduced combined overhead costs.
An increase of 36% in earnings before interest and income taxes was
realized in 1996 over 1995. AEL and Cordant contributed 17% with approximately
5% of the increase resulting from a negotiated increase of $3.6 million in the
price of a U.S. government contract for work performed prior to 1996. The
remaining 19% increase is attributable to the internal sales growth noted above
and improved profits on those sales. Specifically, intelligence information
systems, imagery and mapping products, and mine detection and neutralization
systems realized higher profits during the year.
Fully diluted earnings per share were $1.46 in 1996, up from $1.23 in 1995.
A portion of the increase, $.08, is attributable to a $2.1 million gain,
resulting from a negotiated increase of $3.6 million in the price of a U.S.
government contract for work performed prior to 1996. The increase in weighted
average common and common equivalent shares from 24.2 million in 1995 to 25.4
million in 1996 resulted from the issuance of shares in a public offering
completed in July 1996.
Interest expense increased $7.7 million due primarily to an additional $108
million of senior term debt borrowed in conjunction with the AEL acquisition and
increased amortization expense of related loan costs. The increase in investment
interest income of $700,000 occurred due to higher cash balances during 1996
compared to the prior year.
Income taxes were incurred at statutory federal, state, and foreign rates.
The effective tax rate increased to 44.6% in 1996 compared to 42.7% in 1995, due
to additional nondeductible amortization expense of goodwill. The net deferred
income tax asset at December 31, 1996, is $17.5 million, due primarily to
20
<PAGE> 28
acquisitions. Based on the Company's taxable income in prior carryback years and
its forecast of future income, management believes, it is more likely than not,
all net deferred income tax assets will be realized. The realization of deferred
tax assets will be evaluated periodically.
Year Ended December 31, 1995, Versus Year Ended December 31, 1994
On November 17, 1994, Tracor purchased all of the outstanding common stock
of GDE Holdings, Inc., including its wholly owned subsidiaries (individually and
collectively referred to as "GDE"). GDE designs, develops, manufactures, and
supports automatic test systems, imagery and information systems, and mission
planning systems. The acquisition was accounted for using the purchase method,
and, accordingly, the purchase price ($102 million) and the liabilities assumed
($76 million) were allocated to the assets acquired ($104 million) based on
their respective fair values at the date of the acquisition. The resulting
excess of the purchase price over the fair value of the net assets acquired ($74
million) is being amortized over 30 years.
Sales increased 28% in 1995 due to the acquisition of GDE, while sales
excluding GDE remained relatively constant. Increased revenues from a new
contract for the production of sub-scale drones and the production of drones
under the QF-4 contract were offset by reductions in existing and newly awarded
engineering contracts.
SG&A expenses were 11.8% of sales in 1995, up from 11.3% of sales in 1994.
While total operating expenses included in SG&A expenses remained constant at
10.8% of sales in 1995 and 1994, operating expenses, excluding the effect of
acquisitions, decreased as a percent of sales from 10.7% in 1994 to 10.0% in
1995. Amortization expense, also included in SG&A expenses, increased from less
than .5% of sales in 1994 to 1% of sales in 1995 due to additional intangible
assets arising from the acquisition of GDE. The Company's operating profits
increased 43% due primarily to the acquisition of GDE. Excluding GDE's results,
earnings increased 2% due to higher profit margins on engineering contracts and
electronic countermeasures systems.
Fully diluted earnings per share increased from $.93 in 1994 to $1.23 in
1995. A $1.2 million pretax gain on the sale of real estate contributed $.03 to
earnings per share in the third quarter of 1995. Weighted average common and
common equivalent shares used in the computations increased from 22.1 million in
1994 to 24.2 million in 1995 due primarily to a public offering of common stock
completed in May 1995.
Interest expense increased $4.4 million as a result of the issuance of
$10.9 million of 10 7/8% Senior Subordinated Series A Notes and $55 million
additional senior term debt borrowed in conjunction with the GDE acquisition.
This increase was offset by a slight reduction in interest rates on the senior
term debt and by increased investment interest income of $1.7 million.
Income taxes were incurred at statutory federal, state, and foreign rates,
with an increase in the effective tax rate of 40% in 1994 to 42.7% in 1995. Such
increase is primarily the result of increased nondeductible amortization expense
of goodwill. At December 31, 1995, Tracor had a net deferred income tax asset of
$8.6 million, primarily arising from acquisitions. Based on the Company's
taxable income in prior carryback years and its forecast of future income,
management believes, it is more likely than not, all net deferred income tax
assets will be realized. The realization of deferred tax assets will be
evaluated periodically.
FINANCIAL CONDITION AND LIQUIDITY
Working capital was $140.4 million at December 31, 1996, up from $129.1
million at December 31, 1995, and the ratio of current assets to current
liabilities was 1.8 at December 31, 1996, compared to 2.3 at December 31, 1995.
The decrease in the current ratio is attributable to the decrease in the cash
balance primarily due to the Cordant acquisition and the increase in the current
portion of long-term debt resulting from the financing of the AEL acquisition.
Cash provided by operating activities, compared to the prior year, was reduced
by costs associated with consolidating AEL facilities and exiting non-strategic
activities and product lines, including the disposal of excess properties, and
the relocation of certain operations to other Tracor facilities. Cash provided
by operating activities in 1995 also included a tax refund of $1.5 million
related to the preacquisition period of an acquired company. Normal capital
expenditures of $19.6 million and scheduled long-term debt payments of $19
million were incurred during the year. Proceeds of approximately
21
<PAGE> 29
$14.4 million were received from the sale of two properties and two product
lines obtained in the acquisition of AEL. Long-term debt of $4 million
associated with one of the properties was retired with those proceeds. Proceeds
from the amended credit agreement and cash on hand were used to finance the
acquisition of AEL, to retire approximately $10 million of debt assumed in the
acquisition, and to pay approximately $5 million of financing costs. Net
proceeds of $48 million from the sale of Tracor common stock were used to
complete the acquisition of Cordant. Three other business acquisitions with a
total purchase price of $15.9 million were also completed during 1996 from cash
on hand.
At December 31, 1996, Tracor had firm backlog of $1.0 billion, which
includes funded and unfunded contractual commitments. Approximately 76% of firm
backlog represents contracts with agencies of the U.S. government or its prime
contractors, and about 80% is expected to be realized as sales within one year.
In addition, the Company's backlog of unexercised contract options on U.S.
government contracts was $1.6 billion at year end.
The Company's operations typically do not require large capital
expenditures, and there were no significant capital commitments at December 31,
1996.
No borrowings were made from Tracor's $60 million revolving loans facility
during the year. At December 31, 1996, the Company had outstanding letters of
credit totaling approximately $32.1 million, leaving $17.9 million available
under its $50 million letters of credit facility. If the letters of credit
facility should become fully utilized, $30 million of the revolving loans
facility, to the extent then available, can be used for issuance of additional
letters of credit. Existing letters of credit secure performance commitments on
certain foreign contracts and serve as collateral on certain insurance policies.
On February 14, 1997, Tracor commenced a tender offer to purchase for cash
up to the entire outstanding principal amount of it 10 7/8% Senior Subordinated
Notes due 2001 (Old Notes) and a related solicitation of consent to modify
certain other terms of the indentures under which the Old Notes were issued. On
February 17, 1997, the Company also commenced a private placement offering
(Offering) of $250 million aggregate principal amount of 8 1/2% Senior
Subordinated Notes due 2007. The Offering is conditioned upon receipt of
consents and tenders representing at least a majority in aggregate principal
amount of Old Notes outstanding. Subject to the completion of the Offering, the
Company will also refinance its outstanding indebtedness under its existing bank
agreement and will obtain a new bank credit facility providing for a five-year
revolving credit facility in the initial principal amount of $200 million. The
consummation of these transactions is subject to the execution and delivery of
definitive documentation and the satisfaction of other customary closing
conditions. The financings are expected to close on or before March 31, 1997.
These financing transactions will result in a one-time extraordinary charge of
approximately $10.4 million, net of an income tax benefit of $7.3 million,
consisting of a $7.5 million premium to retire the Old Notes and a $10.2 million
write-off of unamortized debt issuance costs.
Management believes existing cash, continuing operations, and the
restructured debt resulting from the transactions described above will provide
sufficient resources to allow the Company to pursue its business strategy.
22
<PAGE> 30
BUSINESS
GENERAL
Tracor provides sophisticated electronic and information technology
products, systems and services for the DOD, other U.S. government agencies,
foreign governments and commercial customers. The Company's business units
operate in the U.S. and foreign defense electronics, information technology and
systems engineering and integration markets and largely support existing
high-priority DOD weapons, platforms and systems. The Company's products and
services enable defense customers to enhance the operational performance and
readiness of existing systems and platforms, as well as extend their useful
lives and survivability. As a result, the Company believes it is well positioned
to benefit from fundamental changes in national defense strategy precipitated by
the end of the Cold War. Since August 1993, the Company has made three
substantial acquisitions as part of its strategy to take advantage of a
consolidating defense industry. With the Company's recent acquisition of
Cordant, it has achieved a major presence, and substantially increased its
revenues, in the information technology market serving a broad range of new DOD
and other government customers. Largely as a result of such acquisitions,
Tracor's revenues and operating income have increased from $261.8 million and
$11.1 million, respectively, in 1992 to $1,082.5 million and $92.6 million,
respectively, in 1996.
INDUSTRY OVERVIEW
Beginning in the mid-1980s, the U.S. defense industry in general was
negatively impacted by the perceived reduction of threats from the former Soviet
Union and eastern European countries and, more recently, by competing demands
upon the federal budget. This has resulted in a U.S. defense budget that has
declined in real dollars, adjusted for inflation, since the mid-1980s. For many
defense contractors, the defense budget decrease and the related DOD procurement
strategies have resulted in program cancellations, scope reductions, delays in
contract funding or awards and significant predatory pricing pressures
associated with increased competition and reduced funding. The defense budget
has begun to stabilize and, for the first time in many years, has increased in
1996, adjusted for inflation.
The U.S. defense budget may generally be divided into four major areas:
military personnel, operations and maintenance, procurement and research and
development. A major portion of the Company's activities are funded by the
operations and maintenance segment, relating primarily to systems, products and
services which support the readiness, improved performance and increased life
expectancy of existing platforms, weapons systems and military forces. Despite
the sharp overall decline in the defense budget, the operations and maintenance
segment has declined less sharply, as existing weapons platforms are upgraded
and maintained to provide a cost-effective means of supporting a smaller
military force. As a result, the operations and maintenance segment has become
the largest segment of the DOD budget. Management estimates the current DOD
operations and maintenance market to be approximately $90 billion per year, or
more than one-third of the U.S. defense budget. Defense procurement relates
primarily to the development, production and acquisition of weapons platforms
such as aircraft, land vehicles and naval vessels. Until the last few years, the
procurement budget was the largest segment of the DOD budget. Over the past
decade, the declining U.S. defense budget has resulted in a significant decrease
in the military procurement budget as new generation weapons platforms have been
cancelled or delayed. DOD budget priorities over the next several years are
likely to emphasize the readiness (operations and maintenance) of a smaller
force structure and the need to extend the lives of existing weapons platforms
by incrementally upgrading their capabilities, while the procurement portion is
expected to experience a modest increase. Management believes Tracor is also
well positioned to benefit from this procurement upturn.
Declining defense budgets and increasing pressures for cost reductions have
precipitated a major consolidation in the defense industry. The Company believes
large diversified companies are likely to continue to make the decision to
divest non-strategic defense assets, as uncompetitive cost structures and lack
of critical mass and long-term commitment to the industry put such diversified
companies at a relative competitive disadvantage. In addition, smaller,
independent businesses may find it more difficult to compete effectively in the
changing defense environment and may become available for acquisition. The
Company believes this
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industry condition will continue for the next several years and that businesses
and product lines will become available for acquisition on acceptable financial
terms.
COMPANY STRATEGY
The Company's strategy in the evolving defense market consists of three key
elements: (i) protect and strengthen core businesses; (ii) expand and diversify
into new markets complementary to current operations; and (iii) make strategic
acquisitions of well-positioned companies which complement the existing business
strategy. Key elements in support of this strategy are continued high-quality
performance and continued improvements in efficiency to remain highly
competitive.
PROTECT AND STRENGTHEN CORE BUSINESSES. The Company's strategy for
protecting and strengthening its core businesses is comprised of a number of key
elements.
Support high-priority programs. The foundations for Tracor's core
businesses are high-priority, long-term, stable programs in which Tracor
has performed for many years. Many of Tracor's systems, products and
services support key weapons platforms and systems which are expected to
continue their important roles in the U.S. defense strategy. These
platforms include the AEGIS cruisers and destroyers, the Trident
submarines, the Tomahawk missile and key aircraft including the F-16,
F/A-18, C-17, C-130, B-1, B-2 and most helicopters. In addition, Tracor has
been a long-term incumbent contractor in producing a large percentage of
the nation's full scale target drones, in producing a variety of range
instrumentation systems for more than 20 years, in supplying high-quality
image exploitation and mission planning systems and in providing important
information systems expertise to a number of customers including national
intelligence agencies.
Tracor's strategy is to continue its excellent performance record in
its core business areas by supplying high-quality products, systems and
services at competitive prices. Because of the Company's long-term
established presence, experience and knowledge, quality performance and
cost competitiveness, management believes the Company is well positioned to
continue to support these stable, high-priority DOD programs.
Maintain the readiness of existing forces. The Company will continue
to compete for contracts to provide products, systems and services which
are suited to supporting the readiness of the military force, a major
thrust of the DOD's current defense strategy. A substantial portion of the
Company's operations is focused on extending the useful lives of existing
weapons systems through upgrades and modifications rather than the
procurement of costly new systems and providing a wide range of
capabilities which enhance the combat effectiveness and readiness of
military personnel and equipment.
Enhance survivability of weapons platforms and crews. The Company's
electronic warfare systems enhance the survivability of weapons platforms
and related personnel at a relatively low cost. Management expects demand
for these products to remain strong as customers seek effective,
cost-efficient means for protecting crews and high-value assets.
EXPAND AND DIVERSIFY INTO NEW MARKETS. The Company is experiencing success
in transferring its core technologies and competencies to new customers and
markets. The expansion of the Company's core businesses and its diversification
to new businesses generally require several years of planning, development and
marketing. The Company's diversification and expansion efforts have focused on
the following areas:
Nondefense U.S. Government. The Company has established an important
presence in the U.S. government nondefense market, which was further
enhanced with the acquisition of Cordant in September 1996. Its information
systems specialists are providing advanced information systems capabilities
to an expanding set of U.S. intelligence customers, as well as to the U.S.
Postal Service and the Department of Justice. In 1993 and 1995, the Company
was awarded contracts from the Federal Aviation Administration (the "FAA")
to perform system engineering and integration for its new radar systems.
The Company has also received contracts from NASA.
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International. The Company sells a wide range of products and services
to numerous friendly foreign governments. Products sold internationally
include countermeasures systems and expendables, radar and electronic
tracking systems, target drones, imagery systems and automatic test
equipment for F-16 aircraft acquired by foreign governments. In addition,
Tracor's aircraft avionics test equipment business was expanded in 1995
with the winning of a contract to provide test equipment for the new
Japanese F-2 fighter. International business accounted for 10% of total
1996 revenues.
New DOD Business. Tracor is constantly evaluating its technology to
identify areas of potential new business within the DOD. Recent contract
awards include a program in support of the U.S. Army's battlefield
digitization initiatives, a new flare development program and a program to
develop a minefield breaching system. Tracor also won a key contract to
upgrade an important National Imagery and Mapping Agency system and a
contract from the Naval Air Warfare Center to provide design engineering
and software services for a variety of defense systems. The Company
expanded its radio communication systems business by winning the first
competition for Nimitz class aircraft carrier radio communication systems.
Commercial. The Company has developed a number of commercial
applications of its technology in areas as diverse as automotive laser
detectors, artificial heart valve testing, digital photogrammetry, direct
broadcast television antenna materials and test systems for developing
commercial satellite communications systems. In addition, the Company has
several contracts for applying a range of sophisticated information systems
capabilities to commercial and state government customers, plus new
contracts relating to major upgrades, modifications and manufacture of
structures for commercial aircraft, including electronics installation and
systems integration.
ACQUIRE COMPLEMENTARY BUSINESSES. The Company's acquisition strategy is a
key component of its overall business strategy. Tracor management believes the
continuing consolidation within the defense industry will result in additional
opportunities for the Company to make attractive acquisitions.
Vitro Acquisition. On August 25, 1993, Tracor purchased all of the
outstanding common stock of Vitro, a provider of high-technology systems
engineering and integration, software engineering, and various other
services, from The Penn Central Corporation for approximately $92 million.
Tracor financed the Vitro acquisition and refinanced existing indebtedness
through the issuance of $105 million of the Old Notes and a new $78 million
credit facility. As a result of the Vitro acquisition, the Company is one
of the major providers of systems and software engineering support to the
Navy and is one of the few companies capable of providing the U.S. Navy
with the expertise necessary for its most technologically advanced
communications and guided missile systems, including those for the AEGIS
cruisers and destroyers and the submarine ballistic missile programs. The
acquisition of Vitro also strengthened Tracor's position with key
nondefense U.S. government customers such as national intelligence
organizations and the FAA.
GDE Acquisition. On November 17, 1994, Tracor purchased all of the
outstanding common stock of GDE, which has a major presence in the
application of advanced digital imagery technology to key DOD and
intelligence systems and programs, from its shareholders for approximately
$102 million, including the effect of a post-closing amendment to the
acquisition that was finalized in March 1995. Tracor financed the GDE
Acquisition by borrowing $55 million in additional term loans under its
amended credit agreement, issuing approximately $10.9 million of the Old
Notes, issuing 1,928,050 shares of Common Stock and using approximately
$19.9 million of the Company's cash on hand. As a result of the GDE
Acquisition, the Company has strengthened its position as a provider of
products and services to both the DOD and non-DOD intelligence communities.
GDE produces advanced digital technology products for imagery information
systems, mission planning and automatic ground test equipment.
AEL Acquisition. On February 22, 1996, Tracor purchased all of the
outstanding common stock of AEL, which designs and manufactures
sophisticated countermeasures, simulation and radar-warning receiver
systems, installs and integrates electronic avionics equipment in military
and commercial aircraft and provides state-of-the-art antenna, microwave
and integrated circuit components. The consideration paid to AEL
shareholders for the common stock was approximately $103 million in cash.
AEL's long-term indebtedness prior to the acquisition totaled approximately
$20 million, of which approximately
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$10 million was retired and approximately $10 million was assumed by
Tracor. Since the acquisition, Tracor has sold several excess AEL
facilities and two non-core business lines for $14 million and another
facility is currently for sale. The financing of the transaction and
related expenses was obtained through an increase of the Company's existing
bank term credit facility and from cash on hand.
Cordant Acquisition. On September 26, 1996, Tracor purchased all of
the outstanding common stock of Cordant, an employee-owned information
systems company. Cordant focuses on the design, development and integration
of information systems for a variety of applications, including mail
processing, records management and CAD/GIS ("computer aided
design/geographic information systems"). The purchase price of $65.7
million is subject to a contingent payment of up to an additional $10
million based upon the potential award of a large contract. The acquisition
was financed by the use of $34.2 million of cash on hand and the issuance
of two promissory notes totaling $31.5 million supported by cash
collateralized irrevocable standby letters of credit. The promissory note
in the principal amount of $26.5 million requires a payment of
approximately $1.8 million on April 1, 1997, and an additional payment of
$3.5 million on April 1, 1997 if the contingent payment discussed above
does not occur. The balance of this note is payable upon the resolution of
a former Cordant minority shareholders' lawsuit. The $5 million promissory
note for the balance of the purchase price is subject to adjustments for
indemnification claims and is payable on March 26, 1998.
Cost Reductions. Historically, Tracor has identified substantial cost
savings following the integration of acquired businesses. Since the
acquisitions of Vitro, GDE and AEL, significant cost savings have been
realized resulting from the consolidation of facilities, staff reductions,
process improvements and elimination of other duplicative costs. Although a
substantial portion of these annualized cost reductions are shared with
customers in the form of reduced rates on cost-reimbursement contracts,
management believes the Company's cost competitiveness has been enhanced.
The Company has also identified additional savings in connection with the
Cordant acquisition.
CORE BUSINESSES
The Company's core businesses are primarily in the U.S. and foreign defense
electronics, information technology and systems engineering and integration
markets and largely support existing high-priority DOD weapons, platforms and
systems. A major portion of Tracor's DOD business is funded by the operations
and maintenance segment of the defense budget which supports the operational
readiness, effectiveness and the survivability, upgrading and long-term
viability of DOD defense systems. The many agencies of the U.S. Navy are
Tracor's primary customers within the operations and maintenance segment of the
budget. The major electronic products, systems and services comprising the
Company's core businesses are described below and the approximate pro forma
revenue and percentage of total pro forma revenue for 1996 and the approximate
historical revenue and percentage of total revenue for 1996, 1995, 1994 and 1993
represented by each are as follows:
<TABLE>
<CAPTION>
1996
Pro Forma(1) 1996 1995 1994 1993
---------------- ----------------- -------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weapons and Combat Systems
Integration and Support..... $ 294,800 25% $ 294,800 27% $288,790 33% $313,665 45% $156,547(5) 38%
Electronic Warfare............ 205,999 17 188,823(2) 18 102,626 12 98,981 14 96,968 24
Information Systems........... 195,796 16 107,556(3) 10 62,389 7 54,358 8 17,360(5) 4
Weapons Testing Systems and
Support..................... 152,363 13 150,967 14 126,572 14 123,210 18 68,803(5) 17
Imagery and Information
Systems..................... 97,564 8 97,564 9 66,210 7 7,667(4) 1 -- --
Communication Systems......... 89,771 8 89,771 8 81,934 9 76,698 11 67,817 17
Mission Planning Systems...... 85,400 7 85,400 8 78,265 9 12,241(4) 2 -- --
Automatic Test Systems........ 67,624 6 67,624 6 80,134 9 7,217(4) 1 -- --
---------- --- ---------- --- -------- --- -------- --- -------- ---
Tracor Net Revenue............ $1,189,317 100% $1,082,505 100% $886,920 100% $694,037 100% $407,495 100%
========== === ========== === ======== === ======== === ======== ===
</TABLE>
- ---------------
(1) Assumes acquisitions of AEL and Cordant as of January 1, 1996.
(2) Reflects approximately 10 months of AEL revenue in 1996.
(3) Reflects approximately 3 months of Cordant revenue in 1996.
(4) Reflects approximately 6 weeks of GDE revenue in 1994.
(5) Reflects approximately 4 months of Vitro revenue in 1993.
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WEAPONS AND COMBAT SYSTEMS INTEGRATION AND SUPPORT. The Company provides
systems engineering and integration, software engineering and management and
technical capabilities for the operation, testing, maintenance, upgrade,
protection and extension of the lives of high-priority weapons and combat
systems including:
Submarine Ballistic Missile Weapon Systems. The Company has been the
systems integration contractor for submarine ballistic missile programs
since the mid-1950s. Tracor's role includes systems engineering, testing,
data analysis and logistics for the Polaris, Poseidon and TRIDENT weapon
systems. As the weapon systems integration contractor for the United States
and United Kingdom TRIDENT II system, Tracor ensures the major subsystems,
including missile, launcher, navigation and fire control, are fully
integrated and tested to perform as specified.
U.S. Navy Surface Combatant and Ship Systems. Tracor is the systems
engineering and integration contractor for shipboard anti-air warfare
guided missile systems such as the Terrier New Threat Upgrade, Tartar,
AEGIS, NATO SeaSparrow and Tomahawk. The Company has performed systems
engineering for every guided missile system installed on U.S. Navy ships
since World War II. The Company develops software for track control of the
Tomahawk missile and performs combat systems integration for the Tartar
system. Tracor also operates a remotely controlled quarter-scale submarine
used to test and evaluate various submarine component designs. In addition,
the Company provides systems engineering and integration services for ship
systems on board AEGIS destroyers such as propulsion power plants and
electrical power generation plants.
Anti-Submarine Warfare Systems. The Company has provided engineering,
software and testing capabilities for the U.S. Navy's anti-submarine
warfare ("ASW") systems since 1948. Complex systems engineering and
integration are provided for development, operation, quality control and
life cycle maintenance of the newest ASW systems. The Company performs
software engineering and systems integration for surface ship sonars; tests
ASW weapons and combat systems; develops acoustic signal processing
software and test instrumentation and conducts research and development in
ASW sonar systems and related oceanography. The Company also provides
project management, engineering and system assessment and evaluation for
both the U.S. Navy's lightweight and heavyweight torpedo programs.
U.S. Navy Aircraft. Tracor's systems engineering expertise is being
applied to a program with a new U.S. Navy customer for support of the U.S.
Navy's fighter and attack aircraft, helicopters, maritime
patrol/reconnaissance planes and weapon avionics systems. In this area, the
Company is developing software to support the common airborne
instrumentation system, which is the DOD's standard test and evaluation
data collection system. Tracor won a new design engineering and software
contract in 1995, supporting the entire acquisition life cycle of various
U.S. Navy avionics and electronic systems.
ELECTRONIC WARFARE. Tracor designed, and is currently the only manufacturer
of, the most advanced and widely used countermeasures dispenser systems in the
U.S. and is a major supplier of expendables, which create false targets for
hostile radar-guided and heat-seeking missiles to protect aircraft, land
vehicles, naval vessels and personnel. The acquisition of AEL greatly expanded
the Company's electronic warfare capabilities. Tracor's primary products in this
market include:
Countermeasures Dispensers. The Company has a long history of
developing and producing aircraft countermeasures dispenser systems. Tracor
has developed and manufactured several generations of these systems during
the past 30 years, including the newest system, the AN/ALE-47, which is an
advanced, automatic and integrated dispenser system for use aboard U.S. Air
Force, Navy and Army tactical and transport aircraft and helicopters, as
well as aircraft of other governments. To date, Tracor has been the sole
producer of the AN/ALE-47 system, and has submitted a bid to produce
additional systems. The winner of this award, which is being openly bid,
will be announced in April 1997. The Company's systems dispense chaff and
flares as decoys against hostile missiles. These systems are also designed
to dispense certain active radio-frequency decoys to counter advanced
anti-aircraft threats.
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Countermeasures Expendables. Tracor develops and manufactures chaff
and flare decoys, which are ejected from countermeasures dispenser systems
and provide protection for aircraft, ships and personnel when operating in
a missile threat environment. In 1995, Tracor acquired the chaff
manufacturing business of its only U.S. chaff-producing competitor, the
Lundy Division of TransTechnology Corporation. The Company is the leading
developer of infrared flares in the U.S. and won a program in 1995 to
develop next-generation flare expendables which decoy infrared-seeking
missiles incorporating the latest counter-countermeasures features.
Communications and Electronic Countermeasures. Through its recent
acquisition of AEL, the Company continues its long and extensive experience
in the development and fielding of electronic countermeasures systems. The
TACJAM-A system provides the DOD with a common, modular, multiplatform
communication electronic attack capability into the 21st century. AEL's
transmitters are key components of the jamming capability on the U.S.
Navy's EA-6B. Their reliability and effectiveness have been dramatically
demonstrated in operational service. Recently, the Company won the
competition to provide a new low band communications jammer.
Radar Warning Systems. Tracor's systems seek and identify radar
systems across the spectrum of frequency and application. The Company's
integrated front-end technology provides expanded frequency coverage,
improved direction finding accuracy and dual polarization detection for
Radar Warning Receivers and Electronic Warfare Support Measures systems,
which detect, identify and locate hostile radar and communication
transmitters.
Mine Neutralization and Detection Systems. The Company is developing
an Explosive Standoff Minefield Breacher ("ESMB") system prototype for the
U.S. Army and Marine Corps. The prototype features a Tracor-designed
rocket-deployed net which expands to detonate and neutralize a large area
of surface or buried mines, clearing the way for rapid, safe vehicle and
personnel passage. To enhance the Company's capabilities in this business
area, the Company acquired the shaped-charge munitions business unit of The
Titan Corporation in 1995, which provides the explosive shaped-charges used
in the ESMB system and in smaller systems for deactivating mines. Tracor is
also under contract to develop hand-held and vehicular platform mounted
mine detection systems which illuminate the ground with electromagnetic
energy to measure field disturbances, determining mine presence and
location. In addition, Tracor personnel have created products which work
with standard ship navigation devices and use sonar to identify the
presence of mines at sea.
Head-up Displays. The ANVIS Head-up Display provides a
high-resolution, programmable display of critical flight data to the pilot
through night vision goggles, allowing the pilot to concentrate on the
outside environment while maintaining cognizance of the flight instruments.
The system is being installed in the U.S. Army UH-60A/L Blackhawk and the
CH-47D Chinook; the U.S. Marine Corps UH-1N Huey, CH-46E Sea Knight,
KC-130T Hercules and the CH-53E Sea King; and the U.S. Navy HH-60H Seahawk.
It is planned for installation in the UH-1H/V Huey, OH-58A/C Kiowa Warrior
and the AH-1F Cobra.
INFORMATION SYSTEMS. An increasingly important component of the Company's
focus is now on providing a wide range of information technology products,
systems and services to the DOD, nondefense government agencies and the
commercial market. This includes offering information systems solutions to
customers, such as those in intelligence agencies, the U.S. Postal Service and
the U.S. Department of Justice. The acquisition of Cordant in September 1996
increased Tracor's number of Indefinite Delivery, Indefinite Quantity ("IDIQ")
information technology contracts. In these contracts, Tracor provides commercial
off-the-shelf ("COTS") products, custom-tailored and designed to meet specific
customer needs. Tracor can serve a number of government customers under each
IDIQ contract for which it is providing services. Following the Cordant
acquisition, Tracor formed Tracor Information Systems Company by grouping
Cordant, Quality Systems, Inc. and the Software Center of Excellence. Tracor
Information Systems Company business includes:
Intelligence Information Systems. An important component of the
Company's acquisition strategy has been to build a strong presence in the
intelligence information systems market. The acquisition of
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Vitro and its subsidiary Quality Systems, Inc., was a major penetration
into the intelligence market, and the acquisition of GDE substantially
expanded the Company's presence in a wide range of intelligence areas.
Tracor now has a large employee base with special high-level security
clearances, which are crucial for doing business in this sector. Since the
early 1980s, Tracor has provided systems engineering, software engineering,
systems management and training under numerous classified contracts with
U.S. intelligence community customers. The Company uses state-of-the-art
software engineering methods and has re-engineered specialized intelligence
systems to provide customers with the tools required for on-demand, dynamic
and highly reliable data access and analysis.
Systems Engineering and Design and Products. Cordant provides systems
engineering, design and information technology products primarily to DOD
and other government customers. The primary focus is to provide integrated
systems solutions utilizing COTS products custom-tailored to a customer's
needs.
Software Development. The Software Center of Excellence is a corporate
resource for software development, engineering/re-engineering and
production operations. The primary goal is to ensure that best practices
are developed and uniformly applied. The Software Engineering Program
("SEP") provides technology to continuously enhance software engineering
standards and practices, software development facilities, software tools
and reusable application software, software engineering training and
software metrics. The tools developed by SEP enable the Company to assess
diverse user requirements and varied hardware platforms and customer
software environments to provide modern re-engineered software systems
capable of handling large volumes of dynamic data. Computer-Aided Software
Engineering ("CASE") tools, which are central to the Company's
high-productivity environment, are carefully integrated into this
environment through SEP. This organization is one of only 60 companies
which has achieved Software Engineering Institute's level 3 designation for
the advanced level of capability to design software systems.
WEAPONS TESTING SYSTEMS AND SUPPORT. The DOD is committed to sustaining the
readiness of weapons and adapting current weapons to counter future threats.
Tracor manufactures products for testing and evaluating weapons systems and
supports weapons testing operations to achieve these objectives. The Company's
work in this area includes:
Drones. The Company has been a major producer of full scale target
drones for the DOD for more than 25 years and is the sole provider of the
current drone (the QF-4) for the U.S. Armed Forces. The Company designs,
manufactures and modifies retired military aircraft into full scale drones
for use as targets in weapons system testing and evaluation and personnel
training. Tracor is also producing sub-scale target drones for the U.S.
Army and Navy with options for additional targets through the year 2000. In
late 1996, these Tracor-built targets were selected in an international
competition to replace Australia's currently fielded aerial target. The
Company also performs major upgrades and modifications for military and
commercial aircraft.
Range Operations and Instrumentation. For more than 21 years, Tracor
has been a worldwide supplier of precision tracking radars, optical
tracking systems, radar-threat simulators and range instrumentation control
systems. This diverse array of capabilities for weapons systems test ranges
includes logistics support, on-site depot level maintenance, repair of
components and engineering design and fabrication. For more than 40 years,
the Company has performed operations and maintenance on high-technology
equipment and has supplied logistics and engineering support for research
and development programs for more than 146 radar systems at 28 test ranges.
Flight Testing and Training. Tracor performs a variety of flight
testing using both military and civilian aircraft. The Company uses its
tactical aircraft, equipped to launch guided and unguided weapons, to test
and evaluate weapons systems and tows targets for U.S. and foreign tactical
air forces to support air-to-air combat training. The Company's pilots also
fly aircraft for training naval aviation navigators.
Electronic Warfare Simulators. Tracor designs, develops and certifies
a variety of airborne radar threat emitters, simulators and jammers, both
pod and internally mounted. The Company also develops
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<PAGE> 37
advanced signal threat generators for laboratory testing of the defensive
avionics systems aboard a variety of U.S. military aircraft.
IMAGERY AND INFORMATION SYSTEMS. In another major part of the Company's
overall information technology business, the Company develops and integrates
systems which extract and analyze information from various types of imagery.
Tracor's expertise in the automation of information extraction satisfies the
sophisticated image-processing requirements of both government and commercial
customers worldwide. Applications for the Company's software, systems and
products include digital mapping, charting and geodesy ("MC&G"),
image-processing ground stations, interpretation and analysis centers, and other
imagery information systems in which digital image processing is an essential
technology. Currently, Tracor has an installed base of more than 760 MC&G
workstations. In 1996, two Tracor subsidiaries became key participants on the
recently awarded U.S. Air Force Electronic Systems Center
Reconnaissance/Intelligence Ground Systems Products and Services program. This
dual-award contract will build imaging ground stations to new common standards
developed by the Defense Airborne Reconnaissance Office. Other new business
activities include continued development of a front-end processing capability to
allow efficient use of data from a wide variety of imaging sources; a new
digital photo interpretation ground station system for a foreign customer; and a
multi-source intelligence analysis software system for use by operational
forces.
COMMUNICATION SYSTEMS. Tracor provides radio communication engineering and
technical services to the DOD and other government customers. The Company
performs systems and design engineering, subsystem procurement, systems
integration, testing and installation for these systems. It also provides
logistics support, maintenance and technology upgrades for these high-priority
systems to maintain their operational readiness throughout their service life.
The Company's key systems include:
AEGIS Communication Systems. Tracor is the primary contractor of
turnkey radio communication systems for the U.S. Navy's newest class of
destroyers and cruisers which are equipped with AEGIS weapon systems.
Tracor's cost-effective performance has contributed to its winning every
recompetition for its AEGIS work over the past 22 years. The most recent
award extends Tracor's participation in this high-priority program through
2001.
Aircraft Carrier Communication Systems. In 1996, Tracor's shipboard
radio communications business was expanded by winning the first competitive
contract to provide these systems for the Nimitz class aircraft carriers.
Special Forces Communication Systems. The Company has designed,
produced, installed and maintained, for more than 14 years, communication
systems used by U.S. Navy Special Warfare and Joint Special Operations
Forces and various national agencies. Systems range in size from hand-held
communication devices to full-scale communication suites for
special-purpose boats, planes and vans.
Command and Control Systems. For more than 20 years, the Company has
provided systems engineering and test and evaluation systems in connection
with the modernization and upgrading of the U.S. Navy's command and control
systems communication equipment and for the U.S. Navy's worldwide center
for airborne ASW flight planning and post-mission analysis. In addition,
Tracor provides software and systems engineering, signals intelligence and
electronic warfare engineering, and technical communication support
services for U.S. Army military command and control systems. In addition,
Tracor is providing engineering development and technical support services
to the U.S. Army Communications -- Electronics Command Space and
Terrestrial Communications Directorate.
U.S. Navy Air Traffic Control and Landing Systems. The Company has
provided management, engineering and research and development for the U.S.
Navy's automatic carrier landing systems and U.S. Marine air traffic
control and landing systems for 24 years. These systems assist naval and
marine aviators in achieving safe landings aboard carriers, shore stations
and expeditionary fields. Tracor expanded its work in this area with the
acquisition of Codar Technology's shelter integration business. Under
contract with the U.S. Air Force, the Company is producing vehicle-mounted
air traffic control towers, which provide a mobile, deployable,
quick-response capability to areas that have little or no base airport
facilities.
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Identification Systems. For more than 23 years, the Company has
provided hardware and software design engineering and technical support for
shipboard and shore-based identification systems used by the U.S. Navy,
Marines and Coast Guard.
MISSION PLANNING SYSTEMS. The Company provides mission planning systems for
the U.S. Navy, Air Force and Strategic Command as part of Tracor's broad range
of information technology products and services. Products include specialized
software used to plan and coordinate military aircraft and weapons, imagery
systems in support of targeting, planning and rehearsing military operations,
and government information systems. The Company provides imagery-based mission
planning systems for stealth aircraft and cruise missiles, which are expected to
continue to represent the U.S. Armed Forces' primary strike capability for the
foreseeable future. Management believes these products and services will benefit
from the DOD's increasing need for precision weapons and tactical intelligence
in diverse areas of the world in order to efficiently utilize and coordinate its
increasingly sophisticated and costly weapons systems. Tracor's Digital Imagery
Workstation Suite ("DIWS"), is a critical part of the U.S. Navy's Tomahawk
cruise missile planning program. In 1996, Tracor won a program for the continued
development of the DIWS. This Consolidated Configuration program increases the
COTS hardware and software content of the suite, which reduces the size of the
hardware while improving the suite's performance. Further, in 1996, the Company
continued to deploy these precision targeting systems with two additional suites
going aboard U.S. Navy carriers and two suites delivered to support rapid
deployment forces. These systems are expected to be installed on all Navy
aircraft carriers and amphibious assault ships by the year 2000. The Company has
also gained prominence in the emerging field of information warfare by
developing the mission planning systems for the Global Hawk and DarkStar high
altitude endurance unmanned aerial vehicles. Under development for the Defense
Advanced Research Projects Agency and the Defense Airborne Reconnaissance
Office, the Global Hawk will provide a high capacity reconnaissance and
surveillance platform with an endurance of 42 hours and a total range of 14,000
miles.
AUTOMATIC TEST SYSTEMS. The Company has designed and built automatic test
systems ("ATS") for more than 30 years and is a major supplier of ATS to the
U.S. Air Force. Principal ATS products include avionics test equipment for the
U.S. and other air forces for the F-16 fighter, the C-17 and C-5B transports and
the B-1B and B-2 bombers. The Company produces a new generation of downsized,
mobile testers, supporting the F-16 program as well as munitions programs. The
Company also provides diagnostic systems, test program sets and operations and
logistics for ATS products. Deliveries of the Company's core F-16 test systems
have recently declined due to reduced production of F-16 aircraft. However, the
F-16 remains the primary U.S. Air Force tactical fighter, and the Company
expects to continue to receive significant orders for program maintenance and
upgrades as well as testers for F-16 international sales and established Air
National Guard requirements. Expanding this product line and the Company's
international presence, Tracor won two contracts in 1995 to supply avionics test
equipment for the new Japanese F-2 fighter. Tracor's success in the development
phase of the F-2 program led to additional contract awards in 1996 for technical
assistance and software co-development with the Japanese. Tracor also produces
avionics subsystems for the Atlas and Titan launch vehicles. In 1996, Lockheed
Martin Astronautics authorized Tracor to proceed with the development and
production of avionics for the next-generation Atlas launch vehicle with an
award of more than $26 million. This long-term contract provides a continuing
production base for work to be performed to the year 2003.
EXPANSION AND DIVERSIFICATION
Tracor has increased its sales to both established and new customers. The
Company has been successful in translating its technologies and products to
other military customers, other governmental agencies, the foreign marketplace
and select commercial customers. See "-- Core Businesses" and "-- Company
Strategy." Tracor's other expansion and diversification initiatives are
described below.
U.S. Army Programs. Over the past eight years, Tracor has expanded its
systems, software and technical capabilities to various U.S. Army areas
including the Global Command and Control System, signals
intelligence/electronic warfare, Communications-Electronics Command and
C(4)I support.
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Camouflage, Concealment and Deception. In an extension of its
countermeasures technology, Tracor has developed coatings and camouflage
materials to conceal aircraft, ground-based installations and ships from
detection by radar, infrared scanners and other sensing systems.
Air Transportation Systems. The Company won a $66 million contract
with the FAA in 1993 to provide systems, hardware and software engineering
for the development, testing and operation of new air traffic control and
surveillance systems across the U.S. This seven-year contract emphasizes
Tracor's ability to transfer its radar engineering expertise to non-DOD
governmental agencies. In 1995, Tracor won another FAA contract to provide
test and evaluation engineering services for surveillance and weather radar
systems.
NASA Programs. Since 1988 the Company has provided engineering for
safety, reliability, maintainability and quality assurance for NASA's
manned and unmanned space flights.
Public Information Systems. The Company has successfully translated
certain of its defense related capabilities into business opportunities
with new government and commercial customers. For example, signal
processing expertise developed under U.S. Navy sonar programs and advanced
database systems are the foundation for a statewide regulatory and
compliance system, client/server based order fulfillment system for
Hewlett-Packard, as well as for aircraft noise monitoring systems sold to
18 major U.S. airports.
Commercial. The Company has successfully applied its technologies to a
number of commercial products and services and continues to seek new
opportunities. Current commercial diversifications include:
Aircraft Structures. The Company performs major upgrades and
modifications and manufactures structures for commercial aircraft,
including electronics installation and systems integration. Under two
new programs awarded in 1996 by McDonnell Douglas, Tracor will join the
wing halves and manufacture the y-barrel assembly for the new-generation
MD-95 commercial jet.
Photogrammetry. Through its subsidiary, Helava, the Company
provides integrated digital stereo software which operates on commercial
computer hardware, principally in the commercial photogrammetry market.
Helava provides photogrammetric workstations and high-quality scanners
for map compilation, engineering regional planning, orthophoto
production, digital terrain collection and environmental management.
Through a distributorship agreement with Leica, Inc., a world leader in
surveying and photogrammetric systems, Tracor's systems are now
operational in 48 countries. In addition, in 1996 the Company acquired
Aerial Data Reduction Associates ("ADR"). ADR has a 26-year history of
using photogrammetric technology to produce mapping and geographic
information systems database services primarily for federal, county and
municipal governments throughout the U.S. Management believes the
acquisition provides the Company with the nation's largest
photogrammetric map production capacity in private industry.
Remote Sensing. Tracor has entered the growing new market of
commercial remote sensing systems by joining with Boeing, Farmland
Industries and Agrium, Ltd., to develop and operate the Resource21(TM)
imaging satellite system which is planned to become operational at the
turn of the century. This multispectral satellite system is designed to
facilitate agriculture, forestry and environmental management on a
worldwide scale. Employing technologies developed for military
applications, Tracor is responsible for the ground data processing,
image assessment, archiving and production generation for this
commercial system. With the Company's proprietary technologies in image
processing and manipulation, coupled with the leading edge satellite
technologies provided by its teammates, Tracor management believes it is
well positioned in this emerging market.
Chaff. Tracor is under contract with the leading manufacturer of
direct broadcast satellite antennae, supplying its aluminum-coated glass
fibers (chaff) as an integral part of that firm's molded antennae. The
proprietary nature of Tracor's manufacturing process of chaff, typically
used in military applications, positions the Company to benefit from the
increasing popularity of direct broadcast television.
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Telecommunications. The Company is providing automatic test systems
to support the commercial telecommunications and satellite market,
including custom systems to test Motorola's Iridium R(R) global
communications system.
MAJOR CUSTOMERS
The net sales of Tracor are predominantly derived from contracts with
agencies of, and prime contractors to, the U.S. government. The various U.S.
government customers exercise independent purchasing decisions, and sales to the
U.S. government are generally not regarded as constituting sales to one
customer, but instead, each contracting entity is considered to be a separate
customer. As of December 31, 1996, Tracor was performing under more than 700
contracts with approximately 100 customers within various U.S. government
agencies. Sales to all such agencies are subject to conditions unique to sales
to the U.S. government. See "Risk Factors -- Uncertainty Associated with
Government Contracts."
RESEARCH AND DEVELOPMENT
Tracor employs scientific, engineering and other personnel to improve
existing product lines and to develop new products in the same or related fields
under programs funded by the respective companies or, in the case of Tracor,
under customer contracts through which Tracor is reimbursed directly for its
efforts. Customer-sponsored programs sometimes lead to the development of
products which Tracor has the opportunity to produce for others.
During the past three fiscal years, Tracor has expended the following
amounts on Company-sponsored and customer-sponsored research and development
activities:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Customer-sponsored................................... $157.5 $132.3 $104.9
Company-sponsored.................................... 11.1 5.4 4.7
</TABLE>
A significant portion of the increase in Tracor's customer-sponsored
research and development costs in 1995 and 1996 is attributable to the inclusion
of GDE and AEL expenditures following their acquisition by the Company in
November 1994 and February 1996, respectively, the award of several new
contracts, and increased research and development efforts under several existing
contracts.
COMPETITION
The Company experiences vigorous competition from industrial firms and U.S.
government agencies, some of which have substantially greater resources. A
majority of the sales of the Company is derived from contracts with the U.S.
government and its prime contractors, and such contracts are awarded on the
basis of negotiations or competitive bids. Management does not believe any one
competitor or a small number of competitors is dominant in any of the business
areas of the Company. Management believes the Company will continue to be able
to compete successfully based upon the quality and cost competitiveness of its
products and services.
GOVERNMENT CONTRACTS
Substantially all of the Company's revenues result from contracts with the
U.S. government and its prime contractors. System engineering and integration,
software engineering and other engineering and management support contracts are
generally cost-reimbursement fixed-fee type contracts. Product engineering and
development contracts are either cost-reimbursement fixed-fee type or
fixed-price type contracts. Contracts for the manufacture of products are
usually fixed-price type contracts. Cost-reimbursement type contracts provide
for the payment of actual allowable costs, plus a fee. Under fixed-price type
contracts, the contractor benefits from or shares in cost savings but generally
bears or shares the risk of cost overruns. Cost-reimbursement type contracts are
normally priced to realize lower margins than fixed-price type contracts. For
the year ended December 31, 1996, approximately 55% of the Company's revenues
were derived from cost-
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<PAGE> 41
reimbursement type contracts, and approximately 45% of the Company's revenues
were derived from fixed-price contracts.
Contracts with the U.S. government and its prime contractors contain
standard provisions for termination at the convenience of the U.S. government or
such prime contractor, pursuant to which the Company is generally entitled to
recover costs incurred, settlement expenses and profit on work completed prior
to termination. Contracts with the U.S. government do not provide for
renegotiation of profits.
Companies supplying products and services directly or indirectly to the
U.S. government are subject to other risks such as contract suspensions, changes
in policies or regulations and availability of funds. Any of these factors could
adversely affect the Company's business with the U.S. government in the future.
See "Risk Factors -- Uncertainty Associated with Government Contracts."
SALES TO FOREIGN CUSTOMERS
For 1996, 1995 and 1994, approximately $104.8 million, $87.0 million and
$63.6 million (representing 10%, 10% and 9%, respectively) of the net sales of
the Company were attributable to sales and services provided to foreign
customers. The principal customers are governments of those countries in Western
Europe, the Middle East and the Pacific Rim region which are generally deemed to
be friendly to the government of the United States and to have relatively stable
governments. Each of the contracts with these customers is subject to the risks
inherent in dealing with foreign governments (e.g., changes of administration or
governmental form, economic problems). Although the loss of all of the Company's
foreign business could have a materially adverse impact on the Company's results
of operations and financial condition, it is management's opinion that this risk
is remote and that the loss of any single contract with a foreign government
would not be material.
EMPLOYEES
As of December 31, 1996, the Company had approximately 10,450 employees. Of
this number, approximately 3,950 employees held advanced or bachelor's degrees
in a number of scientific disciplines. Approximately 100 of the Company's
employees are located outside of the United States. Less than three percent of
the Company's U.S. employees are covered by collective bargaining agreements
with labor unions. The Company considers relations with its employees to be
excellent.
BACKLOG
In each of its major lines of business, the Company has significant firm
backlog and unexercised contract options which may be exercised by the customer.
Firm backlog represents the amount of revenue expected to be recognized for
contractually authorized performance of awarded firm contractual commitments.
Firm backlog may include amounts yet to be fully funded by the customer or
amounts for performance yet to be fully definitized. Unexercised contract
options represent the amount of revenue which would be recognized from the
performance of contract options that may be exercised by customers under
existing contracts and from task orders to be issued under indefinite quantity
contracts or basic ordering agreements. Amounts included in both firm backlog
and unexercised contract options are based on the contract's total awarded value
and the Company's estimates regarding the amount of the award that will
ultimately result in the recognition of revenue. These estimates are based on
the Company's experience with similar awards and similar customers. Estimates
are reviewed periodically and appropriate adjustments are made to the amounts
included in firm backlog and unexercised contract options. Historically, these
adjustments have not been significant.
The Company's firm backlog at December 31, 1996 was $1.0 billion, compared
with $924 million as of December 31, 1995. The Company's unexercised contract
options as of December 31, 1996 were $1.6 billion, compared with $949 million at
December 31, 1995. This total backlog of $2.6 billion at December 31, 1996 is
the highest in the Company's history and represents a 40% increase over the
total backlog at December 31, 1995. Management does not believe that the
Company's firm backlog is seasonal in any material respect. Approximately 80% of
firm backlog as of December 31, 1996, is expected to be realized as sales within
one
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<PAGE> 42
year. Approximately 76% of firm backlog as of December 31, 1996, was comprised
of contracts with agencies of the U.S. government or its prime contractors. See
"-- Major Customers" and "-- Government Contracts."
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's manufacturing operations require a wide variety of electronic
and mechanical components for which the Company has multiple commercial sources.
The Company's manufacturing operations also require raw materials which are
purchased in the open market and are normally available from a number of
suppliers. The Company has not experienced any significant delays in obtaining
timely deliveries of essential materials.
COMPLIANCE WITH ENVIRONMENTAL CONTROLS
There have not been, and the Company does not anticipate, any materially
adverse effects upon the capital expenditures, earnings or competitive position
of the Company resulting from compliance with federal, state and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment.
PATENTS
There are a total of 110 Company owned patents with 33 patent applications
pending. The Company does not believe that existing patents and licenses are
material in the conduct of its business as a whole and believes that research,
development and engineering skills are more significant. The U.S. government
typically receives royalty-free licenses on inventions arising from government
contracts, with each company retaining all commercial rights with respect to
such inventions. While patents are not material to the operation of the
business, proprietary information of the Company is adequately protected through
the requirement that employees execute confidentiality agreements as a condition
of employment.
LEGAL PROCEEDINGS
Tracor is involved in various lawsuits and is subject to certain
contingencies incidental to its business. While the ultimate results of these
matters cannot be predicted with certainty, management does not expect them to
have a material adverse effect on the consolidated financial position or results
of operations of Tracor.
PROPERTIES
The Company's facilities are located primarily in the United States. The
Company's corporate offices and certain administrative, manufacturing and
engineering facilities are located in Austin, Texas on a 140 acre campus owned
by the Company and contain approximately 612,000 square feet of offices and
engineering and manufacturing facilities. The Company occupies approximately
1,132,000 square feet of administrative and engineering facilities in the
Washington, D.C. area consisting of multiple facilities owned and leased by the
Company under leases with differing expiration dates, the latest of which
expires in 2004. The Company also owns and leases approximately 278,000 square
feet of administrative and engineering facilities located in the California,
Maryland area. The Company leases approximately 73,000 square feet of
administrative and engineering facilities in the Poulsbo and Silverdale,
Washington area.
The Company owns and leases approximately 142,000 square feet of
administrative, manufacturing and engineering facilities located in Ft. Walton
Beach, Florida. The Company leases (under a lease expiring in 1998) or owns
engineering facilities in Groton, Connecticut, containing approximately 34,000
square feet of space. The Company leases 48,000 square feet of administrative
and engineering facilities in Bloomington, Indiana. The Company owns
approximately 10,000 square feet of administrative and manufacturing facilities
in Butler, Georgia.
The Company occupies approximately 308,000 square feet of administrative,
manufacturing, engineering and aircraft hangar facilities in Mojave, California,
some of which is owned and some of which is leased under a lease expiring in
2036. This site also includes ramp space associated with the aircraft hangars.
The Company owns approximately 134,000 square feet of administrative,
manufacturing, engineering and aircraft hangar facilities in East Alton,
Illinois which is currently vacant and for sale.
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The Company occupies approximately 123,000 square feet of leased space
located in East Camden, Arkansas utilized for administrative and manufacturing
purposes under a lease expiring in 1999 and approximately 117,000 square feet of
owned space located in San Ramon, California and utilized for administrative,
manufacturing and engineering. The Company also utilizes leased space for
administrative, engineering and manufacturing in Lillington, North Carolina
(75,000 square feet) and Jerusalem, Israel (23,000 square feet), under leases
expiring in 2000 and 2003, respectively.
The Company leases approximately 450,000 square feet of administrative,
manufacturing and engineering facilities in various locations in San Diego,
California. The Company owns approximately 92,000 square feet of administrative
and engineering space located in Oxnard, California. The Company owns
approximately 370,000 square feet of administrative, manufacturing and
engineering facilities located in Montgomery Township, Pennsylvania.
The Company's facilities also include certain other leased and owned
facilities at miscellaneous locations, having no more than 20,000 square feet at
any location and aggregating approximately 180,000 square feet.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Pursuant to the Delaware General Corporation Law, as implemented by
Tracor's Certificate of Incorporation and Bylaws, all corporate powers are
exercised by or under the direction of the Board of Directors. The Board of
Directors has created committees with responsibility for audits, compensation
and ethical issues. Each director who is not an employee of Tracor serves on one
or more committees. Officers of the Company serve at the discretion of the Board
of Directors. The Board of Directors and executive officers of the Company
consist of the persons named in the table below. Additional information with
respect to those persons who serve as directors and executive officers is set
forth below the table.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
James B. Skaggs......................... 59 Chairman of the Board and President
Robert K. Floyd......................... 61 Vice President and Chief Financial
Officer
Barry G. Campbell....................... 55 Vice President; President of Vitro
Corporation
David L. Lawrence....................... 54 Vice President; President of Tracor
Flight Systems, Inc.
K. Bruce Hamilton....................... 55 Vice President; President of Tracor
Applied Sciences, Inc.
George R. Melton........................ 50 Vice President; President of Tracor
Aerospace, Inc.
Dr. Terry A. Straeter................... 54 Vice President; President of GDE Systems,
Inc.
Woody Endsley........................... 44 Vice President and Treasurer
Robert J. Fitch......................... 48 Vice President -- Government Relations
Leroy J. Kana........................... 64 Vice President -- Quality, Safety and
Environmental Programs
Russell E. Painton...................... 56 Vice President, General Counsel and
Corporate Secretary
John M. Rock, III....................... 57 Vice President -- Technology and
Information Systems
Roger W. Sadler......................... 59 Vice President -- Business Development
Kathy Thompson.......................... 49 Vice President -- Human Resources
Thomas V. Talbott....................... 60 Vice President and Controller
Elvis L. Mason.......................... 63 Director
William E. Conway, Jr. ................. 47 Director
Dr. Julian Davidson..................... 69 Director
Anthony Grillo.......................... 41 Director
Bob Marbut.............................. 61 Director
Lt. Gen. Thomas P. Stafford (Ret.)...... 66 Director
</TABLE>
JAMES B. SKAGGS has been a director of the Company since March 1990. He has
also served as the President of the Company since November 1991. Mr. Skaggs also
served as President and a director of Westmark Systems, Inc. from March 1990
through December 1991.
ROBERT K. FLOYD has been Vice President and Chief Financial Officer of the
Company since December 1990.
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<PAGE> 45
BARRY G. CAMPBELL has been Vice President of the Company and President and
Chief Executive Officer of Vitro Corporation since October 1993. He has held
various positions with Vitro Corporation since 1970.
DAVID L. LAWRENCE has been Vice President of the Company and President of
Tracor Flight Systems, Inc. since November 1996.
K. BRUCE HAMILTON has been Vice President of the Company and President of
Tracor Applied Sciences, Inc. since 1989.
GEORGE R. MELTON has been Vice President of the Company since March 1990
and President of Tracor Aerospace, Inc. since September 1990.
DR. TERRY A. STRAETER has been Vice President of the Company since December
1994 and President and Chief Executive Officer of GDE since November 1992. From
February 1991 until November 1992, he served as Corporate Vice President and
General Manager of the Electronics Division of General Dynamics Corporation.
WOODY ENDSLEY has been Vice President and Treasurer of the Company since
April 1991. He served as Corporate Controller of the Company from January 1988
through April 1991.
ROBERT J. FITCH has been Vice President -- Government Relations since
August 1995. From April 1993 to July 1995, he served as Vice President,
Corporate Strategic Development for GDE. Between 1984 and 1993, he was the
senior staff member of the Program and Budget Authorization staff of the House
Permanent Select Committee on Intelligence.
LEROY J. KANA has been Vice President -- Quality, Safety and Environmental
Programs of the Company since December 1992 and has been associated with the
Company and its subsidiaries in various capacities since 1969.
RUSSELL E. PAINTON has been Vice President and General Counsel of the
Company since April 1983. He has also been Secretary of the Company since
January 1991.
JOHN M. ROCK, III has been Vice President -- Technology and Information
Systems of the Company since September 1991. From January 1990 through September
1991, he was President of Eagle GT, Inc.
ROGER W. SADLER has been Vice President -- Business Development of the
Company since August 1991. From 1988 through August 1991, he worked as a private
consultant.
KATHY THOMPSON has been Vice President -- Human Resources of the Company
since October 1996.
THOMAS V. TALBOTT has been Vice President and Controller of the Company
since April 1991.
ELVIS L. MASON has been a director of the Company since November 1991. He
is a member of the Compensation/Stock Option Committee. Since August 1984, he
has served as managing partner of Mason Best Company, L.P. ("Mason Best"), a
merchant banking firm, and on the boards of several privately held companies in
which Mason Best was a significant shareholder. He also has served, since
December 1991, as a director and, since February 1992, as Chairman of the Board
of Safeguard Business Systems, Inc., a supplier of office management products
and services for small businesses, and its parent, San Jacinto Holdings. Mr.
Mason also serves as a director of United Meridian Corporation and American
Eagle Group, Inc.
WILLIAM E. CONWAY, JR. has been a director of the Company since April 1995.
He is a member of the Audit and Ethics Committee. Mr. Conway is the person
designated by The Carlyle Group ("Carlyle"), as the Holder Representative, to
serve on the Tracor Board. See "-- Certain Agreements Relating to the Nomination
of Directors." Mr. Conway joined Carlyle in August 1987 and is a Managing
Director. He serves on the boards of directors of BDM International, Inc.
(October 1990 to present), GTS Duratek, Inc. (January 1995 to present), and
Nextel Communications, Inc. (February 1997 to present). Mr. Conway also serves
on the boards of several private companies in which Carlyle has invested. Prior
to Tracor's acquisition of GDE, he served as Chairman of the Board of GDE.
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DR. JULIAN DAVIDSON has been a director of the Company since November 1991.
He is Chairman of the Compensation/Stock Option Committee. Dr. Davidson is
President and Chief Executive Officer of Davidson Enterprises, LLC, a commercial
and defense consulting firm since April 1, 1996. Prior thereto, he was a senior
vice president of Booz, Allen and Hamilton from May 1984 to April 1996. He also
serves as a director on the boards of several privately held companies.
ANTHONY GRILLO has been a director of the Company since December 1991. He
is Chairman of the Audit/Ethics Committee. Mr. Grillo is a senior managing
director of The Blackstone Group, L.P., an investment banking firm. Prior to May
1991, he was a managing director with the corporate finance division,
Restructuring and Reorganization Group of Chemical Bank (November 1989 through
May 1991). Mr. Grillo currently serves as a member of the board of directors of
Littelfuse, Inc. (since November 1991), a former affiliate of Tracor's
predecessor, and of Joule, Inc., as well as a member of the board of directors
of several privately held companies. He is also a Trustee of the Academy of
Political Science.
BOB MARBUT has been a director of the Company since November 1991. He is a
member of the Compensation/Stock Option Committee. Mr. Marbut is Chairman, CEO
and co-founder of Argyle Television, Inc., which he helped found in 1994 and
which now owns and operates television stations in the United States. He is also
Chairman and CEO of Argyle Communications, Inc. (founded in January 1992), which
is the managing general partner of Argyle Communications Partners, L.P., a
limited partnership involved in the acquisition and operation of television
stations, and successor to The Argyle Group, of which he has been Chairman and
CEO since January 1992. Mr. Marbut founded Argyle Television Holdings, Inc., a
television station group, in 1993 and was its Chief Executive Officer until it
was sold in April 1995. He serves on the boards of directors of Tupperware
Corporation (1996 to present); Ultramar Diamond Shamrock, Inc. (December 1996 to
present); Argyle Communications, Inc. (January 1992 to present); Argyle
Television, Inc. (August 1994 to present); and Katz Media Group, Inc. (August
1994 to present).
LT. GEN. THOMAS P. STAFFORD (RETIRED) has been a director of the Company
since April 1994. He is a member of the Audit and Ethics Committee. Lt. Gen.
Stafford is a co-founder of the technical consulting firm of Stafford, Burke,
and Hecker, Inc. (1983). He serves on the boards of directors of AlliedSignal
Corporation (March 1981 to present), CMI, Inc. (1983 to present), Fisher
Scientific, Inc. (December 1991 to present), Pacific Scientific, Inc. (February
1987 to present), Seagate Technologies, Inc. (March 1988 to present), Tremont,
Inc. (October 1990 to present), Wackenhut, Inc. (October 1991 to present), and
Wheelabrator Technologies, Inc. (September 1987 to present); all of which are
listed on the New York Stock Exchange. Lt. Gen. Stafford also served on the
board of directors for Gulf USA, Inc. (NYSE) from 1992 to 1993.
CERTAIN AGREEMENTS RELATING TO THE NOMINATION OF DIRECTORS
In connection with the GDE Acquisition, Tracor entered into a Holders
Agreement relating to the nomination of a Carlyle director to its Board of
Directors. The GDE Holders Agreement permits Carlyle, as the Holder
Representative, to designate a nominee for director of Tracor, which nominee
must be reasonably satisfactory to the Board of Directors, to be voted on at
each meeting of stockholders held for the purpose of electing directors. The
Holder Representative may designate one nominee for director of Tracor so long
as certain former stockholders of GDE hold in the aggregate at least 800,000
shares of Common Stock acquired in the GDE Acquisition.
In connection with the Westmark Acquisition (as defined below) and the
resulting elimination of the Class A Common Stock, the Company's Certificate of
Incorporation was amended to eliminate the right of holders of Class A Common
Stock to nominate a director to the Board of Directors. Elvis L. Mason had
served as the Class A Director prior to the consummation of the Westmark
Acquisition. Immediately following the consummation of the Westmark Acquisition
and as required by the related acquisition agreement, the Company increased the
size of the Board of Directors by one member and appointed Elvis L. Mason to
fill the new directorship for a three-year term.
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<PAGE> 47
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Board of Directors. Outside (non-employee) directors of the Company receive
annual Board retainers of $20,650, plus travel and allowances where appropriate.
Attendance fees of $1,000 per meeting are also paid. Directors who also serve on
a committee of the Board of Directors receive fees of $950 for each committee
meeting attended. Directors who chair committees receive additional fees of $950
per meeting attended. Directors who are currently on the board at the first of
each year receive 1,000 shares of common stock and are granted 2,000 shares of
stock options at the current market price.
During 1996, the Board of Directors met 6 times. Each director attended
more than 75% of the aggregate of (a) the total number of meetings held during
1996 and (b) the total number of meetings held by all committees of the Board of
Directors on which each served.
Executive Officers. The following Summary Compensation Table shows the
compensation of each of the Company's five most highly compensated executive
officers, including the chief executive officer for the three most recent fiscal
years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED
NAME AND ------------------------------ STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS SARS (#)(1) PAYOUTS COMPENSATION(2)
------------------ ---- ----------- --------- ---------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James B. Skaggs, 1996 $577,533 $490,445 -- 100,000 -- $39,281
President, CEO 1995 523,921 410,987 -- 200,000 -- 28,687
1994 494,884 398,687 -- 9,200 -- 14,916
Dr. Terry A.
Straeter,(3) 1996 $226,900 $174,177 -- 12,000 -- $50,605
Vice President 1995 212,019 138,273 -- 15,000 $243,132 24,296
1994 205,769 265,000 -- 5,000 -- 8,015
Barry G. Campbell, 1996 $235,885 $129,938 -- 12,000 -- $11,865
Vice President 1995 209,244 105,074 -- 20,000 -- 9,699
1994 197,627 81,113 -- 0 $212,400 549
Robert K. Floyd, 1996 $230,568 $149,446 -- 12,000 -- $22,585
Vice President, 1995 216,448 126,703 -- 20,000 -- 17,592
CFO 1994 189,017 112,933 -- 7,500 -- 4,939
George R. Melton, 1996 $200,366 $133,502 -- 12,000 -- $16,803
Vice President 1995 166,675 88,069 -- 18,000 -- 10,973
1994 167,638 53,093 -- 0 -- 9,727
</TABLE>
- ---------------
(1) No SARs have been issued as of the dates indicated.
(2) Includes life insurance premiums paid by the Company on behalf of each named
individual.
(3) During the majority of 1994, Dr. Straeter was employed by GDE prior to the
time it was owned by Tracor.
40
<PAGE> 48
OPTION GRANTS IN FISCAL YEAR 1996(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR FULL OPTION
GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES IN OR BASE EXPIRATION -----------------------------------
NAME GRANTED FISCAL 1996 PRICE DATE 5%($) 10%($)
---- ------- ------------ -------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
James B. Skaggs........... 100,000 26.27% $16.13 2/27/06 $1,014,407.03 $2,570,706.59
Robert K. Floyd........... 12,000 3.15% $16.13 2/27/06 $ 121,728.84 $ 308,484.79
George R. Melton.......... 12,000 3.15% $16.13 2/27/06 $ 121,728.84 $ 308,484.79
Dr. Terry A. Straeter..... 12,000 3.15% $16.13 2/27/06 $ 121,728.84 $ 308,484.79
Barry G. Campbell......... 12,000 3.15% $16.13 2/27/06 $ 121,728.84 $ 308,484.79
</TABLE>
- ---------------
(1) The per share option exercise prices are the fair market value of the
Company's common stock on the date of the grant, and the term of each option
is 10 years. 30% of each option is exercisable one year after the date of
grant, an additional 30% is exercisable two years after the grant, and the
remainder is exercisable three years after the grant.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT
FISCAL YEAR END
--------------------------- VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS
SHARES EXERCISABLE AT FISCAL YEAR END(1)
ACQUIRED ON VALUE AT ---------------------------
NAME EXERCISE REALIZED 12/31/96 UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James B. Skaggs....... 15,000 $331,875 250,520 243,680 $3,992,930 $1,700,120
Barry G. Campbell..... 0 0 31,000 26,000 $ 377,500 $ 176,940
Robert K. Floyd....... 1,000 $ 21,630 64,500 29,000 $1,101,250 $ 203,940
George R. Melton...... 3,800 $ 81,592 56,600 24,600 $1,001,900 $ 165,390
Dr. Terry A.
Straeter............ 0 0 7,500 24,500 $ 64,125 $ 166,065
</TABLE>
- ---------------
(1) The last sale price of the Common Stock on December 31, 1996 was $21.25 per
share.
EMPLOYMENT AGREEMENTS
Effective as of November 22, 1996, the Company entered into employment
agreements (entitled "Employment Agreement") with certain of its officers who
had not previously entered into employment agreements with the Company and,
further, entered into amended and restated employment agreements (entitled
"Amended and Restated Employment Agreement") with certain of its officers who
had previously entered into employment agreements with the Company (including
Messrs. Skaggs and Floyd). All of the agreements provide for a termination date
of December 31, 1999, or the first day of the year following the year in which
the officer reaches his/her 65th birthday. The agreements also provide for
automatic renewals unless earlier terminated by the officer or the Board of
Directors.
Among other things, the agreements assure the continuation of each such
officers' base salary as of such date and his/her continued participation in the
Company incentive and other welfare and benefit plans, as well as continuation
of his/her then current level of job position and responsibilities, failing
which such officer may terminate his/her employment with the Company and
receive, as termination pay, stipulated amounts equal to up to two times such
officer's base salary then in effect and other benefits. Under each agreement,
the Company has the right to terminate an officer for unsatisfactory performance
or cause, under which circumstances the officer would not be entitled to
termination pay. Each agreement provides that upon termination the officer will
not compete with the Company for a period of six months after the date of
termination nor will the officer divulge confidential information or trade
secrets to third parties.
41
<PAGE> 49
RETIREMENT BENEFITS AND RELATED INFORMATION
The Company has a Defined Benefit Retirement Plan (the "Retirement Plan")
which provides retirement benefits for its employees and employees of
participating affiliates. The plan has three benefit formulas as described below
for Tracor, Vitro and GDE employees. Employees covered under the Tracor formula
become vested in the Retirement Plan upon the completion of five years of
vesting service. Monthly benefits, payable at normal retirement age, are based
upon an amount equal to one percent of final "average monthly compensation" up
to "covered compensation" plus one and one-half percent of final average monthly
compensation in excess of covered compensation, multiplied by the years of
credited service with the Company, less one year. Average monthly compensation
is defined as the average monthly compensation actually paid, including bonuses
and overtime pay for the five highest successive calendar years. Covered
compensation is defined as the average of the maximum wages subject to social
security taxes for the 35 years ending in the calendar year before the employee
reached social security retirement age. Credited service is the period of the
employee's total employment with the Company. The monthly benefits are not
subject to deductions for social security or other offset amounts.
Employees covered under the Vitro formula are provided monthly benefits,
payable at normal retirement age, which are based on the amount equal to one and
one-tenth percent of average annual compensation up to covered compensation plus
one and three-quarters percent of average annual compensation in excess of
covered compensation, multiplied by the years of credited service. average
annual compensation means the average of annual earnings during the employee's
five consecutive highest paid years with Vitro. Credited service generally means
all the employee's years of service with Vitro. The monthly benefits are not
subject to deductions for social security or other offset amounts.
Employees covered under the GDE formula are provided monthly benefits,
payable at normal retirement age, which are based on the amount equal to
approximately one and three-tenths percent of average annual compensation,
multiplied by the years of credited service. Average annual compensation means
the average of annual earnings during the employee's five consecutive highest
paid years with GDE. Credited service generally means all the employee's years
of service with GDE. The monthly benefits are not subject to deductions for
social security or other amounts.
42
<PAGE> 50
The following tables show the estimated annual benefits payable upon
retirement to persons in specified remuneration and years of service
classifications who would retire in 1997 at age 65. The amounts shown in the
tables were determined as normal retirement benefits at December 31, 1996 and
were based on pay limited by Section 401(a)(17) of the Code. Benefits are
limited by Section 415 of the Code without regard to combined plan limitations.
RETIREMENT PLAN BENEFITS
TRACOR, INC.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE -------------------------------------------------
ANNUAL COMPENSATION 15 20 25 30 35
- ------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000................................................ $19,070 $25,880 $32,691 $ 39,501 $ 46,312
$ 125,000................................................ 24,320 33,005 41,691 50,376 59,062
$ 150,000................................................ 29,570 40,130 50,691 61,251 71,812
$ 175,000................................................ 33,726 46,176 58,626 71,076 83,526
$ 200,000................................................ 37,852 52,176 66,502 80,826 95,152
$ 225,000................................................ 41,976 58,176 74,376 90,576 106,776
$ 250,000................................................ 43,766 60,778 77,792 94,804 111,818
$ 300,000................................................ 43,766 60,778 77,792 94,804 111,818
$ 350,000................................................ 43,766 60,778 77,792 94,804 111,818
$ 400,000................................................ 43,766 60,778 77,792 94,804 111,818
$ 450,000................................................ 43,766 60,778 77,792 94,804 111,818
$ 500,000................................................ 43,766 60,778 77,792 94,804 111,818
$1,281,573(1)............................................ 43,766 60,778 77,792 94,804 111,818
</TABLE>
VITRO CORPORATION(2)
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE -------------------------------------------------
ANNUAL COMPENSATION 15 20 25 30 35
- ------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000................................................ $23,561 $31,415 $39,269 $ 47,123 $ 54,976
$ 125,000................................................ 30,124 40,165 50,206 60,248 70,289
$ 150,000................................................ 36,686 48,915 61,144 73,373 85,602
$ 175,000................................................ 41,963 56,390 70,817 85,244 99,671
$ 200,000................................................ 47,213 63,827 80,442 97,057 113,671
$ 225,000................................................ 52,463 71,265 90,067 108,869 120,000
$ 250,000................................................ 54,739 74,490 94,240 113,991 120,000
$ 300,000................................................ 54,739 74,490 94,240 113,991 120,000
$ 350,000................................................ 54,739 74,490 94,240 113,991 120,000
$ 400,000................................................ 54,739 74,490 94,240 113,991 120,000
$ 438,987(1)............................................. 54,739 74,490 94,240 113,991 120,000
</TABLE>
- ---------------------
(1) Represents 120% of covered compensation for the most highly compensated
individual who would be entitled to benefits under the particular plan.
(2) Employees of Vitro Corporation and Vitro Services whose credited service
begins on or after January 1, 1996, are covered under the Tracor benefit
formula. Benefit based on $150,000 pay limited with a minimum benefit, as of
December 31, 1993, under prior pay limit.
43
<PAGE> 51
GDE SYSTEMS, INC.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ------------------------------------------------
ANNUAL COMPENSATION 15 20 25 30 35
- ------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000................................................ $20,000 $26,667 $33,333 $40,000 $ 46,667
$ 125,000................................................ 25,000 33,333 41,667 50,000 58,333
$ 150,000................................................ 30,000 40,000 50,000 60,000 70,000
$ 175,000................................................ 34,000 45,667 57,333 69,000 80,666
$ 200,000................................................ 38,000 51,333 64,667 78,000 91,333
$ 225,000................................................ 42,000 57,000 72,000 87,000 102,000
$ 250,000................................................ 43,734 59,457 75,180 90,902 106,625
$ 300,000................................................ 43,734 59,457 75,180 90,902 106,625
$ 350,000................................................ 43,734 59,457 75,180 90,902 106,625
$ 400,000................................................ 43,734 59,457 75,180 90,902 106,625
$ 450,000................................................ 43,734 59,457 75,180 90,902 106,625
$ 481,292(1)............................................. 43,734 59,457 75,180 90,902 106,625
</TABLE>
- ---------------
(1) Represents 120% of covered compensation for the most highly compensated
individual who would be entitled to benefits under the particular plan.
As of December 31, 1996, the persons named in the Summary Compensation
Table were credited with the following years of service under the Retirement
Plan: Mr. Floyd, 6.6; Mr. Skaggs, 6.8; Mr. Melton 6.8; Dr. Straeter, 16.8 and
Mr. Campbell, 26.6.
The remuneration covered by the Retirement Plan for the named executive
officer generally corresponds with the salary amounts set forth in the Summary
Compensation Table.
NON-QUALIFIED SUPPLEMENTAL RETIREMENT BENEFIT
During 1993 the Company established a Non-Qualified Supplemental Retirement
Program for certain of its officers, which was amended and restated effective as
of January 30, 1997 (hereafter, the "Program"). The Program provides that upon
normal retirement or termination not for cause, Company officers covered by the
Program will receive a monthly income of up to 50% of the average compensation
for the thirty-six months immediately prior to the date of retirement or
termination, less the amount of retirement benefits which the officer would
otherwise be entitled to under the Retirement Plan. The actual amount that the
participant would be entitled to receive is determined by the participant's
total number of years of service to the Company after December 21, 1991. The
Program further provides that upon the death of the participant, his or her
spouse would also be entitled to receive a monthly income equal to one-half of
the benefit which would otherwise be payable to the officer. Currently, Messrs.
Skaggs, Floyd, Painton, Melton, Hamilton, Rock and Sadler are participants in
the Program. The Program additionally provides that if any of the participants
are terminated without cause, they shall become immediately 100% vested in the
Program, and in the case of Messrs. Skaggs and Floyd, they may elect to receive
the benefits payable to them under the Program in a lump sum. Assuming the
individuals remain in the employ of the Company until their normal retirement
age, each of the following executives will receive an annuity, as described
above, which, on an actuarial basis, is equal to the following annual payments:
Mr. Skaggs, $465,487; Mr. Floyd, $166,014; Mr. Painton, $129,654; Mr. Melton,
$221,943; Mr. Hamilton, $117,638; Mr. Rock, $113,975; and Mr. Sadler, $116,142.
Dr. Straeter is eligible to receive benefits from the GDE Systems, Inc.
Supplemental Retirement Plan. This plan is designed to replace any pension
benefit lost to Dr. Straeter if his final average covered compensation is in
excess of the limitations for eligible compensation contained in Sections 415 or
401(a)17 of the Code. Assuming Dr. Straeter remains employed by the Company
until his normal retirement age, he will receive an annuity with an estimated
annual payment of $141,282.
Mr. Campbell is eligible to receive benefits from the Tracor Benefit
Restoration Plan. This plan, adopted October 1, 1996, is designed to replace any
pension benefit lost to Mr. Campbell if his final average monthly
44
<PAGE> 52
covered compensation is in excess of the limitations for eligible compensation
contained in Sections 415 or 401(a)17 of the Code. Assuming Mr. Campbell remains
with the Company until his normal retirement age, he will receive a lump sum
payment estimated to be $1,635,681.
Effective December 1, 1996, Tracor adopted the Tracor Deferred Compensation
Plan designed primarily to replace 401(k) Plan benefits lost due to Internal
Revenue Code limitations on employee deferrals and covered compensation used to
determine benefits from the qualified 401(k) Plan. For 1996 Matching
Contributions were credited in the amount of $6,612 to Mr. Skaggs, $1,756 to Mr.
Campbell, $2,036 to Mr. Floyd, $1,640 to Mr. Painton and $1,670 to Mr. Melton.
COMMITTEES OF THE BOARD
Audit/Ethics Committee. The Committee met three times in 1996. The duties
of the Audit/Ethics Committee are to:
a. recommend to the Board of Directors a firm of independent auditors to
perform the audit of the annual financial statements of the Company;
b. review with the independent auditors and with financial management the
proposed scope of the annual audit, past audit experience, the
Company's internal audit program, recently completed internal audits,
and other matters bearing upon the scope of the audit;
c. review with the independent auditors and with financial management
significant matters, revealed in the course of the audit of the annual
financial statements of the Company;
d. review on an annual basis the status of the Company's legal and
ethical operations and whether the Company's Ethics Policies have been
communicated by the Company to all key employees of the Company and
its subsidiaries;
e. review with financial management any suggestions and recommendations
of the independent auditors of the Company;
f. meet on a regular basis with a representative or representatives of
the Internal Audit Department of the Company and to review the
Internal Audit Department's Reports of Operations; and
g. report its activities and actions to the Board at least once each
fiscal year.
Members of the Audit/Ethics Committee are Anthony Grillo, Chairman, William
E. Conway and Thomas P. Stafford.
The independent auditors and Tracor's Internal Auditor have direct access
to the Committee and may discuss with it any matters which may arise in
connection with audits, the maintenance of internal accounting controls, or any
other matter relating to Tracor's financial affairs. Furthermore, the Committee
may authorize the independent auditors to investigate any matters which the
Committee deems appropriate and may present its recommendations and conclusions
to the Board.
Compensation/Stock Option Committee. The Committee met four times in 1996.
The duties of the Compensation/Stock Option Committee are to:
a. administer all Tracor stock option plans;
b. recommend policies dealing with compensation, position evaluations,
and personnel engagements, transfers and terminations, including the
Company's annual Incentive Program;
c. review and recommend major compensation plans;
d. recommend the Company's management development programs and
procedures;
e. approve and recommend to the Tracor Board compensation for corporate
officers; and
f. review the administration of the Tracor Retirement Plan.
45
<PAGE> 53
Members of the Compensation/Stock Option Committee are Julian Davidson,
Chairman, Bob Marbut, and Elvis L. Mason.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Executive Compensation Program is based on guiding principles
designed to align executive compensation with Company values and objectives,
business strategy, management initiative, and business financial performance. In
applying these principles, the Compensation/Stock Option Committee (the
"Committee") has established a program to: (a) attract and retain key executives
critical to the long-term success of the Company and each of its business
groups; (b) reward executives for long-term strategic management and enhancement
of shareholder values; (c) integrate compensation programs with both the
Company's annual and long-term strategic planning and measuring processes; and
(d) support a performance-oriented environment that rewards performance not only
with respect to Company goals but also Company performance as compared to that
of industry performance levels.
EXECUTIVE COMPENSATION PROGRAM
The total compensation program consists of both cash and equity based
compensation. The annual compensation consists of a base salary and an annual
incentive. The Committee determines the level of salary for key executive
officers and a salary range for other executive officers. Actual salary changes
are based upon performance and upon national industry salary surveys in related
industries, depending on the areas in which the particular executive is
employed, and supplemented by other surveys which were used to enhance the
analysis. These surveys cover essentially the same companies that are included
in the table comparing the cumulative total returns of the Company, set forth
below. The salary levels were targeted to the median of such surveys, with
variations based upon the experience of each officer and the complexity of his
particular responsibilities. In considering the salary increases from 1995 to
1996, the Committee also evaluated each executive's performance in several areas
including sales, profits, and bookings. Performance is considered in the
executive's area of responsibility as well as overall unit, division, subsidiary
or Tracor performance. Additional factors for evaluation include budgetary
controls, and key objectives for the individual and the organization.
Incentive Compensation Program. Effective in December 1991, the Company
adopted a performance incentive plan under which executive officers and other
high-level employees may receive compensation based on the achievement of
individual and Company objectives. Eligible participants include officers and
other key employees of the Company who are in a position to make substantial
contributions to the management, growth, and success of the Company. Payment of
an award is contingent upon the achievement of specified levels of earnings,
bookings, revenue, and cash generation of the Company or the employee's unit
("performance goals") each year based upon the annual operating plan of the
Company. A smaller portion of each person's incentive payment is based on
individual and direct organization goals such as increases in efficiency of the
executive's area of responsibility, adherence to budgetary plans, and
implementation of new operating procedures and programs. At the close of each
fiscal year, the performance of the operating unit in which the employee
participates is measured against the performance goals, division and company
performance is evaluated, and awards are issued. In the event the performance
goals are not achieved, the awards are reduced or eliminated entirely. If
performance goals are exceeded, which was the average case in 1996, the amount
of an award may be increased. In reviewing the performance of the named
executives for 1996, the Committee determined that each individual and Tracor
exceeded their respective goals for the year. Pursuant to awards made under this
plan for 1996, executive officers as a group received payments totalling
$1,749,151.19, and all employees as a group received payments totalling
$7,360,905.42.
Stock Plan. The Company adopted, in December 1991, the Stock Plan for
Employees of Tracor, Inc. and Subsidiaries (the "1991 Plan" or the "Stock Plan")
pursuant to which options to purchase common stock of the Company, stock
appreciation rights ("SARs") (rights, granted in tandem with an option (or
alone), to receive cash payments equal to any appreciation in value of the
shares subject to option from the date of the option grant to the date of
exercise in lieu of the exercise of an option), and/or shares of restricted
stock may be granted to officers and other key employees of the Company and its
subsidiaries. The plan is administered
46
<PAGE> 54
by the Company which has authority to determine the individuals to whom and the
terms pursuant to which grants shall be made. Per share option prices can be any
price, but typically are, and to date have exclusively been, not less than the
fair market value of the Company's common stock on the date of the option grant,
and the term of the options cannot exceed 10 years. In 1995 the Company adopted
a second plan, the 1995 Stock Plan for Employees of Tracor, Inc. and
subsidiaries (the "1995 Plan"). The 1995 Plan is identical in all material
respects to the 1991 Plan, except that outside directors participate in the 1995
Plan.
Under the Stock Plan, the Committee grants stock options, restricted
shares, and/or SARs based upon its review of surveys and publicly available
information relating to the amount and type of awards granted to executives in
the defense aerospace industry, as well as its review of each executive's
performance, evaluated as described above. In making the awards, the Committee
also considers the amount of grants currently held by each executive but not the
amount of shares currently held thereby, unless said holdings should be
unusually large, which to date, has not been the case. Through the award of
grants, the objective of aligning executive officers' long-range interests with
those of the shareholders are met by providing the executive officers with the
opportunity to build a meaningful stake in the Company.
CERTAIN TRANSACTIONS
On June 13, 1996, the Company consummated the acquisition (the "Westmark
Acquisition") of substantially all of the assets of Westmark Systems, Inc.
("Westmark"), which had the effect of simplifying the Company's capital
structure. The purchase consideration paid by Tracor to Westmark in the Westmark
Acquisition included 8,267,435 shares of Tracor common stock. Contemporaneously
with its acquisition of the shares of Tracor common stock, Westmark dissolved
and distributed all of such shares to its shareholders in a complete
liquidation. The principal assets of Westmark acquired by Tracor in the Westmark
Acquisition were 978,458 shares of Class A Common Stock of Tracor (the "Class A
Common Stock"), a Series B Warrant to purchase 5,249,428 shares of Tracor common
stock (the "Series B Warrant"), and a Series C Warrant to purchase 5,455,000
shares of Tracor common stock (the "Series C Warrant" and, together with the
Series B Warrant, the "Tracor Warrants"). The shares of the Class A Common Stock
and the Tracor Warrants were cancelled and will not be reissued.
RECENT DEVELOPMENTS
In addition to the Transactions described elsewhere in this Prospectus, on
February 12, 1997, the Board of Directors of the Company adopted a preferred
share purchase rights plan (the "Rights Plan"), exercisable only if a person or
group acquires 20% or more of Tracor's common stock or announces a tender offer
which would result in ownership by a person or group of 20% or more of Tracor's
common stock. The Rights Plan is designed to deter coercive or abusive
takeovers, and ensure fair and equal treatment of all shareholders in the event
of any proposed takeover of the Company. On June 13, 1996, the shareholders of
the Company approved an amendment to the Company's bylaws to classify the Board
of Directors into 3 classes of directors with staggered three-year terms. The
Rights Plan and the classification of the Board of Directors may have an effect
on the Change of Control provisions in the Indenture, to the extent that the
Rights Plan could make a Change of Control less likely to occur.
47
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 17, 1997, certain information
known to the Company with respect to the beneficial ownership (as defined in the
rules of the Commission) of common stock by all directors, the chief executive
officer and the other executive officers named in the Summary Compensation
Table, all directors and executive officers as a group, and any other person who
is known by the Company to be the beneficial owner of more than five percent of
common stock. No director beneficially owns directly or indirectly more than
5.7% of Tracor's common stock. All directors and executive officers as a group
beneficially own approximately 9.7% of Tracor's common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
DIRECTORS, EXECUTIVE OFFICERS ----------------------
AND 5% STOCKHOLDERS NUMBER PERCENT
----------------------------- --------- -------
<S> <C> <C>
Dr. Julian Davidson......................................... 6,000(1) *
1240 Deborah Dr., S.E.
Huntsville, AL 35801
Anthony Grillo.............................................. 16,000(2) *
358 Oxford Dr.
Short Hills, NJ 07078
Bob Marbut.................................................. 30,500(3) *
511 Argyle
San Antonio, TX 78209
Elvis L. Mason.............................................. 1,416,871(4) 5.7%
3716 Maplewood
Dallas, TX 75205
Lt. Gen. Thomas P. Stafford (Ret.).......................... 10,000(5) *
Coral Harbor Club
Unit C-44
88181 Old Highway-MM88
Islamorada, FL 33036
James B. Skaggs............................................. 287,849(6) 1.2%
6500 Tracor Lane
Austin, TX 78725
Barry G. Campbell........................................... 32,583(7) *
6500 Tracor Lane
Austin, TX 78725
Robert K. Floyd............................................. 68,911(8) *
6500 Tracor Lane
Austin, TX 78725
George R. Melton............................................ 63,400(9) *
6500 Tracor Lane
Austin, TX 78725
Dr. Terry A. Straeter....................................... 190,833(10) 1.4%
GDE Systems, Inc.
16550 West Bernado Drive
San Diego, CA 92127
William E. Conway........................................... 18,046(11) *
The Carlyle Group
1001 Pennsylvania Ave., N.W.
Suite 220 South
Washington, DC 20004
</TABLE>
48
<PAGE> 56
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
DIRECTORS, EXECUTIVE OFFICERS ----------------------
AND 5% STOCKHOLDERS NUMBER PERCENT
----------------------------- --------- -------
<S> <C> <C>
Gerald B. Unterman.......................................... 2,038,474(12) 8.0%
70 E. 55th Street
New York, NY 10022
Edward C. Johnson .......................................... 1,481,700(13) 6.0%
82 Devonshire Street
Boston, MA 02109
Warburg, Pincus Counsellors, Inc. .......................... 1,464,200 5.9%
446 Lexington Avenue
New York, NY 10017
All directors and executive officers as a group, including
those named above......................................... 2,454,616(14) 9.7%
</TABLE>
- ---------------
(1) 2,000 shares are held directly by Dr. Davidson; 4,000 shares are held
pursuant to stock options, none of which are currently exercisable.
(2) 12,000 shares are held directly by Mr. Grillo; 4,000 shares are held
pursuant to stock options, none of which are currently exercisable.
(3) 26,500 shares are held directly by Mr. Marbut; 4,000 shares are held
pursuant to stock options, none of which are currently exercisable.
(4) 6,000 shares of common stock are held directly by Mr. Mason. Mr. Mason is
the president of E. L. Mason Corporation, which is the general partner of
MB Partners, Ltd. ("MB Partners"), which is the general partner of the
Mason Best Company, L.P. ("Mason Best"). Mason Best directly owns 1,398,067
shares of common stock. Mr. Mason owns 50% of the general partner of Mason
Best, MB Partners; however, Mr. Mason holds 100% of the voting rights in
the general partner of Mason Best. In addition, Elvis L. Mason is the
managing partner of Mason Best. As a result, Mr. Mason may be deemed to
beneficially own 100% of the shares held by Mason Best. MB Partners
directly owns 8,804 shares of common stock, and Mr. Mason owns 100% of E.L.
Mason Corporation, which is the general partner of MB Partners, and may be
deemed to beneficially own 100% of the shares held by MB Partners; 4,000
shares are held pursuant to stock options, none of which are currently
exercisable.
(5) 4,000 shares are held directly by Lt. Gen. Stafford; 4,000 shares are held
pursuant to stock options, none of which are currently exercisable.
(6) 250,520 shares are held pursuant to currently exercisable stock options. In
addition, 5,000 shares are held pursuant to Series A Warrants which are
convertible into common stock, and 32,329 shares are held directly.
(7) 1,583 shares are held directly, and 31,000 shares are held pursuant to
currently exercisable stock options.
(8) 3,411 shares are held directly and 64,500 shares are held pursuant to
currently exercisable stock options. In addition, 1,000 shares are held
pursuant to Series A Warrants which are convertible into common stock.
(9) 9,800 shares are held directly, and 53,600 shares are pursuant to currently
exercisable stock options.
(10) 18,000 shares are owned directly by Dr. Straeter and 160,333 shares are
held by a family trust over which Dr. Straeter has control. In addition,
7,500 shares are held pursuant to currently exercisable stock options and
5,000 shares are issuable upon exercise of Series A Warrants.
(11) 14,046 shares are held directly, 4,000 shares are held pursuant to stock
options, none of which are currently exercisable.
(12) GBU, Inc. is the sole general partner of Oak Tree Partners, L.P. and GEM
Convertible Securities Partners, L.P. GBU beneficially owns 1,177,599
shares of the common stock of the Company (which are directly owned by Oak
Tree Partners, L.P.) and 152,500 Series A Warrants (which are directly
owned by GEM Convertible Securities Partners, L.P.) to purchase Tracor's
common stock.
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Mr. Unterman is the president, majority shareholder and a director of GBU,
Inc. He is also the president, sole shareholder and a director of GEM
Capital Management, Inc. GEM Capital Management, Inc. is a registered
investment advisor whose accounts own 60,001 shares of Tracor's common
stock which Mr. Unterman may be deemed to beneficially own. Mr. Unterman is
the trustee of a profit sharing plan which owns 34,000 shares of Tracor's
common stock. In addition, Mr. Unterman owns directly 100,000 shares of
Tracor common stock and 514,375 Series A Warrants.
With respect to the 1,177,599 shares owned by Oak Tree Partners, L.P., GBU
owns a 9.9% interest in that partnership and Mr. Unterman owns 83% of GBU,
Inc. Therefore, Mr. Unterman claims beneficial ownership of only 97,740 of
those shares.
With respect to the 152,500 shares which may be acquired upon the exercise
of the 152,500 Series A Warrants owned by GEM Convertible Securities
Partners, L.P., GBU, Inc. owns a 1% interest in that partnership, and Mr.
Unterman owns 83% of GBU, Inc. Therefore, Mr. Unterman claims beneficial
ownership of only 1,266 of those shares.
(13) Mr. Johnson is the Chairman of FMR Corp. which beneficially owns 1,481,700
shares of Tracor's common stock. Fidelity Management and Research Company,
a wholly owned subsidiary of FMR Corp, is the beneficial owner of 1,396,700
shares of Tracor's common stock. Mr. Johnson through his contact of
Fidelity Management and Research Company has disposition power over
1,396,700 shares. Each of Mr. Johnson and FMR Corp., through their control
of Fidelity Management Trust Company, has sole dispositive power over
85,000 shares and sole power to vote or to direct the voting of 82,300
shares, and no power to vote or to direct the voting of 2,700 shares of
Tracor's common stock.
(14) Includes shares subject to outstanding warrants and options held by
directors and officers.
* Represents less than one percent.
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DESCRIPTION OF NEW BANK CREDIT FACILITY
On March 14, 1997, Tracor entered into a new senior secured credit
agreement with a group of banks (the "New Bank Credit Facility"), The New Bank
Credit Facility consists of a $200 million revolving loan ("Revolving Loan").
The Revolving Loan is evidenced by notes maturing on the fifth anniversary
of the closing of the New Bank Credit Facility. Availability under the Revolving
Loan will reduce by $25 million and $50 million, respectively on the third and
fourth anniversaries of the closing of the New Bank Credit Facility.
Mandatory reductions of outstanding principal amounts under the New Bank
Credit Facility are required upon the occurrence of certain events.
All outstanding loans under the New Bank Credit Facility will bear interest
at Tracor's option at the base rate in effect from time to time plus a specified
percentage ranging from 0% to .75% based on the Company's degree of leverage or
the eurodollar rate plus a specified percentage ranging from 1.75% to .625%
based upon the Company's degree of leverage. Interest in respect of eurodollar
loans will be payable at the end of the applicable interest period and every
three months in the case of interest periods in excess of three months.
Tracor's obligations under the New Bank Credit Facility are guaranteed by
certain domestic, wholly-owned subsidiaries of Tracor and are secured by a
pledge of the stock of all of Tracor's wholly-owned subsidiaries. All collateral
other than the stock of Tracor's subsidiaries that secures Tracor's existing
senior secured credit facility was released on closing of the New Bank Credit
Facility. The stock pledge that secures the New Bank Credit Facility will be
released in the event that the Notes achieve a rating of BB- or better from
Standard & Poor's Ratings Services or Ba3 or better from Moody's Investors
Service.
The New Bank Credit Facility contains customary covenants restricting the
incurrence of debt and encumbrances on or sales of assets, limiting mergers and
acquisitions and restricting dividends, investments and change of control,
providing for the maintenance of certain financial ratios and various other
financial covenants and restrictions.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on the Issue Date to the
Initial Purchasers pursuant to a Purchase Agreement dated February 28, 1997 (the
"Purchase Agreement"). As a condition to the sale of the Original Notes, the
Company and the Initial Purchasers entered into the Registration Rights
Agreement on the Issue Date. Pursuant to the Registration Rights Agreement, the
Company agreed that, unless the Exchange Offer is not permitted by applicable
law or Commission policy, it would (i) file with the Commission a Registration
Statement under the Securities Act with respect to the Exchange Notes within 45
days after the Issue Date, (ii) use its best efforts to cause such Registration
Statement to become effective under the Securities Act within 90 days after such
filing deadline and (iii) upon effectiveness of the Registration Statement,
commence the Exchange Offer, maintain the effectiveness of the Registration
Statement for at least 20 business days (or a longer period if required by law)
and deliver to the Exchange Agent Exchange Notes in the same aggregate principal
amount at maturity as the Original Notes that were tendered by holders thereof
pursuant to the Exchange Offer. Under existing Commission interpretations, the
Exchange Notes would in general be freely transferable after the Exchange Offer
without further registration under the Securities Act; provided, that in the
case of broker-dealers, a prospectus meeting the requirements of the Securities
Act must be delivered as required. The Company has agreed to make available a
prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any resale of any such Exchange Notes acquired as
described below for such period as such broker-dealers must comply with such
requirements. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act, and will be bound by the Registration
Rights Agreement (including certain indemnification rights and obligations). A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Registration
Statement of which this Prospectus is a part is intended to satisfy certain of
the Company's obligations under the Registration Rights Agreement and the
Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges the Original Notes for the Exchange
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement with any person to participate, in
the distribution of the Exchange Notes, will be allowed to resell the Exchange
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Exchange Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires the Exchange Notes in the Exchange Offer for the purposes of
distributing or participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Original Notes, where such
Original 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. 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 Original Notes where
such Original Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make
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this Prospectus, as it may be amended or supplemented from time to time,
available to broker-dealers for use in connection with any resale for a period
of 180 days after the Expiration Date. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Original
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Original Notes surrendered pursuant
to the Exchange Offer. Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the exchange will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
their transfer and (ii) holders of the Exchange Notes will not be entitled to
the certain rights of holders of Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Original Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture, which also authorized the issuance of the Original Notes,
such that all outstanding Notes will be treated as a single class of debt
securities under the Indenture.
As of the date of this Prospectus, $250.0 million aggregate principal
amount of the Original Notes are outstanding and registered in the name of Cede
& Co., as nominee for the Depository Trust Company (the "Depositary"). Only a
registered holder of the Original Notes (or such holder's legal representative
or attorney-in-fact) as reflected on the records of the Trustee under the
Indenture may participate in the Exchange Offer. There will be no fixed record
date for determining registered holders of the Original Notes entitled to
participate in the Exchange Offer.
Holders of the Original Notes do not have any appraisal or dissenter's
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to 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 " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on May
16, 1997 unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) will mail to the
registered holders of Original Notes an announcement thereof, (iii) will issue a
press release or other public announcement which shall include disclosure of the
approximate number of Original Notes deposited to date, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which the Company may choose to
make a public announcement of any delay, extension, amendment or termination of
the Exchange Offer, the Company shall have no obligation to publish, advertise
or otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
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The Company reserves the right, in its sole direction, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, or (iii) if any
conditions set forth below under " -- Certain Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders of Original Notes, and the Company will extend the
Exchange Offer for a period of five to 10 business days, depending upon the
significance of the amendment and the manner of disclosure to such registered
holders, if the Exchange Offer would otherwise expire during such five to 10
business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes bear interest at a rate equal to 8 1/2% per annum.
Interest on the Exchange Notes is payable semi-annually on each March 1 and
September 1, commencing on the first such date following their date of issuance.
Holders of Exchange Notes will receive interest on September 1, 1997 from the
date of initial issuance of the Original Notes. Holders of Original Notes that
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Original Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or 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 to the
Exchange Agent at the address set forth below under " -- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Notes, if such procedure is available, into
the Exchange Agent's account at the Depositary pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below.
The tender by a holder which is not withdrawn prior to the Expiration Date
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.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner(s) of the Original Notes whose Original Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Notes in such owner's name (to the
extent permitted by the Indenture) or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see " -- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Original Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "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 made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, such Original Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original 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
Original Notes not properly tendered or any Original Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular 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 Original Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Original Notes, neither the Company, the Exchange Agent
nor any other person shall incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived.
While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under " -- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Original Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale
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transaction described in clause (iii) above and any resales of Exchange Notes
obtained by such holder in exchange for Original Notes acquired by such holder
directly from the Company should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the Commission, and (v) the
holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of
the Company. If the holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Original Notes that were acquired as a
result of market-making activities or other trading activities, the holder is
required to acknowledge in the Letter of Transmittal 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 holder will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
RETURN OF NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depositary pursuant to the book-entry transfer procedures
described below, such Original Notes will be credited to an account maintained
with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Original Notes by causing the Depositary to transfer such
Original Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Original Notes may be effected through book-entry transfer at the Depositary,
the Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Notes and
the principal amount of Original Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof) together with the certificate(s) representing the
Original 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
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Original
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
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Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Original Notes), and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Original Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Original Notes so withdrawn are validly retendered. Properly withdrawn Notes
may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability
of the Company to proceed with the Exchange Offer or have a material
adverse effect on the contemplated benefits of the Exchange Offer to the
Company or there shall have occurred any material adverse development in
any existing action or proceeding with respect to the Company or any of its
subsidiaries; or
(b) there shall have been any material change, or development
involving a prospective change, in the business or financial affairs of the
Company or any of its subsidiaries which, in the reasonable judgment of the
Company, would materially impair the contemplated benefits of the Exchange
Offer to the Company; or
(c) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the reasonable judgment of the
Company, might materially impair the ability of the Company to proceed with
the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(d) any governmental approval which the Company shall, in its
reasonable discretion, deem necessary for the consummation of the Exchange
Offer as contemplated hereby has not been obtained.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Original Notes (see "-- Withdrawal of Tenders"), or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Original Notes, and the Company
will
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extend the Exchange Offer for a period of five to 10 business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to 10 business day period.
Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the company fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's sole discretion. The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
PRIVATE EXCHANGE NOTES
If, upon consummation of the Exchange Offer, any Initial Purchaser (as
defined in the Registration Rights Agreement) holds any Original Notes acquired
by it and having the status of an unsold allotment in the initial distribution,
the Company upon the request of any such Initial Purchaser shall, simultaneously
with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver
to such Initial Purchaser, in exchange for the Notes held by such Initial
Purchaser, a like principal amount of debt securities of the Company that are
identical in all material respects to the Exchange Notes except for the
existence of restrictions on transfer thereof under the Securities Act and state
securities laws (the "Private Exchange Notes"). Interest on the Private Exchange
Notes will accrue from the last interest payment date on which interest was paid
on the Original Notes surrendered in exchange therefor or, if no interest has
been paid on the Notes, from the Issue Date.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Original Notes eligible to participate in this
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Note, the information required by Rule 144(d)(4) under the Securities
Act in order to permit resales of such Original Notes pursuant to Rule 144A,
(iii) to use its best efforts to keep the Registration Statement effective to
the extend necessary to ensure that it is available for resales of
transfer-restricted Notes by broker-dealers for a period of 180 days from the
date on which the Registration Statement is declared effective, and (iv) to
provide copies of the latest version of the Prospectus to broker-dealers upon
their request for a period of 180 days from the date on which the Registration
Statement is declared effective.
LIQUIDATED DAMAGES
In the event of a failure to file, or to become effective, one or more
registration statements as provided by the Registration Rights Agreement, the
Company has agreed to pay, as liquidated damages, additional interest on
Original Notes ("Additional Interest") under the circumstances and to the extent
set forth below (each of which is given independent effect). The following
description of Section 4 of the Registration Rights Agreement is qualified in
its entirety by the provisions of the Registration Rights Agreement, which has
been filed as an exhibit to the Registration Statement of which the Prospectus
is a part.
(1) If neither the Registration Statement of which this Prospectus is
a part (the "Exchange Registration Statement") nor the Shelf Registration
(as defined in the Registration Rights Agreement) has been filed on or
prior to April 28, 1997 (the "Filing Date"), then commencing on the day
after the Filing Date, Additional Interest shall accrue on the Original
Notes over and above the stated interest at a rate of 0.50% per annum for
the first 90 days immediately following the Filing Date, such Additional
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Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 90-day period;
(2) If neither the Exchange Registration Statement nor the Shelf
Registration is declared effective on or prior to the Effectiveness Date
applicable thereto (which, in the case of the Exchange Registration
Statement, is 90 days after the Filing Date), then commencing on the day
after such Effectiveness Date, Additional Interest shall accrue on the
Original Notes over and above the stated interest at a rate of 0.50% per
annum for the first 90 days immediately following the day after such
Effectiveness Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period; and
(3) If (i) the Company has not exchanged Exchange Notes for all
Original Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to 60 days after the date on which the Exchange
Registration Statement was declared effective, or (ii) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of its effective date, then Additional Interest shall
accrue on the Original Notes over and above the stated interest at a rate
of 0.50% per annum for the first 90 days commencing on the (x) 60th day
after such effective date in the case of (i) above or (y) the day such
Exchange Registration Statement or Shelf Registration Statement ceases to
be effective in the case of (ii) and (iii) above, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Original Notes may
not exceed in the aggregate 1.50% per annum; provided further that (A) upon the
filing of the Exchange Registration Statement or the Shelf Registration
Statement (in the case of (1) above), (B) upon the effectiveness of the Exchange
Registration Statement or the Initial Shelf Registration, as the case may be (in
the case of (2) above), or (C) upon the exchange of the Exchange Notes for all
Original Notes tendered (in the case of (3)(i) above) or upon the effectiveness
of the Shelf Registration Statement which had ceased to remain effective (in the
case of (3)(ii) above), Additional Interest on any Original Notes then accruing
Additional Interest as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
The company shall notify the Trustee immediately upon the happening of each
and every event occurs in respect of which Additional Interest is required to be
paid. Any amounts of Additional Interest due pursuant to (1), (2), or (3) as
stated above in this section will be payable in cash semi-annually on each
regular interest payment date specified in the Indenture, commencing with the
first such regular interest payment date occurring after any such Additional
Interest commences to accrue.
EXCHANGE AGENT
U.S. Trust Company of Texas, N.A. has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
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<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand Delivery:
U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A.
P.O. Box 841 111 Broadway, Lower Level
Cooper Station New York, New York 10006-1906
New York, New York 10276-0841 Attention: Corporate Trust
Attention: Corporate Trust
By Overnight Delivery: By Facsimile:
U.S. Trust Company of Texas, N.A. (212) 420-6504
770 Broadway, 13th Floor Attention: Corporate Trust
New York, New York 10003-9598 Confirm by Telephone:
Attention: Corporate Trust (212) 420-6624
</TABLE>
FEES AND EXPENSES
All fees and expenses incident to compliance with the Registration Rights
Agreement regarding this Exchange Offer shall be borne by the Company whether or
not the Exchange Offer or a Shelf Registration becomes effective.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$125,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the Notes pursuant to 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 taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Original Notes which are not exchanged for the Exchange Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such Notes
may be resold only (i) to a person whom the seller reasonably believes is a
qualified institutional buyer (as defined in Rule 144A under the Securities Act)
in a transaction meeting the requirements of Rule 144A, (ii) in a transaction
meeting the requirements of Rule 144 under the Securities Act, (iii) outside the
United States to a foreign person in a transaction meeting the requirements of
Rule 904 under the Securities Act, (iv) in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Company so requests), (v) to the Company, or (vi)
pursuant to an effective registration statement and, in each case, in accordance
with any applicable securities laws of any state of the United States or any
other applicable jurisdiction.
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ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
The Original Notes were issued, and the Exchange Notes are issuable, under
the Indenture dated as of March 14, 1997, between the Company and U.S. Trust
Company of Texas, N.A., as Trustee (the "Trustee"), a copy of the form of which
has been filed as an exhibit to the Registration Statement. The form and terms
of the Exchange Notes will be identical in all material respects to the form and
terms of the Original Notes, except that the Exchange Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting transfer thereof. The Exchange Notes and the Original Notes are
deemed the same class of notes under the Indenture and are both entitled to the
benefits thereof. The following summaries of certain provisions of the Indenture
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. Whenever particular Sections or defined terms of the Indenture not
otherwise defined herein are referred to, such Sections or defined terms are
incorporated herein by reference.
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DESCRIPTION OF NOTES
GENERAL
The Original Notes are and the Exchange Notes will be unsecured senior
subordinated obligations of the Company, are guaranteed on a senior subordinated
unsecured basis by the Subsidiary Guarantors, are limited to $350,000,000
aggregate principal amount, of which $250,000,000 aggregate principal amount
will be issued following the Exchange Offer, and will mature on March 1, 2007.
Additional amounts may be issued in one or more series from time to time subject
to the limitations set forth under "-- Certain Covenants -- Limitation on
Indebtedness" and the restrictions contained in the New Bank Credit Facility.
The Original Notes are and the Exchange Notes will be subordinated to Senior
Indebtedness of the Company as described below under "-- Subordination."
TERMS OF NOTES
The Notes will mature on March 1, 2007, and will bear interest at the rate
per annum stated on the cover page hereof from the date of issuance, payable
semiannually in arrears on each March 1 and September 1 commencing on September
1, 1997, to the persons who are registered holders thereof at the close of
business on the February 15 or August 15 preceding the applicable interest
payment date. The Notes will be payable both as to principal and interest at the
office of the agent of the Company maintained for such purpose within the City
and State of New York, or, at the option of the Company, payment of interest may
be made by check mailed to the holders of the Notes at their respective
addresses set forth in the Notes holder register. Unless otherwise designated by
the Company, the company's agent in New York will be at the office of the
Trustee maintained for such purpose. Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months. The Notes will be
transferable and exchangeable at the offices of the Registrar. The Notes will be
issued in fully registered form, without coupons, in principal amounts of $1,000
and any integral multiple thereof. See "Book Entry; Delivery and Form."
OPTIONAL REDEMPTION
Except as provided below, the Notes may not be redeemed prior to March 1,
2002. On or after such date, the Notes may be redeemed at the option of the
Company, at any time as a whole, or from time to time in part, on not less than
30 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount), plus accrued and unpaid interest (if any)
to the date of redemption (subject to the rights of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing March 1, 2002:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
----------
<S> <C>
2002.................................... 104.250%
2003.................................... 102.833%
2004.................................... 101.417%
2005 and thereafter..................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to March 1, 2000, the
Company may redeem, in part and from time to time, with the net proceeds of one
or more Public Equity Offerings, up to $87.5 million aggregate principal amount
of the Notes at a redemption price equal to 108.500% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon, if any, to the
redemption date; provided that at least 65% of the aggregate principal amount of
the Notes originally issued remains outstanding immediately after the occurrence
of any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 90 days after the consummation of any such Public Equity Offering.
At any time on or prior to March 1, 2002, the Notes may also be redeemed as
a whole at the option of the Company upon the occurrence of a Change of Control,
upon not less than 30 nor more than 60 days prior notice (but in no event more
than 90 days after the occurrence of such Change of Control) mailed by first-
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class mail to each holder's registered address, at a redemption price equal to
100% of the principal amount thereof plus the Applicable Premium as of, and
accrued and unpaid interest, if any, to, the date of redemption (the "Redemption
Date") (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
NOTICES AND SELECTIONS
In the event of a redemption of less than all of the Notes, the Notes will
be selected for redemption by the Trustee pro rata, by lot or by any other
method that the Trustee considers fair and appropriate and, if the Notes are
listed on any securities exchange, by a method that complies with the
requirements of such exchange. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at such holder's registered address. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption (unless the Company shall default in the payment of the
redemption price or accrued interest). Notes that are redeemed by the Company or
that are purchased by the Company pursuant to a Net Proceeds Offer as described
under "-- Limitation on Assets Sales" or pursuant to a Change of Control Offer
as described under "-- Change of Control" or that are otherwise acquired by the
Company will be surrendered to the Trustee for cancellation.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full, in cash or Cash Equivalents, of all
Obligations on the Senior Indebtedness. Upon any payment or distribution of
assets of the Company to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors or marshaling of
assets of the Company, or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
whether voluntary or involuntary, all Obligations with respect to all Senior
Indebtedness shall first be paid in full, in cash or Cash Equivalents, before
any payment or distribution of any kind or character, whether in cash, property,
or securities is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise; and until all
such Obligations with respect to all Senior Indebtedness are paid in full, in
cash or Cash Equivalents, any distribution to which the holders of the Notes
would be entitled but for the subordination provisions will be made to the
holders of Senior Indebtedness as their interests may appear. If (i) any default
occurs and is continuing in the payment when due, whether at maturity, upon any
redemption, by declaration or otherwise, of any principal of, interest on, or
other amounts due and owing on, any Senior Indebtedness or (ii) any default
occurs and is continuing with respect to any Senior Indebtedness resulting in
the acceleration of the maturity of all or any portion of such Senior
Indebtedness, no payment shall be made by or on behalf of the Company or any of
its Subsidiaries or any other person on its or their behalf with respect to any
Obligations on the Notes or to acquire any of the Notes for cash or property or
otherwise. In addition, if any other event of default occurs and is continuing
(or if such an event of default would occur upon any payment with respect to the
Notes) with respect to the Designated Senior Indebtedness, as such event of
default is defined in the instrument creating or evidencing such Designated
Senior Indebtedness permitting the holders of such Designated Senior
Indebtedness then outstanding, or their Representative, to accelerate the
maturity thereof and if the Representative for the Designated Senior
Indebtedness gives written notice of the event of default to the Trustee (a
"Default Notice"), then, unless and until the date, if any, on which all
Designated Senior Indebtedness to which such event of default relates is
discharged or the Representative for the Designated Senior Indebtedness gives
notice that all events of default have been cured or waived or have ceased to
exist or the Trustee receives written notice from the Representative for the
Designated Senior Indebtedness terminating the Blockage Period (as defined
below), during the 179 days after the delivery of such Default Notice (the
"Blockage Period"), none of the Company or any of its Subsidiaries or any other
person on its or their behalf shall (x) make any payment with respect to any
Obligations on the Notes or (y) acquire any of the Notes for cash or property or
otherwise. Notwithstanding anything herein to the contrary, in no event will a
Blockage Period extend beyond 179 days from the date the payment on the Notes
was due. Only one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was continuing (it being
acknowledged that any action of the Company or its Subsidiaries occurring
subsequent to delivery of a Default Notice that would give rise to any event of
default pursuant to any provision under which an event of default
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<PAGE> 71
previously existed (or was continuing at the time of delivery of such Default
Notice) shall constitute a new event of default for this purpose) on the date of
the commencement of any Blockage Period with respect to the Designated Senior
Indebtedness shall be, or be made, the basis for the commencement of a second
Blockage Period by the Representative of the Designated Senior Indebtedness
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
At December 31, 1996 after giving effect to the Transactions, the pro forma
aggregate amount of Senior Indebtedness outstanding would have been
approximately $104.7 million (including $32.1 million of issued but undrawn
letters of credit and $31.5 million of fully cash collateralized promissory
notes payable issued in conjunction with the acquisition of Cordant).
CHANGE OF CONTROL
Upon a Change of Control, each holder of Notes shall have the right to
require that the Company repurchase all or a portion of such holder's Notes at a
repurchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to any Repurchase Date (subject to the
rights of the holders of record on the relevant record date to receive interest
on the relevant interest payment date), in accordance with the terms set forth
below (the "Change of Control Offer").
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be not earlier than 30 days nor later than 60 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day prior to the Change of Control Payment Date.
The Indenture requires that if the New Bank Credit Facility is in effect,
or any amounts are owing thereunder, at the time of the occurrence of a Change
of Control, prior to the mailing of the notice to holders described in the
preceding paragraph, but in any event within 30 days following any Change of
Control, the Company covenants to (i) repay in full all Obligations under the
New Bank Credit Facility and terminate all commitments thereunder or offer to
repay in full all Obligations under the New Bank Credit Facility and terminate
all commitments thereunder and repay the Obligations under the New Bank Credit
Facility and terminate all commitments thereunder of each lender who has
accepted such offer or (ii) obtain the requisite consent under the New Bank
Credit Facility to permit the repurchase of the Notes as described above. The
Company must first comply with the covenant described in the preceding sentence
before it shall be required to purchase Notes in the event of a Change of
Control; provided that the Company's failure to comply with the covenant
described in the preceding sentence constitutes an Event of Default described in
clause (c) under "Events of Default" below if not cured within 30 days after the
notice required by such clause. As a result of the foregoing, a holder of the
Notes may not be able to compel the Company to purchase the Notes unless the
Company is able at the time to refinance all of the New Bank Credit Facility or
obtain requisite consents under the New Bank Credit Facility. Failure by the
Company to make a Change of Control Offer when required by the Indenture
constitutes a Default under the Indenture and, if not cured within 30 days after
notice, constitutes an Event of Default.
The Company will comply with all applicable securities laws in connection
with any Change of Control Offer, including Rule 14e-1 under the Exchange Act.
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CERTAIN COVENANTS
Limitation on Indebtedness
The Company may not create, incur, issue, assume, guarantee or otherwise
become liable for, contingently or otherwise (collectively, "issue"), directly
or indirectly, any Indebtedness, and will not permit any Restricted Subsidiary
to issue, directly or indirectly, any Indebtedness, provided that the Company or
a Restricted Subsidiary may issue Indebtedness if the Operating Coverage Ratio
of the Company exceeds 2.25 to 1.0.
The above limitation will not apply to the issuance of the following
Indebtedness: (a) Indebtedness pursuant to the New Bank Credit Facility in an
aggregate principal amount not to exceed $200 million at any time outstanding;
(b) the Notes and the Guarantees; (c) Indebtedness owed to the Company or a
Restricted Subsidiary by the Company or a Restricted Subsidiary; provided,
however, that any transfer of such Indebtedness (excluding a pledge or other
transfer thereof intended to create a security interest therein, but including
any enforcement thereof other than an enforcement that results in the repayment
of an obligation permitted by the terms of this covenant) to a person other than
the Company or a Restricted Subsidiary will be deemed for the purposes of this
covenant to constitute, in each case, the issuance of such Indebtedness by the
issuer thereof; (d) Indebtedness of the Company or any Subsidiary (other than
Indebtedness described in clause (a), (b) or (c) above) outstanding as of the
Issue Date; (e) Indebtedness issued in exchange for, or the proceeds of which
are used to refinance, extend, renew, substitute, replace or refund or pay at
maturity (including any mandatory sinking fund payment) any Indebtedness issued
pursuant to clauses (b) and (d) above and (j) below (the "Refinancing
Indebtedness"); provided that (1) the principal amount of such Refinancing
Indebtedness (or, if such Indebtedness is issued with original issue discount,
the amount equal to the original issue price of such Indebtedness plus
accretion, if any) shall not exceed the principal amount and accrued interest of
the Indebtedness so refinanced, (2) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life of Maturity of either (x) the Indebtedness being refinanced or (y) the
Notes, (3) if the Indebtedness being refinanced is subordinate in right of
payment to the Notes or any Guarantee, the Refinancing Indebtedness shall be
subordinated in right of payment to the Notes or any Guarantee, on terms at
least as favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness being refinanced, if any; and (4) if
the Indebtedness to be refinanced is Indebtedness of the Company, such
Refinancing Indebtedness will only be permitted by this clause (e) if it is
Indebtedness of the Company or a Restricted Subsidiary that has executed a
Guarantee; (f) Indebtedness incurred by the Company or any Restricted Subsidiary
under Hedging Obligations, provided that (x) in the case of an Interest Rate
Agreement, the notional principal amount thereof does not exceed the principal
amount of the Indebtedness to which such Interest Rate Agreement relates and (y)
in the case of a Currency Agreement, such Currency Agreement does not increase
the Indebtedness of the Company and its Subsidiaries other than as a result of
fluctuations in foreign currency exchange or by reason of fees, indemnities and
compensation payable thereunder; (g) Indebtedness incurred by the Company or any
Restricted Subsidiary under performance bonds, letter of credit obligations to
provide security for worker's compensation claims, payment obligations in
connection with self-insurance or similar requirements and bank overdrafts
incurred in the ordinary course of business, provided that any Obligations
arising in connection with such bank overdraft Indebtedness is extinguished
within five business days; (h) Indebtedness incurred by the Company or any
Restricted Subsidiary and arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, from guarantees or letters
of credit, surety bonds or performance bonds securing any Obligations of the
Company or any Restricted Subsidiary pursuant to such agreements, in any case
incurred in connection with the disposition of any business, assets or
Restricted Subsidiary other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition, in a principal amount
not to exceed the gross proceeds (with proceeds other than cash or Cash
Equivalents being valued at the fair market value thereof as determined by the
Board of Directors of the Company in good faith) actually received by the
Company or any Restricted Subsidiary in connection with such dispositions; (i)
Indebtedness of the Company in an aggregate principal amount not to exceed $5
million at any time outstanding in connection with the purchase, redemption,
acquisition, cancellation or other
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retirement for value of shares of Capital Stock of the Company or any
corporation of which the Company is a Subsidiary, options on any such shares or
related stock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates) and which were issued pursuant to any stock option or other
equity incentive plan, upon death, disability, retirement, termination of
employment or pursuant to the terms of such stock option or other equity
incentive plan or any other agreement under which such shares of capital stock,
options, related rights or similarly securities were issued; provided that (1)
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made subordinate in
right of payment of the Notes at least to the extent that the Notes are
subordinated in right of payment to Senior Indebtedness, (2) such Indebtedness,
by its terms or by the terms of any agreement or instrument pursuant to which
such Indebtedness is issued, provides that no payments of principal of such
Indebtedness by way of sinking fund, mandatory redemption or otherwise
(including defeasance) may be made at any time prior to one year after the
stated maturity of the Notes; (j) Acquired Indebtedness that is without recourse
to the Company or any of its Restricted Subsidiaries or any of their respective
assets (other than the Subsidiary acquired subject to such Acquired Indebtedness
and its assets), and is not guaranteed by any such person; provided that after
giving pro forma effect to the incurrence thereof, the Company could incur at
least $1.00 of Indebtedness under the first paragraph of this "Limitation on
Indebtedness" covenant; and (k) additional Indebtedness (including Capitalized
Lease Obligations and Purchase Money Indebtedness) of the Company and Restricted
Subsidiaries, which may, but need not be incurred in whole or in part under the
New Bank Credit Facility, in an aggregate principal amount not to exceed $30
million at any time outstanding. Notwithstanding any other provision of this
covenant, a guarantee by a Subsidiary Guarantor or the Company of Indebtedness
incurred in accordance with the terms of the Indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
Limitation on Additional Senior Subordinated Debt
Neither the Company nor any Subsidiary Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
expressly by its terms subordinate or junior in right of payment to any
Indebtedness of such person and senior in any respect of payment to the Notes or
the Guarantee of such Subsidiary Guarantor, as the case may be.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly (i) declare or pay any dividend or make any distribution
in either case on account of the Company's Capital Stock or to the holders of
the Company's Capital Stock (except dividends or distributions payable in the
Company's Capital Stock), (ii) purchase, redeem or otherwise acquire or retire
for value any Capital Stock (including any option or warrant to purchase Capital
Stock) of the Company, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations, or (iv) make any
Investment other than a Permitted Investment (any such dividends distribution,
payment, purchase, redemption, defeasance, other acquisition or retirement or
Investment being hereinafter referred to as a "Restricted Payment") if at the
time the Company or such Restricted Subsidiary makes such Restricted Payment:
(a) a Default or an Event of Default has occurred and is continuing (or would
result therefrom); (b) the Company is not able to incur $1.00 of additional
Indebtedness under the first paragraph of the covenant described under
"-- Limitation on Indebtedness"; or (c) the aggregate amount of such Restricted
Payment and all other Restricted Payments made subsequent to the Issue Date
would exceed the sum of (A) the aggregate Net Cash Proceeds received by the
Company from any equity offering of the Qualified Capital Stock of the Company,
or of any entity of which the Company is a direct or indirect Subsidiary, to the
extent the proceeds thereof shall have been contributed to the Company, and the
amount of any other capital contributions received by the Company in cash
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date"), (B) 50% of the cumulative Consolidated Net Income
of the Company subsequent to the Issue Date and on or prior to the Reference
Date or minus 100% of any cumulative deficit in Consolidated Net Income during
such period, (C) to the extent that any Investment (other than a Permitted
Investment) that was made after the Issue
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Date is sold for cash or otherwise liquidated or repaid for cash, or any
Unrestricted Subsidiary which is designated as an Unrestricted Subsidiary
subsequent to the Issue Date is sold or liquidated for cash, the lesser of (1)
the cash return of capital with respect to such Investment (less the cost of
disposition, if any) and (2) the initial amount of such Investment, and (D) $5
million.
Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing as a consequence thereof, the provisions set forth in
the immediately preceding paragraph will not prevent (i) the declaration and
payment of any dividends paid within 60 days after the date of declaration
thereof if, at such date of declaration, such dividend would have complied with
this covenant, (ii) any purchase or redemption of Capital Stock or any
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Qualified Capital Stock of the
Company (other than Capital Stock issued or sold to a Restricted Subsidiary),
(iii) the repurchase, redemption or other repayment of any Subordinated
Obligations in exchange for or solely out of the proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary) of Subordinated
Obligations with a Weighted Average Life to Maturity equal to or greater than
the then remaining Weighted Average Life to Maturity of either (x) the
Subordinated Obligations repurchased, redeemed or repaid or (y) the Notes, (iv)
any payment by the Company or any Subsidiary (a) in connection with repurchases
of outstanding shares of common stock or equity appreciation rights of the
Company following the death, disability or termination of employment of members
of management, and (b) of amounts required to be paid by the Company or any of
its Subsidiaries to participants in employee benefit plans upon termination of
employment by such participants, as provided in the documents related thereto,
in an aggregate amount (for both clauses (a) and (b)) not to exceed $5 million
in any fiscal year (provided that any unused amounts may be carried over to any
subsequent fiscal year subject to a maximum amount of $10 million in any fiscal
year), (v) Investments that are not Permitted Investments made by the Company or
any Restricted Subsidiary after the Issue Date in an aggregate amount not to
exceed $15 million, and (vi) Investments in securities not constituting cash or
Cash Equivalents and received in connection with an Asset Sale made pursuant to
the provisions of the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" below or any other disposition of assets
not constituting an Asset Sale by reason of the $500,000 threshold contained in
the definition thereof; provided that, for purposes of determining whether
Restricted Payments can be made pursuant to the previous paragraph, all payments
made pursuant to clauses (iv), (v) and (vi) shall be included and payments made
pursuant to all other clauses specified above shall not be so included.
Limitation on Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to: (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligation owed to the
Company or a Restricted Subsidiary, (ii) make any loans or advances to the
Company or a Restricted Subsidiary or (iii) transfer any of its property or
assets to the Company, except any such encumbrance or restriction under or by
reason of (a) applicable law, (b) the Indenture, (c) the New Bank Credit
Facility, (d) the terms of the Old Notes, (e) secured Indebtedness otherwise
permitted to be incurred pursuant to the provisions of the covenants described
under "-- Limitation on Liens" that limit the right of the debtor to dispose of
the assets securing such Indebtedness, (f) customary net worth provisions
contained in leases and other agreements entered into in the ordinary course of
business, (g) customary restrictions with respect to a Restricted Subsidiary
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary, (h) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements, (i)
any other instrument governing Indebtedness incurred on or after the Issue Date
or any refinancing thereof that is incurred in accordance with the Indenture,
provided that the encumbrance or restriction contained in any such Indebtedness
or any such refinancing thereof is no more restrictive and no more unfavorable
to the holders of the Notes in any material respect than that contained in the
New Bank Credit Facility as in effect on the Issue Date, (j) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of a Subsidiary or any other contract executed by a
Subsidiary in the ordinary course of business, and (k) Acquired Indebtedness,
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provided that (x) such restriction is not applicable to any person, or the
properties or assets of any person, other than the person acquired and (y) such
Indebtedness is otherwise permitted to be incurred pursuant to the "Limitation
on Indebtedness" covenant.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale unless (i) the Company (or the Restricted Subsidiary,
as the case may be) receives consideration at the time of each such Asset Sale
at least equal to the fair market value (as determined by the Board of Directors
of the Company in good faith) of the assets sold; (ii) not less than 80% (100%
in the case of lease payments) of the consideration received by the Company (or
such Restricted Subsidiary, as the case may be) is in the form of cash, provided
that any note or other obligation received by the Company (or such Restricted
Subsidiary, as the case may be) that is converted into cash within 30 days after
receipt shall be deemed to be cash for purposes of this clause (ii); and (iii)
the Company within 365 days of such Asset Sale (x) reinvests or causes a
Restricted Subsidiary to reinvest (including by way of acquisitions) the Net
Cash Proceeds of any Asset Sale into one or more of the then existing businesses
of the Company and its Subsidiaries; or (y) applies or causes to be applied such
Net Cash Proceeds to the permanent reduction of outstanding Senior Indebtedness
(or, in the case of a revolving credit facility, to the permanent reduction in
the commitments thereunder); or (z) after such time as the accumulated Excess
Net Proceeds equal or exceed $5 million, applies or causes to be applied such
Excess Net Proceeds to the purchase of Notes tendered to the Company for
purchase at a price equal to 100% of the principal amount thereof plus accrued
interest thereon to the date of purchase pursuant to an offer to purchase by the
Company (a "Net Proceeds Offer") as set forth below; provided, however, that the
Company shall have the right to exclude Asset Sales from the foregoing provision
the net proceeds of which in the aggregate do not exceed $20 million annually
from the calculation of accumulated Net Cash Proceeds.
The Company will be required under the New Bank Credit Facility to apply
certain net proceeds of asset sales to the repayment of Obligations thereunder.
In the event Net Cash Proceeds are required to be applied to the purchase
of Notes, the Company will be required to make a Net Proceeds Offer, and
thereafter acquire, on a date not less than 30 nor more than 60 days following
the date of such Net Proceeds Offer (the "Purchase Date"), Notes tendered in
accordance with the procedures (including prorationing in the event of
oversubscription) set forth in the Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of
tendering Holders will be repurchased on a pro rata basis (based on amounts
tendered). If the aggregate Purchase price of Notes tendered pursuant to the Net
Proceeds Offer is less than the Net Cash Proceeds allotted to the purchase of
the Notes, the Company may apply the remaining Net Cash Proceeds for general
corporate purposes.
The Company will comply with all applicable securities laws in connection
with any Net Proceeds Offer, including Rule 14e-1 under the Exchange Act.
Limitation on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Company or any Restricted Subsidiary or any shares of stock or
debt of any Restricted Subsidiary which owns property or assets, now owned or
hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari
passu with the Notes or a Guarantee, then the Notes or such Guarantee, as the
case may be, are secured on an equal and ratable basis with the obligations so
secured until such time as such obligation is no longer secured by a Lien or
(ii) if such Lien secures Indebtedness which is subordinated to the Notes or a
Guarantee, any such Lien shall be subordinated to the Lien granted to the
holders of the Notes or such Guarantee, as the case may be, to the same extent
as such Subordinated Obligations are subordinated to the Notes.
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Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any of the Restricted Subsidiaries to issue any
Preferred Stock (other than to the Company or to a Wholly Owned Restricted
Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
Guarantees of Certain Indebtedness
The Company will not permit any of its Subsidiaries, directly or
indirectly, to incur, guarantee or secure through the granting of Liens the
payment of any Indebtedness under the New Bank Credit Facility or any refunding
or refinancing thereof in each case unless such Subsidiary, the Company and the
Trustee execute and deliver a supplemental indenture evidencing such
Subsidiary's Guarantee, such Guarantee to be a senior subordinated unsecured
obligation of such Subsidiary. Neither the Company nor any Subsidiary Guarantor
shall be required to make a notation on the Notes or the Guarantees to reflect
any such subsequent Guarantee. Nothing in this covenant shall be construed to
permit any Subsidiary of the Company to incur Indebtedness otherwise prohibited
by the "Limitation on Indebtedness" covenant.
Limitation on Transactions With Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, following the Issue Date, enter into or permit to exist
any transaction with any Affiliate of the Company or any Significant Stockholder
of the Company (an "Affiliate Transaction") unless such transaction is on terms
that are fair and reasonable to the Company or such Subsidiary and no less
favorable to the Company or such Subsidiary than those that could be obtained in
a comparable arm's length transaction with an entity that is not an Affiliate or
a Significant Stockholder of the Company; provided that in the event such
transaction or series of related transactions involves aggregate consideration
in excess of $2 million, the foregoing determination as to fairness shall be
made by a majority of the Independent members of the Board of Directors of the
Company as evidenced by a Board Resolution (and if there are no Independent
directors (x) directors shall be deemed to be Independent if they are
Independent with respect to the Affiliate Transaction under consideration and
(y) each of the Company's officers who are also directors shall be considered
Independent with respect to transactions to which the Company or a Restricted
Subsidiary, on the one hand, and a Significant Stockholder or its Affiliate, on
the other hand, are parties, unless such officer is an officer, director,
employee, partner or stockholder of such Significant Stockholder or Affiliate,
as the case may be); provided, further, that in the event such transaction or
series of related transactions involves aggregate consideration in excess of $10
million, the Company shall, in addition to obtaining the approval of the
Independent members of its Board of Directors, obtain a written opinion of an
Independent Financial Advisor stating that the terms of such transaction are
fair and reasonable to the Company or such Subsidiary from a financial point of
view; provided, however, that the (i) reasonable and customary directors' fees,
indemnification and similar arrangements and payments thereunder, (ii)
transactions between or among or for the benefit of the Company and its
Subsidiaries, which are not otherwise prohibited by the Indenture, (iii) any
employment agreement entered into by the Company or any of its Subsidiaries in
the ordinary course of business, (iv) Restricted Payments (other than
Investments) permitted by the provisions of the Indenture described above under
"-- Limitation on Restricted Payments," (v) provision of administrative or
management services by the Company or its Subsidiaries or any of their officers
to any of their respective Subsidiaries in the ordinary course of business, and
(vi) transactions contemplated by any agreement as in effect as of the Issue
Date or any amendment thereto so long as any such amendment is not
disadvantageous to the Holders of the Notes in any material respect and so long
as the amounts paid by the Company and the Restricted Subsidiaries under any
such amended agreement do not exceed the amounts payable by the Company and the
Restricted Subsidiaries on the Issue Date, in each case, shall not be deemed
Affiliate Transactions.
Limitation on Mergers and Certain Other Transactions
The Company, in a single transaction or through a series of related
transactions, shall not consolidate with or merge with or into any other person,
or transfer (by lease, assignment, sale or otherwise) all or substantially all
of its properties and assets unless (i) either the Company shall be the
continuing person, or the person (if
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other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company are transferred (the Company or such other person hereinafter
referred to as the "Surviving person") shall be a corporation organized and
validly existing under the laws of the United States, any state thereof or the
District of Columbia, and if other than the Company shall expressly assume, by
an indenture supplement, all of the obligations of the Company under the Notes
and the Indenture; (ii) immediately after and giving effect to such transaction
and the assumption contemplated by clause (i) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, the Surviving person could incur at least $1.00 of Indebtedness
pursuant to the first paragraph under the "Limitation on Indebtedness" covenant;
and (iii) immediately before and immediately after and giving effect to such
transaction and the assumption of the obligations as set forth in clause (i)
above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing.
GUARANTEES
Each Subsidiary Guarantor unconditionally guarantees, jointly and
severally, to each holder and the Trustee, subject to subordination provisions
substantially the same as those described above, the full and prompt performance
of the Company's obligations under the Indenture and the Notes, including the
payment of principal of and interest on the Notes. Upon (i) the release by the
lenders under the New Bank Credit Facility, related documents and future
refinancings thereof of all guarantees of a Subsidiary Guarantor and all Liens
on the property and assets of such Subsidiary Guarantor relating to such
Indebtedness, or (ii) the sale or disposition of a Subsidiary Guarantor (or all
or substantially all of its assets) to an entity which is not a Subsidiary of
the Company, which is otherwise in compliance with the Indenture, such
Subsidiary Guarantor shall be deemed released from all its obligations under the
Indenture and its Guarantee; provided, however, that any such termination shall
occur only to the extent that all obligations of such Subsidiary Guarantor under
the New Bank Credit Facility and all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, Indebtedness of the
Company shall also terminate upon such release, sale or transfer.
The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the Notes) will be subordinated
on the same basis to Guarantor Senior Indebtedness (defined with respect to the
Indebtedness of a Guarantor in the same manner as Senior Indebtedness is defined
with respect to the Company) as the Notes are subordinated to Senior
Indebtedness. See "-- Subordination" above.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the New Bank Credit Facility) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
the Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a corporation other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor),
provided that either (x) the transaction is an Asset Sale consummated in
accordance with the "Limitation on Asset Sales" covenant or (y)(a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving corporation
agrees to assume such Subsidiary Guarantor's Guarantee and all its obligations
pursuant to the Indenture and (b) such transaction does not (i) violate any
covenants set forth in the Indenture or (ii) result in a Default or Event of
Default immediately thereafter that is continuing.
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Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable with
respect to the Company's obligations pursuant to the Notes, and the aggregate
net assets, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
EVENTS OF DEFAULT
An "Event of Default" is defined in the Indenture to mean
(a) default in the payment of any installment of interest upon any of
the Notes as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; (b) default in the
payment of all or any part of the principal on any of the Notes when the
same shall become due and payable, either at maturity, upon any redemption,
by declaration or otherwise; (c) failure on the part of the Company or any
Subsidiary Guarantor duly to observe or perform any other of the covenants
or agreements on the part of the Company or any Subsidiary Guarantor in the
Notes or in the Indenture for a period of 30 days after receipt of written
notice specifying such failure, stating that such notice is a "Notice of
Default" under the Indenture and demanding that the Company or such
Subsidiary Guarantor, as the case may be, remedy the same, shall have been
given by registered or certified mail, return receipt requested, to the
Company by the Trustee, or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the Notes at the time
outstanding; (d) a default under any Indebtedness of the Company or its
Restricted Subsidiaries, whether such Indebtedness now exists or shall
hereinafter be created, if both (A) such default either (i) results from
the failure to pay interest or principal on Indebtedness at the final
maturity of the respective issue of Indebtedness and such failure continues
for a period of 10 days or more, or (ii) results in the holder or holders
of such Indebtedness causing such Indebtedness to become due prior to its
stated maturity and such acceleration has not been rescinded, canceled or
otherwise cured within 10 days after receipt of notice of acceleration by
the Company and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness in default for
failure to pay principal or interest at final maturity or the maturity of
which has been so accelerated, in each case with respect to which the
10-day period described above has passed, aggregates in excess of $10
million at any one time; (e) any final judgment or order for the payment of
money shall be rendered against the Company or any Significant Subsidiary
of the Company by a court of competent jurisdiction in excess of $10
million individually or in the aggregate for all such judgments or orders
against all such persons that are not stayed, bonded or discharged and
there is a period of 60 consecutive days, after written notice has been
given by the Trustee or the holders of at least 25% in aggregate principal
amount of the Notes then outstanding, during which a stay of enforcement of
such judgment or order, by reason of pending appeal or otherwise, shall not
be in effect; or (f) certain events of bankruptcy with respect to the
Company and its Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(f) above with respect to the Company) occurs and is continuing, either the
Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), may declare the entire principal
amount of and accrued interest on the Notes to be due and payable immediately,
and the same (i) shall become immediately due and payable or (ii) if there are
any amounts outstanding under the New Bank Credit Facility, shall become due and
payable upon the first to occur of an acceleration under the New Bank Credit
Facility, or 5 business days after receipt by the Company and the Representative
under the New Bank Credit Facility of such Acceleration Notice, unless all
Events of Default specified in such Acceleration Notice (other than any Event of
Default in respect of nonpayment of principal) shall have been cured. In the
event of a declaration because an Event of Default set forth in clause (d) of
the preceding paragraph has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if the missed payments in respect
of such Indebtedness have been paid or if the holders of the Indebtedness that
is subject to acceleration have rescinded their declaration of acceleration and
the Trustee has received written notice of such Indebtedness having been repaid
in full, in each case within 60 days thereof and if (i) the annulment of such
acceleration would not conflict with any judgment or decree of a court of
competent
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jurisdiction, (ii) all existing Events of Default, except non-payment of
principal or interest which have become due solely because of the acceleration,
have been cured or waived and (iii) the Company has delivered an Officer's
Certificate to the Trustee to the effect of clauses (i) and (ii) above. If an
Event of Default specified in clause (f) above occurs with respect to the
Company, the principal amount of and accrued interest on the Notes shall become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
The declaration of acceleration is subject to the condition that if, at any
time after the principal of the Notes shall have been so declared due and
payable, and before any judgment or decree for the payment of the moneys shall
have been obtained or entered as hereinafter provided, the Company shall pay or
shall deposit with the Trustee a sum sufficient to pay all matured installments
of interest upon all the Notes and the principal of any and all Notes which
shall have become due otherwise than by acceleration (with interest upon such
principal and, to the extent that payment of such interest is unenforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest specified in the Notes, to the date of such payment or
deposit) and such amount as shall be sufficient to cover reasonable compensation
to the Trustee and each predecessor Trustee, their respective agents, attorneys
and counsel, and all other expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith, and if any and all Events of Default under the
Indenture, other than the non-payment of the principal of Notes which shall have
become due by acceleration, shall have been cured, waived or otherwise remedied
as provided in the Indenture, then and in every such case the holders of a
majority in aggregate principal amount of the Notes then outstanding, by written
notice to the Company and to the Trustee, may waive all defaults and rescind and
annul such declaration and its consequences, but no such waiver or rescission
and annulment shall extend to or shall affect any subsequent default or shall
impair any right consequent thereon.
The holders of a majority in outstanding aggregate principal amount of the
Notes by notice to the Trustee may on behalf of the holders of the Notes waive
any existing Default or Event of Default under the Indenture and its
consequences, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount of the outstanding Notes have made written
request, and offered indemnity, to the Trustee to institute such proceeding as
Trustee, the Trustee has failed to institute such proceeding within 30 days
after receipt of such notice and the Trustee has not within such 30-day period
received directions inconsistent with such written request by holders of a
majority in principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal of, premium, if any, or accrued interest on,
such Note on or after the respective due dates expressed in such Note.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal, premium (if any) or interest on any Note, the
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is in the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred under the Indenture during the
previous year. The Company is also required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of events which would
constitute certain Defaults under the Indenture, their status and what action
the Company is taking or proposes to take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder, as such, of the Company or
any Subsidiary shall have any liability for any obligations of the Company or
any Subsidiary under the Notes, any Subsidiary Guarantee or the Indenture. Each
holder of the Notes by accepting a Note waives and releases all such liability.
The waiver
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and release are part of the consideration for issuance of the Notes. This
provision does not affect any possible claims under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights of
holders of the Notes to receive payments in respect of the principal of,
premium, if any, and interest on the Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
with respect to the Indenture resulting from the incurrence of Indebtedness, all
or a portion of which will be used to defease the Notes concurrently with such
incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness of the
Company other than the Notes and (B) assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the deposit and
that no Holder of the Notes is an insider of the Company, after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
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applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (ix) certain other customary conditions
precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, or are by their terms to become due
and payable within one year or are to be called for redemption within one year
upon delivery of notice under arrangements satisfactory to the Trustee, and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
MODIFICATION OF THE INDENTURE
The Indenture and the Notes may be amended or supplemented (and compliance
with any provision thereof may be waived) by the Company, the Trustee and the
holders of not less than a majority in aggregate principal amount of the Notes
then outstanding, except that without the consent of each holder affected, no
such amendment, supplement or waiver may (1) change the principal amount of
Notes whose holders must consent to an amendment, supplement or waiver of any
provision of the Indenture or the Notes; (2) reduce the rate or extend the time
for payment of interest on any Note; (3) reduce the principal amount of any
Note; (4) change the Maturity Date of any Note or alter the redemption
provisions in a manner adverse to any holder; (5) make any changes in the
provisions concerning waivers of Defaults or Events of Default by holders or the
rights of holders to recover the principal of, premium (if any) or interest on
or redemption payment with respect to any Note; (6) make the principal of, or
interest on, any Note payable with anything other than as provided for in the
Indenture and the Notes; and (7) make any change to the subordination provisions
of the Indenture and the Notes in a manner that adversely affects the holders.
In addition, the Company and the Trustee may amend the Indenture and the
Notes for certain specified purposes, including, among other things, (a) to cure
any ambiguity, defect or inconsistency therein; provided that such amendment or
supplement does not adversely affect the rights of any holder, (b) to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act of 1939 or (c) to
make any other change that does not adversely affect the rights of any holder.
Notwithstanding the foregoing, no amendment shall modify any provision of the
Indenture so as to adversely affect the rights of any holder of Senior
Indebtedness without the consent of such holder.
THE TRUSTEE
The holders of a majority in principal amount of the outstanding Notes may
remove the Trustee and appoint a successor trustee with the Company's consent,
by so notifying the trustee to be so removed and the Company. In addition, the
holders of a majority in principal amount of the outstanding Notes have the
right, subject to certain limitations, to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on such Trustee.
The Indenture provides that, in case a Default or an Event of Default has
occurred and is continuing, the Trustee thereunder shall exercise such of the
rights and powers vested in it by the Indenture, and use the same
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degree of care and skill in the exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
Subject to the latter provision, the Trustee is under no obligation to exercise
any of its rights or powers under the Indenture at the request, order or
direction of any of the holders, unless they shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred thereby. Subject to certain provisions concerning the
rights of the Trustee, the holders of a majority in principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any laws or power conferred on the Trustee.
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to be realized on certain property received by it in respect of any such
claims, securities or otherwise. The Trustee is permitted to engage in other
transactions: however, if the Trustee acquires any "conflicting interest," it
must eliminate such conflict or resign.
REPORTS
So long as the Notes are outstanding, the Company will furnish to the
Trustee and holders of the Notes all quarterly and annual financial reports that
the Company is required to file with the Commission under the Exchange Act (or
similar reports in the event that the Company is not at the time required to
file such reports with the Commission). The Indenture provides that even if the
Company is entitled under the Exchange Act not to furnish such information to
the Commission or the holders of the Notes, it will nonetheless continue to
furnish such information to the Commission (to the extent the Commission is
accepting such reports) and holders of the Notes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means (i) with respect to any person that becomes a
Restricted Subsidiary, Indebtedness of such person at the time such person
becomes a Restricted Subsidiary and not incurred in connection with, or in
contemplation of, such person becoming a Restricted Subsidiary, treating for
purposes of this definition as Indebtedness the unused portion of any revolving
loan commitments provided in agreements to which such person is a party as
borrower or guarantor and (ii) with respect to the Company or any of its
Restricted Subsidiaries, any Indebtedness assumed by the Company or any of its
Restricted Subsidiaries in connection with the acquisition of any assets from
another person (other than the Company or any of its Restricted Subsidiaries),
and which was not incurred by such other person in connection with or, in
contemplation of, such acquisition.
"Act" means the Securities Act of 1933, as amended.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (i) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Guarantee, of such Subsidiary Guarantor at such date and
(ii) the present fair salable value of the assets of such Subsidiary Guarantor
at such date exceeds the amount that will be required to pay the probable
liability of such Subsidiary Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities incurred or assumed on such date and
after giving effect to any collection from any Subsidiary of such Subsidiary
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee, as they become absolute and matured.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
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"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at March 1, 2002 (such redemption price being described under "-- Optional
Redemption") plus (2) all required interest payments due on such Note through
March 1, 2002, computed using a discount rate equal to the Treasury Rate plus
100 basis points, over (B) the principal amount of such Note.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value (including any sale and
leaseback transaction) by the Company or any of its Restricted Subsidiaries to
any person other than the Company or any wholly owned Restricted Subsidiary of
(i) any Capital Stock of any Restricted Subsidiary; or (ii) any other property
or assets of the Company or any Restricted Subsidiary other than in the ordinary
course of business, in each case, resulting in Net Cash Proceeds to the Company
and its Restricted Subsidiaries of $500,000 or more, provided that the sale,
conveyance, transfer, assignment or other transfer of substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the terms of the Indenture described above under the caption
"-- Limits on Mergers and Certain Other Transactions."
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Services
and maturing not more than one year from the date of creation thereof, (iii)
demand and time deposits with, and certificates of deposit and banker's
acceptances issued by, any bank having capital surplus and undivided profits
aggregating at least $500 million and maturing not more than one year from the
date of creation thereof, provided that instruments issued by banks not having
one of the two highest ratings obtainable from either Standard & Poor's Ratings
Services or Moody's Investors Services, Inc. shall not constitute "Cash
Equivalents" for purposes of the subordination provisions of the Indenture, (iv)
repurchase agreements that are secured by a perfected security interest in an
obligation described in clause (i) and are with any bank described in clause
(iii), and (v) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Services.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any person or group of related persons for purposes of Section 13(d)
of the Exchange Act (a "Group") together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); or (iii) the acquisition in
one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) by (x) any person or entity or (y) any group of
persons or entities who constitute a Group, in either case, of any securities of
the Company such that, as a result of such acquisition, such person, entity or
Group either (A) beneficially owns (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, at least 35% of the Company's then
outstanding voting securities entitled to vote on a regular basis for the Board
of Directors of the Company, or (B) otherwise has the ability to elect, directly
or indirectly, a majority of the members of the Company's Board of Directors,
including without limitation by the acquisition of revocable proxies for the
election of directors. Clause (i) of the definition of "Change of Control"
includes a sale, lease, exchange or other transfer of "all or substantially all"
of the assets of the Company to a Group. There is little case law interpreting
the
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phrase "all or substantially all" in the context of an indenture. Because there
is no precise established definition of this phrase, the ability of a holder of
Notes to require the Company to repurchase such Notes as a result of a sale,
lease, exchange or other transfer of all or substantially all of the Company's
assets to person or a Group may be uncertain.
"Consolidated EBITDA" of the Company means, for any period, the sum
(without duplication) of (i) Consolidated Net Income, (ii) to the extent
Consolidated Net Income has been reduced thereby, all income taxes of the
Company and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period, Consolidated Interest Expense, amortization expense (including
write-off of intangible assets and deferred financing costs), depreciation
expense, and any restructuring reserve or charge recorded during such period in
accordance with GAAP, (iii) LIFO charges (credit) of the Company and its
Restricted Subsidiaries for such period and (iv) other non-cash items reducing
Consolidated Net Income (excluding any such charge which requires an accrual of
or a cash reserve for cash charges for any future period) less (x) other
non-cash items increasing Consolidated Net Income and (y) the amount of all cash
payments made by such person or its subsidiaries during such period to the
extent that such cash payment has been provided for in a reserve or charge
referred to (and previously added back to such Consolidated Net Income) in
clause (ii) or (iv) above (and were not otherwise deducted in the computation of
Consolidated Net Income of such person for such period), all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP.
"Consolidated Interest Expense" of the Company means, the aggregate of (i)
all cash and non-cash interest expense (minus amortization or write-off of
deferred financing costs included in cash or non-cash interest expense and minus
interest income and capitalized interest) with respect to all outstanding
Indebtedness of the Company and its Restricted Subsidiaries for such period plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of the Company and the Restricted Subsidiaries (other than
dividends paid in Qualified Capital Stock) paid, accrued (other than to or for
the benefit of the Company or a Restricted Subsidiary) or scheduled to be paid
or accrued during such period times (y) a fraction, the numerator of which is
one and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of the Company expressed as a
decimal.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (i) gains and losses from Asset
Sales or abandonments or reserves relating thereto and the related tax effects,
(ii) items classified as extraordinary, nonrecurring or unusual gains and
losses, and the related tax effects, each determined in accordance with GAAP,
(iii) the net income of any person acquired in a pooling of interests
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
Company or is merged or consolidated with the Company or any Restricted
Subsidiary, (iv) the net income of any Restricted Subsidiary to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income was actually prevented by contract, operation of law
or otherwise and (v) the net income of any person, other than a Restricted
Subsidiary, except to the extent of the lesser of (x) cash dividends or
distributions paid to the Company or a Restricted Subsidiary of the Company by
such person and (y) the net income of such person (but in no event less than
zero).
"Consolidated Net Worth" of any person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person; provided that the Consolidated Net Worth of any Person
shall exclude the effect of any non-cash charges relating to the acceleration of
stock options or similar securities of such Person or another Person with which
such Person is merged or consolidated.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Designated Senior Indebtedness" means any Indebtedness under or in respect
of the New Bank Credit Facility.
"Disqualified Capital Stock" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes.
"Excess Net Proceeds" shall mean Net Cash Proceeds of any Asset Sale not
applied in accordance with clause (iii)(x) or (y) of the "Limitation on Asset
Sales" covenant.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" or "generally accepted accounting principles" means generally
accepted accounting principles in the United States as in effect from time to
time, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"Guarantor Senior Indebtedness" means (i) indebtedness of a Subsidiary
Guarantor for money borrowed and all obligations, whether direct or indirect,
under guarantees, letters of credit, foreign currency or interest rate swaps,
foreign exchange contracts, caps, collars, options, hedges or other agreements
or arrangements designed to protect against fluctuations in currency values or
interest rates, other extensions of credit, expenses, fees, reimbursements,
indemnities and all other amounts (including interest at the contract rate
accruing on or after the filing of any petition in bankruptcy or reorganization
relating to such Subsidiary Guarantor whether or not a claim for post-filing
interest is allowed in such proceeding) owed by such Subsidiary Guarantor under,
or with respect to, the New Bank Credit Facility, (ii) the principal of and
premium, if any, and accrued and unpaid interest (including interest at the
contract rate accruing on or after the filing of any petition in bankruptcy or
for reorganization relating to a Subsidiary Guarantor whether or not a claim for
post-filing interest is allowed in such proceeding), whether existing on the
date hereof or hereafter incurred, in respect of (A) indebtedness of such
Subsidiary Guarantor for money borrowed, (B) express written guarantees by such
Subsidiary Guarantor of indebtedness for money borrowed by any other person, (C)
indebtedness evidenced by notes, debentures, bonds, or other instruments of
indebtedness for the payment of which such Subsidiary Guarantor is responsible
or liable, by guarantees or otherwise, (D) obligations of such Subsidiary
Guarantor for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (E) obligations of such Subsidiary
Guarantor under any agreement to lease, or any lease of, any real or personal
property which, in accordance with GAAP, is classified upon Subsidiary
Guarantor's consolidated balance sheet as a liability, and (F) obligations of
such Subsidiary Guarantor under or guaranteeing interest rate swaps, caps,
collars, options and similar arrangements and foreign currency hedges and (iii)
modifications, renewals, extensions, replacements, refinancings, and refundings
of any such indebtedness, obligations or guarantees, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is expressly provided that such indebtedness, obligations or guarantees, or such
modifications, renewals, extensions, replacements, refinancings, or refundings
thereof, are not superior in right of payment to the Guarantee of such
Subsidiary Guarantor; provided, that Guarantor Senior Indebtedness will not be
deemed to include (a) any liability for Federal, state, local or other taxes
owed or owing by a Subsidiary Guarantor, (b) any accounts payable or other
liability to trade creditors arising in the ordinary course of business, (c) any
Indebtedness, guarantee or obligation of a Subsidiary Guarantor which is
subordinate or junior by its terms in any respect to any other Indebtedness,
guarantee or obligations of such Subsidiary Guarantor or (d) that portion of any
Indebtedness incurred in violation of the "Limitation on Indebtedness" covenant.
"Hedging Obligations" means, with respect to the Company or a Restricted
Subsidiary, (i) the obligations of such person under Interest Rate Agreements,
(ii) the obligations of such person under Currency Agreements and (iii)
obligations under agreements or arrangements designed to protect such person
against fluctuations in the value of commodities entered into in such person's
business.
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"Indebtedness" of any person means, at any time, without duplication: (i)
the principal of and, if any is due and payable at such time, premium 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 Capitalized
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;
provided that, for the purpose of determining Events of Default referred to in
clause (d) under the caption "-- Events of Default", obligations with respect to
letters of credit securing obligations entered into in the ordinary course of
business shall be excluded only 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 principal
amount of all obligations of such person with respect to the redemption,
repayment or other purchase of any Disqualified Capital Stock; (vi) in the case
of the Company, any Preferred Stock of a Restricted Subsidiary, valued at the
aggregate liquidation preference thereof plus accrued and unpaid dividends
thereon; (vii) all obligations of the type referred to in clauses (i) through
(vi) above of other persons and all dividends of other persons for the payment
of which, in either case, such person is responsible or liable as obligor,
guarantor or otherwise; and (viii) all obligations of the type referred to in
clauses (i) through (vii) above of other persons secured by a lien, mortgage,
pledge or encumbrance of any kind 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; provided, however, that Indebtedness
shall not include any interest, commitment or other fees.
"Independent" means, with respect to the Company and its Subsidiaries, any
person who (i) is in fact independent, (ii) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries
(other than as a result of holding securities of the Company in trading
accounts) and (iii) is not an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions for the Company or any
of its Subsidiaries or any Affiliate of the Company or any of its Subsidiaries.
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that is, in the reasonable judgment of the Board of
Directors of the Company, qualified to perform the task for which such firm has
been engaged hereunder and disinterested and independent with respect to the
Company and its Affiliates.
"Interest Rate Agreements" means, with respect to the Company and the
Restricted Subsidiaries, any arrangements with any other person, whereby,
directly or indirectly, such person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made by
such other person calculated by applying a fixed or a floating rate of interest
on the same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any person, all investments by such
person in other persons (including Affiliates of such person) in the form of
loans, guarantees, advances of assets or capital contributions (excluding
commission, travel and similar advances to, and compensation and benefits of,
officers and employees of such person made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Capital Stock
or other securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the fair market value (as determined by the Board of Directors of the Company in
good faith) of the assets of any Subsidiary of the Company at the time that such
Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to be an
Investment made by the Company in such Unrestricted Subsidiary at such time.
"Investment" shall exclude (i) extensions of trade credit by the Company and the
Restricted Subsidiaries on
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commercially reasonable terms in accordance with such person's normal trade
practices and (ii) sales, assignments, transfers, contributions, licenses or
other dispositions of patents, copyrights, applications with respect thereto,
and other trademarks, intellectual property and other technological "know-how"
(collectively, "Intellectual Property") to joint ventures in which the Company
or a wholly-owned Restricted Subsidiary owns at least 50% of the equity
interests (provided, that if the equity interest of the Company or such
Restricted Subsidiary, as the case may be, in such joint venture is reduced
below 50%, the Company shall have been deemed to make an Investment in such
joint venture in an amount equal to the fair market value (as determined by the
Board of Directors of the Company in good faith) of such Intellectual Property).
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means with respect to any property or assets of any person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Cash Proceeds" means cash payments received (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received) from any
sale, lease, transfer or other disposition of Capital Stock of the Company or a
Restricted Subsidiary or property or other assets of the Company or a Restricted
Subsidiary, in each case net of (i) any reserve for adjustment in respect of the
sale price of such asset or assets as required by GAAP (provided, that upon the
payment of such adjustment amount the excess, if any, of the amount so reserved
over the amount so paid shall be deemed "Net Cash Proceeds"), (ii) repayment of
any Purchase Money Indebtedness secured by a Lien on the sold asset or assets
and (iii) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and any taxes payable and reasonably estimated
income taxes, as a consequence of such sale, lease, transfer or other
disposition.
"New Bank Credit Facility" means the Credit Agreement, to be entered into
by and among the Company, the lenders referred to therein, and Bankers Trust
Company, as Agent, together with the related documents thereto (including,
without limitation, any guarantees and security documents), as amended,
extended, renewed, restated, supplemented or otherwise modified (in whole or in
part, and without limitation as to amount, terms, conditions, covenants and
other provisions) from time to time, and any agreement (and related documents)
governing Indebtedness incurred to refund or refinance the entirety of the
borrowings and commitments then outstanding or permitted to be outstanding under
such Credit Agreement or a successor New Bank Credit Facility, whether by the
same or any other agent, lender or group of lenders. The Company shall promptly
notify the Trustee of any such refunding or refinancing of the New Bank Credit
Facility.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, expenses, damages and other
liabilities payable under, or with respect to, the documentation governing any
Indebtedness.
"Operating Coverage Ratio" means the ratio of Consolidated EBITDA of the
Company and the Restricted Subsidiaries during the four most recent full fiscal
quarters for which financial information is available (the "Four Quarter
Period") ending not more than 135 days prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") of the Company and the Restricted Subsidiaries for the Four
Quarter Period to Consolidated Interest Expense of the Company and the
Restricted Subsidiaries for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Interest Expense" shall be calculated after giving
effect on a pro forma (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Act) basis for
the Four Quarter Period to (i) the incurrence or repayment of any Indebtedness
(excluding the incurrence of Indebtedness under any revolving credit facility
and including repayments of Indebtedness under any revolving credit facility
only to the extent that such repayment effects, or is accompanied by, a
permanent reduction in the availability thereunder) of the Company and the
Restricted Subsidiaries at any time subsequent to the last day of the
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Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales (and the application of proceeds thereof) or asset acquisitions
outside the ordinary course of business in excess of $100,000 occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale
(and the application of proceeds thereof) or asset acquisition occurred on the
first day of the Four Quarter Period. If the Company or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third person
(other than the Company or any of its Restricted Subsidiaries), the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such person or any subsidiary (other than an Unrestricted Subsidiary) of such
person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Interest Expense," (A) interest on
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date, (B) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period, (C) notwithstanding clause (A) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by Interest Rate Agreements, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of such Interest Rate
Agreements and (D) the permanent retirement of any Indebtedness during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date shall be given effect as if it
occurred at the beginning of such Four Quarter Period.
"Permitted Investment" means (i) cash and Cash Equivalents, (ii) any
Investment in the Company or in a Wholly Owned Restricted Subsidiary of the
Company, (iii) any Investment by the Company or any Subsidiary existing on the
Issue Date, (iv) any Investment by the Company or any Subsidiary of the Company
in a person, if as a result of such Investment (A) such person becomes a wholly
owned Restricted Subsidiary of the Company or (B) such person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a wholly owned
Restricted Subsidiary of the Company (subject in each case to the restrictions
described under "-- Limitations on Indebtedness" and "-- Limitations on Mergers
and Certain Other Transactions"), (v) loans made from time to time to its 401(k)
Savings Plan in accordance with Prohibited Transaction Class Exemption 80-26 so
long as the aggregate amount of such loans outstanding at any time does not
exceed $1,000,000, (vi) guarantees to the extent that the same are otherwise
permitted by the Indenture, (vii) loans and advances to employees and officers
of the Company and the Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $3,000,000 at any one
time outstanding, (viii) Currency Agreements and Interest Rate Agreements
entered into in the ordinary course of the Company's or a Restricted
Subsidiary's businesses and otherwise in compliance with the Indenture, (ix)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers, and (x) Investments made by the
Company or the Restricted Subsidiaries as a result of non-cash consideration
received in connection with an Asset Sale made in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Asset Sales."
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries,
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness, provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens
securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture, provided that (A)
any such Lien is created solely for the purpose of securing Indebtedness
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representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, such purchase
or construction) of such Property, (B) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs, and (C) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item, (vi) statutory Liens or landlords', carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made therefor, (vii) Liens in favor of the Trustee under the Indenture and any
substantially equivalent Lien granted to any trustee or similar institution
under any indenture for Indebtedness permitted by the terms of the Indenture,
(viii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance or other types of social security or similar legislation, (ix) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money), (x) Liens upon specific items of inventory or other
goods and proceeds of any person securing such person's obligations in respect
of bankers' acceptances issued or created for the account of such person to
facilitate the purchase, shipment or storage of such inventory or other goods in
the ordinary course of business, (xi) Liens securing reimbursement obligations
with respect to letters of credit which encumber documents and other property
relating to such letters of credit and the products and proceeds thereof, (xii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of nondelinquent customs duties in connection with the
importation of goods, (xiii) judgment and attachment Liens not giving rise to a
Default or Event of Default, (xiv) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any
Subsidiary, (xv) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business that are
within the general parameters customary in the industry, in each case securing
Indebtedness under Hedging Obligations, (xvi) Liens encumbering deposits made in
the ordinary course of business to secure nondelinquent obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company or
its Subsidiaries for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made, (xvii) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by the
Company or any Subsidiary in the ordinary course of business; (xviii) any
interest or title of a lessor in the property subject to any lease, whether
characterized as capitalized or operating other than any such interest or title
resulting from or arising out of a default by the Company or any Subsidiary of
its obligations under such lease, (xix) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the applicable indenture and under
which the Company or any Subsidiary is lessee, (xx) other Liens securing
obligations incurred in the ordinary course of business which obligations or
judgments do not exceed $5 million in the aggregate at any one time outstanding,
(xxi) Liens securing Capitalized Lease Obligations permitted to be incurred;
provided that such Lien does not extend to any property other than that subject
to the underlying lease, (xxii) Liens on capital stock of Unrestricted
Subsidiaries, (xxiii) Liens securing Indebtedness under the New Bank Credit
Facility, Interest Rate Agreements and Currency Agreements, (xxiv) Liens
existing on the date of the Indenture, (xxv) Liens on assets of the Company
securing Senior Indebtedness and Liens on assets of a Subsidiary Guarantor
securing Guarantor Senior Indebtedness, (xxvi) any extensions, substitutions,
replacements or renewals of the foregoing, (xxvii) Liens for taxes, assessments
or governmental charges that are not delinquent or are being contested in good
faith by appropriate proceedings and (xxviii) easements or minor defects or
irregularities in title and other similar charges or encumbrances on property
not interfering in any material respect with the Company's use of such property.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
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"Preferred Stock" means any Capital Stock of a person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such person over the holders of other
Capital Stock issued by such person.
"Property" of any person means all types of real, personal, tangible,
intangible or mixed property owned by such person whether or not included in the
most recent consolidated balance sheet of such person and its Subsidiaries under
GAAP.
"Public Equity Offering" means an underwritten equity offering of the
Qualified Capital Stock of the Company, or of any entity of which the Company is
a direct or indirect subsidiary, to the extent the proceeds thereof shall have
been contributed to the Company, pursuant to an effective registration statement
under the Act.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such person incurred in connection therewith.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Representative" means the agent or representative in respect of any
Designated Senior Indebtedness; provided that if, and for so long as, any
Designated Senior Indebtedness lacks such a representative, then the
Representative for such Designated Senior Indebtedness shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Indebtedness in respect of any Designated Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary that is not an Unrestricted
Subsidiary.
"Senior Indebtedness" means (i) indebtedness of the Company for money
borrowed and all obligations, whether direct or indirect, under guarantees,
letters of credit, foreign currency or interest rate swaps, foreign exchange
contracts, caps, collars, options, hedges or other agreements or arrangements
designed to protect against fluctuations in currency values or interest rates,
other extensions of credit, expenses, fees, reimbursements, indemnities and all
other amounts (including interest at the contract rate accruing on or after the
filing of any petition in bankruptcy or reorganization relating to the Company
whether or not a claim for post-filing interest is allowed in such proceeding)
owed by the Company under, or with respect to, the New Bank Credit Facility,
(ii) the principal of and premium, if any, and accrued and unpaid interest,
whether existing on the date hereof or hereafter incurred, in respect of (A)
indebtedness of the Company for money borrowed, (B) express written guarantees
by the Company of indebtedness for money borrowed by any other person, (C)
indebtedness evidenced by notes, debentures, bonds, or other instruments of
indebtedness for the payment of which the Company is responsible or liable, by
guarantees or otherwise, (D) obligations of the Company for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (E) obligations of the Company under any agreement to lease, or any
lease of, any real or personal property which, in accordance with GAAP, is
classified upon the Company's consolidated balance sheet as a liability, and (F)
obligations of the Company under interest rate swaps, caps, collars, options and
similar arrangements and foreign currency hedges and (iii) modifications,
renewals, extensions, replacements, refinancings, and refundings of any such
indebtedness, obligations or guarantees, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such indebtedness, obligations or guarantees, or such
modifications, renewals, extensions, replacements, refinancings, or refundings
thereof, are not superior in right of payment to the Notes; provided, that
Senior Indebtedness will not be deemed to include (a) any obligation of the
Company to any Subsidiary (other than obligations pledged pursuant to the New
Bank Credit Facility, as security for the obligations of the Company
thereunder), (b) any liability for Federal, state, local or other taxes owed or
owing by the Company, (c) any accounts payable or other liability to trade
creditors arising in the ordinary course of business, (d) any Indebtedness,
guarantee or obligation of the Company which is subordinate or junior by its
terms in any
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respect to any other Indebtedness, guarantee or obligations of the Company or
(e) that portion of any Indebtedness incurred in violation of the "Limitation on
Indebtedness" covenant.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 5% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each Restricted Subsidiary of the Company
that is a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X
under the Securities Act and the Exchange Act (as such regulation is in effect
on the date hereof).
"Subordinated Obligations" means any Indebtedness of the Company which is
expressly subordinated or junior in right of payment to the Notes.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person, or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (ii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of Tracor Aerospace, Inc., Tracor
Applied Sciences, Inc., Tracor Flight Systems, Inc., Tracor Information Systems
Company, Tracor Aerospace Electronic Systems, Inc., Tracor Holdings, Inc.,
Tracor Marine, Inc., Aerial Data Reduction Associates, Inc., GDESI, Inc.,
Westmark Services Company, Inc., Vitro Corporation, Vitro Services Corporation,
Quality Systems, Inc., Vitro Technical Services, Inc., Vitro Systems
International Corporation, Vitro Sciences International, Inc., GDE Systems,
Inc., GDE Holdings, Inc., GDE Systems Imaging, Inc., HealthCom, Inc., Helava
Associates, Inc., Cordant, Inc., and Cordant Federal Services Corporation, (ii)
each of the Company's Subsidiaries which becomes a guarantor of the Securities
pursuant to the "Guarantees of Certain Indebtedness" covenant, and (iii) each of
the Company's Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture; provided that any
person constituting a Subsidiary Guarantor as described above shall cease to
constitute a Subsidiary Guarantor when its respective Subsidiary Guarantee is
released in accordance with the terms thereof.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market date)) most nearly equal to the
period from the Redemption Date to March 1, 2002; provided, however, that if the
period from the Redemption Date to March 1, 2002 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the Redemption Date to March 1, 2002 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary (other than a Subsidiary
Guarantor) designated as an Unrestricted Subsidiary by the Board of Directors of
the Company, provided that (i) such Subsidiary does not own any Capital Stock of
the Company or any Restricted Subsidiary, (ii) if such Subsidiary is acquired by
the Company, such Subsidiary is designated as an Unrestricted Subsidiary prior
to the consummation of such acquisition, (iii) no portion of any Indebtedness or
any other Obligation (contingent or otherwise) of such Subsidiary (a) is
guaranteed by, or is otherwise the subject of credit support provided by, the
Company or any
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Restricted Subsidiary, (b) is recourse to or obligates the Company or any
Restricted Subsidiary in any way, or (c) subjects any Property or asset of the
Company or any Restricted Subsidiary, directly or indirectly, contingent or
otherwise, to the satisfaction of such Indebtedness or other Obligation, (iv)
neither the Company nor any of the Restricted Subsidiaries has any contract,
agreement, arrangement or understanding with such Subsidiary other than on terms
as favorable to the Company or such Restricted Subsidiary, as the case may be,
as those that might be obtained at the time from Persons that are not Affiliates
of the Company, (v) after giving effect to such designation, no Default or Event
of Default shall be continuing, and (vi) neither the Company nor any Restricted
Subsidiary has any Obligation (a) to subscribe for additional shares of Capital
Stock of such Subsidiary, or (b) to maintain or preserve such Subsidiary's
financial condition or to cause such Subsidiary to achieve certain levels of
operating results. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing a Board Resolution with the Trustee
giving effect to such designation and an Officers' Certificate stating that such
designation complies with the foregoing conditions. Notwithstanding the
foregoing or any other provision of the Indenture to the contrary, no assets
owned by the Company or any Restricted Subsidiary on the Issue Date may be owned
at any time by any Unrestricted Subsidiary.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by the Company or another Wholly Owned Restricted Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes (and the
related guarantees) initially will be represented by a single permanent global
certificate in definitive, fully registered form (the "Global Note"). The Global
Note will be deposited promptly after the Expiration Date with, or on behalf of,
The Depository Trust Company, New York, New York ("DTC") and registered in the
name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
(ii) held by qualified institutional buyers or Accredited Investors (as defined
in Regulation D under the Securities Act) who are not "qualified institutional
buyers " (as defined in Rule 144A under the Securities Act)("QIBs") who elect to
take physical delivery of their certificates instead of holding their interests
through the Global Note (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be issued
in registered form (the "Certificated Security"). Upon the transfer to a QIB of
any Certificated Security initially issued to a Non-Global Purchaser, such
Certificated Security will, unless the transferee requests otherwise or the
Global Note has previously been exchanged in whole for Certificated Securities,
be exchanged for an interest in the Global Note. For a description of the
restrictions on the transfer of Certificated Securities and any interest in the
Global Note.
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Note will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs may hold their interests in the Global
Note directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer
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that interest except in accordance with DTC's procedures, in addition to those
provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest on, the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. 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 practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities.
DTC has advised the Company as follows: DTC is a limited purpose trust
company 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
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act. DTC was created to
hold securities for its participants and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of the Exchange Offer and the acquisition, ownership and
disposition of the Exchange Notes. The summary is based upon provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Department Regulations, judicial authority and current administrative rulings
and practice, all of which are subject to change at any time by legislative,
judicial or administrative action. Any such changes may be applied retroactively
in a manner that could adversely affect a holder of the Exchange Notes. Further,
there can be no assurance that the Internal Revenue Service (the "IRS") will not
take a contrary view, and no rulings from the IRS have been or will be sought as
to any of the matters discussed below.
This summary is for general informational purposes only and generally
addresses only the Original Notes and the Exchange Notes that are held as
capital assets. This summary does not purport to discuss all of the tax
consequences that may be relevant to the particular circumstances of a holder or
to holders subject to special rules, such as financial institutions,
broker-dealers, insurance companies, or tax exempt organizations, and persons in
special situations such as those who hold the Exchange Notes as part of a
straddle. In addition, this summary does not address any aspect of state, local
or foreign taxation.
PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING AND DISPOSING OF THE ORIGINAL NOTES AND EXCHANGE NOTES AS WELL
AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
As used herein, the term "United States Holder" means a holder of an
Exchange Note that is, for United States federal income tax purposes, (a) a
citizen or resident of the United States, (b) a corporation, partnership or
other entity created under the laws of the United States or of any political
subdivision thereof or (c) an estate or trust the income of which is subject to
United States federal income taxation regardless of source. The term "Foreign
Holder" means a holder of an Exchange Note that is not a United States Holder.
THE EXCHANGE
The exchange of the Original Notes for the Exchange Notes pursuant to the
Exchange Offer should not be a taxable event to the holder and thus the holder
should not recognize any taxable gain or loss as a result of the exchange. A
holder's adjusted tax basis in the Exchange Notes will be the same as his
adjusted tax basis in the Original Notes exchanged therefor, and his holding
period for the Original Notes will be included in his holding period for the
Exchange Notes. Although the exchange of the Original Notes for the Exchange
Notes will not create additional "market discount" or "amortizable bond premium"
(described below), to the extent that a holder acquired the Original Notes at a
market discount or with amortizable bond premium, such discount or premium would
generally carry over to the Exchange Notes received in exchange for the Original
Notes. Such holders should consult their tax advisers regarding the United
States federal income tax treatment of market discount or amortizable bond
premium.
UNITED STATES HOLDERS
Generally, interest paid on an Exchange Note will be taxable to a United
States Holder as ordinary interest income in accordance with such holder's
method of accounting for United States federal income tax purposes. Upon the
sale, exchange, redemption, retirement or other disposition of an Exchange Note,
a holder generally will recognize gain or loss equal to the difference between
the amount realized on the disposition and the holder's adjusted tax basis in
the Exchange Note. Subject to the market discount rules discussed below, gain or
loss recognized by a holder on the disposition of an Exchange Note will be
long-term capital gain or loss provided that the Exchange Note was a capital
asset in the hands of the holder and had been held for more than one year.
87
<PAGE> 95
ORIGINAL ISSUE DISCOUNT
The amount payable upon maturity of the Original Notes exceeded the issue
price of the Original Notes by approximately $3.98 per $1,000 Original Note,
which amount generally would be regarded as "original issue discount." However,
because such amount is less than 0.25% of the stated redemption price at
maturity of the Original Notes multiplied times ten (the number of complete
years to maturity), such original issue discount amount is treated as being
equal to zero. Consequently, United States Holders generally will not be
required to include any original issue discount as taxable income while holding
the Exchange Notes.
BOND PREMIUM
If a subsequent holder purchases an Exchange Note at a cost that is greater
than its stated redemption price at maturity, the holder may elect to deduct the
excess amount as amortizable bond premium (with a corresponding reduction in the
holder's tax basis) over the remaining term of the Exchange Note. The election
would apply to all taxable debt instruments held by the holder at any time
during the first taxable year to which the election applies and to any such debt
instruments which are later acquired by the holder. The election may not be
revoked without the consent of the IRS. Under the amortizable bond premium
rules, the amount of market discount, if any, which such holder must include in
its gross income with respect to such Exchange Notes for any taxable year will
be reduced by the portion of such premium properly allocable to such year.
MARKET DISCOUNT
If a subsequent holder purchases an Exchange Note for an amount that is
less than the stated redemption price at maturity of such Exchange Note, the
amount of the difference will be treated as market discount for U.S. federal
income tax purposes, unless such difference is less than a specified de minimis
amount. Under the market discount rules, a holder will be required to treat any
principal payment on, or any amount received on the sale, exchange, retirement
or other disposition of, an Exchange Note as ordinary income to the extent of
any market discount which has not previously been included in income and is
treated as having accrued on such Exchange Note by the time of such payment or
disposition. If a holder makes a gift of an Exchange Note, accrued market
discount, if any, will be recognized as if such holder had sold such Exchange
Note for a price equal to its fair market value. In addition, the holder may be
required to defer, until the maturity of the Exchange Note or its earlier
disposition in a taxable transaction, the deduction of a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry such
Exchange Note.
A holder of an Exchange Note acquired at a market discount may elect to
include market discount in income as interest as it accrues, in which case the
foregoing rules would not apply. This election would apply to all bonds with
market discount acquired by the electing holder on or after the first day of the
first taxable year to which the election applies. The election may be revoked
only with the consent of the IRS.
FOREIGN HOLDERS
Payments of principal, retirement premium, if any, interest received or
discount accrued by a Foreign Holder of an Exchange Note who is not engaged in a
trade or business within the United States will not be subject to United States
federal income or withholding tax provided that, in the case of interest, (a)(i)
the Foreign Holder 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, (ii) the Foreign Holder is not a controlled foreign corporation for United
States tax purposes that is related to the Company through stock ownership, and
(iii) such interest is not received by a bank on an extension of credit made
pursuant to a loan agreement entered into in the ordinary court of business and
(b) either (i) the beneficial owner of the Exchange Note, under penalties of
perjury, provides the Company or its agent with its name and address and
certifies that it is not a United States Holder or (ii) a securities clearing
organization, bank, or other financial institution that holds customers'
securities in the ordinary court of its trade or business (a "financial
institution") certifies to the Company or its agent, under penalties of perjury,
that such a statement has been received from the beneficial owner by it or
another financial institution and furnishes the payor a copy thereof. A Foreign
Holder, however, may be
88
<PAGE> 96
subject to United States federal income tax at the normal graduated rates on its
net interest income if such interest is effectively connected with the conduct
of a United States trade or business of such holder.
A Foreign Holder will not be subject to United States federal income or
withholding tax on any gain realized on the sale or exchange of an Exchange
Note, unless (a) the gain is effectively connected, or treated as effectively
connected, with a United States trade or business of the Foreign Holder or (b)
in the case of a Foreign Holder who is an individual, such Foreign Holder is
present in the United States for a period or periods aggregating 183 days or
more during the taxable year of the sale or exchange and either (i) the Foreign
Holder has a "tax home" (as defined in Code section 911(d)(3)) in the United
States or (ii) the gain is attributable to an office or other fixed place of
business maintained by the Foreign Holder in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING ON EXCHANGE NOTES
Certain noncorporate United States Holders generally will be subject to
information reporting and may be subject to backup withholding at a rate of 31%
on payments of principal, premium, if any, and interest (including "original
issue discount" and market discount) on, and the proceeds of disposition of, an
Exchange Note. Backup withholding will apply only if the United States Holder
(a) fails to furnish its Taxpayer Identification Number ("TIN"), which for an
individual would be the holder's Social Security number, (b) furnishes an
incorrect TIN, or (c) is notified by the Internal Revenue Service that it is
subject to backup withholding for the failure to report interest and dividend
payments. Holders should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
Information reporting and backup withholding will not apply to payments of
principal, premium, if any, and interest made by the Company or a paying agent
to a Foreign Holder on an Exchange Note if the certification described in clause
(b) of the first paragraph under "Foreign Holders" above is received, provided
that the payor does not have actual knowledge that the holder is a United States
person.
Payments of the proceeds from the sale by a Foreign Holder of an Exchange
Note made 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
United States person, a controlled foreign corporation for United States federal
income tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payments. Payments of
the proceeds from the sale of an Exchange Note to or through the United States
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner certifies as to its non-United States
status or otherwise establishes an exemption from information reporting and
backup withholding.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against such holder's United States federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
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 Original Notes where such Original 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.
The Company and the Subsidiary Guarantors will not receive any proceeds
from any sales of the 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-
89
<PAGE> 97
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 the
purchaser 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 Exchange Notes. Any broker-dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
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
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requires such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer, other than commissions are concessions of any
brokers or dealers, and will indemnify the holders of the Original Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered will be passed upon for the Company by
Winstead Sechrest & Minick P.C., Dallas, Texas.
EXPERTS
The consolidated financial statements of Tracor, Inc. at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
90
<PAGE> 98
TRACOR, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE> 99
TRACOR
AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Income Statements, years ended December 31,
1996, 1995 and 1994....................................... F-3
Consolidated Balance Sheets at December 31, 1996 and 1995... F-4
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1996, 1995 and 1994.......................... F-5
Consolidated Statements of Cash Flows, years ended December
31, 1996, 1995 and 1994................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 100
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Tracor, Inc.
We have audited the consolidated balance sheets of Tracor, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of Tracor'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 Tracor, Inc.
and subsidiaries at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Austin, Texas
January 27, 1997
except for Note N, as to which the date is
February 17, 1997
F-2
<PAGE> 101
TRACOR
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Net sales................................................. $1,082,505 $886,920 $694,037
Cost of sales............................................. 866,234 713,802 568,020
---------- -------- --------
Gross profit.................................... 216,271 173,118 126,017
Selling, administrative and general expenses.............. 123,681 104,928 78,201
---------- -------- --------
Earnings before interest and income taxes....... 92,590 68,190 47,816
Interest expense.......................................... 30,156 22,440 18,033
Interest income........................................... 3,686 2,944 1,262
---------- -------- --------
Income before income taxes...................... 66,120 48,694 31,045
Income taxes.............................................. 29,506 20,831 12,498
---------- -------- --------
Net income................................................ $ 36,614 $ 27,863 $ 18,547
========== ======== ========
Net income per common and common equivalent share:
Primary................................................. $ 1.46 $ 1.23 $ .96
========== ======== ========
Fully diluted........................................... $ 1.46 $ 1.23 $ .93
========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 102
TRACOR
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 36,758 $ 59,478
Accounts receivable....................................... 222,899 141,657
Inventories............................................... 12,456 4,695
Prepaid expenses and other................................ 17,542 7,988
Deferred income taxes..................................... 26,829 15,916
Net assets held for sale.................................. 3,530 --
-------- --------
Total current assets.............................. 320,014 229,734
Property, plant and equipment............................... 165,305 120,333
Less allowances for depreciation and amortization......... 47,842 34,573
-------- --------
Net property, plant and equipment................. 117,463 85,760
Goodwill, net of accumulated amortization of $11,590 in 1996
and $5,219 in 1995........................................ 236,047 99,813
Other intangibles, net of accumulated amortization of
$13,517 in 1996 and $7,870 in 1995........................ 12,947 18,385
Restricted cash............................................. 30,094 --
Prepaid pension costs....................................... 14,980 23,107
Deferred charges and other assets........................... 13,409 10,657
-------- --------
Total assets...................................... $744,954 $467,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 47,696 $ 22,981
Accrued liabilities....................................... 107,176 66,889
Current portion of long-term debt......................... 24,712 10,735
-------- --------
Total current liabilities......................... 179,584 100,605
Long-term debt, less current portion........................ 292,172 180,440
Deferred revenue............................................ 15,625 23,752
Other long-term liabilities................................. 34,656 25,694
Shareholders' equity:
Preferred stock, par value $.01 per share: 1,000,000
shares authorized; no shares issued or outstanding..... -- --
Common stock, par value $.01 per share: 53,000,000 shares
authorized; shares issued and outstanding: 24,754,303
net of 3,411 shares in treasury in 1996, 13,172,754 in
1995................................................... 247 132
Class A common stock, par value $.01 per share: 1,000,000
shares authorized; 978,458 shares issued and
outstanding in 1995.................................... -- 10
Additional capital paid in................................ 125,839 76,606
Retained earnings......................................... 96,831 60,217
-------- --------
Total shareholders' equity........................ 222,917 136,965
-------- --------
Total liabilities and shareholders' equity.................. $744,954 $467,456
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 103
TRACOR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
PAR CAPITAL RETAINED
SHARES VALUE PAID IN EARNINGS TOTAL
---------- ----- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994................. 10,611,965 $106 $ 49,254 $13,807 $ 63,167
Issuance of common stock for GDE
acquisition........................... 1,928,050 19 16,345 16,364
Exercise of stock options and Series A
Warrants.............................. 92,169 1 309 310
Purchase of common stock, at cost........ (975,000) (10) (7,786) (7,796)
Net income............................... 18,547 18,547
---------- ---- -------- ------- --------
Balance at December 31, 1994............... 11,657,184 116 58,122 32,354 90,592
Issuance of common stock, net of issuance
costs................................. 2,216,875 22 17,857 17,879
Exercise of stock options and Series A
Warrants, net of stock tendered as
payment for options exercised......... 277,153 4 627 631
Net income............................... 27,863 27,863
---------- ---- -------- ------- --------
Balance at December 31, 1995............... 14,151,212 142 76,606 60,217 136,965
Issuance of common stock, net of issuance
costs................................. 3,000,000 30 48,014 48,044
Exercise of stock options and Series A
Warrants, net of stock tendered as
payment for options exercised......... 308,114 2 798 800
Income tax effect related to stock
options and grants.................... 292 292
Issuance of common stock for Westmark
acquisition........................... 7,288,977 73 24 97
Issuance of common stock pursuant to
board of director stock plans......... 6,000 105 105
Net income............................... 36,614 36,614
---------- ---- -------- ------- --------
Balance at December 31, 1996............... 24,754,303 $247 $125,839 $96,831 $222,917
========== ==== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 104
TRACOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income............................ $ 36,614 $ 27,863 $ 18,547
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of property, plant and
equipment........................ 18,319 13,524 12,236
Amortization of goodwill........... 6,371 3,666 1,204
Amortization of other
intangibles...................... 5,671 5,664 1,306
Decrease in prepaid pension
costs............................ 8,127 11,686 3,489
Decrease in debt issuance costs.... 3,237 2,054 2,577
Provision for deferred income
taxes............................ 7,778 2,796 2,067
Decrease in deferred revenue....... (8,127) (11,686) (3,489)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable.................... (17,346) (4,085) 9,616
(Increase) decrease in
inventories and prepaids...... (3,390) 3,220 (771)
Increase (decrease) in accounts
payable....................... 1,650 6,869 (8,326)
Increase (decrease) in advance
payments...................... 6,195 (2,368) (4,788)
Due to Vitro's former parent..... -- -- (7,197)
Decrease in accrued expenses..... (21,770) (4,696) (639)
Increase in other................ (1,494) (545) (43)
--------- -------- --------
Net cash provided by operating
activities.................. 41,835 53,962 25,789
Investing activities:
Purchases of property, plant and
equipment.......................... (19,623) (13,676) (11,007)
Proceeds from sale of property, plant
and equipment...................... 14,610 2,382 897
Acquisition of businesses, net of cash
acquired........................... (176,948) (15,120) (61,048)
--------- -------- --------
Net cash used in investing
activities.................. (181,961) (26,414) (71,158)
Financing activities:
Payments of long-term debt............ (105,602) (10,732) (38,342)
Purchase of treasury stock............ -- -- (7,796)
Proceeds from stock offering, net of
stock issuance costs............... 48,044 17,879 --
Proceeds from issuance of long-term
debt............................... 180,000 -- 85,000
Payment of debt issuance costs........ (5,836) -- (3,229)
Exercise of stock options and
warrants........................... 800 631 310
--------- -------- --------
Net cash provided by financing
activities.................. 117,406 7,778 35,943
--------- -------- --------
Increase (decrease) in cash
and cash equivalents........ (22,720) 35,326 (9,426)
Cash and cash equivalents at beginning
of period............................. 59,478 24,152 33,578
--------- -------- --------
Cash and cash equivalents at end of
period................................ $ 36,758 $ 59,478 $ 24,152
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 105
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A -- BUSINESS AND ACQUISITIONS
BUSINESS
Tracor, Inc. and its subsidiaries (individually and collectively referred
to as Tracor or the Company) operate in one business segment, providing a broad
range of sophisticated electronic and information technology products, systems
and services to its customers in the U.S. Department of Defense (DOD) as well as
in nondefense U.S. government agencies, other governments and the commercial
marketplace. Tracor primarily markets and sells its own products, systems and
services. When marketing and selling to foreign customers, Tracor frequently
engages the assistance of in-country representatives, distributors or trading
companies.
Sales to agencies of the U.S. government totaled $926 million in 1996, $773
million in 1995 and $611 million in 1994. The U.S. government, through more than
700 contracts with approximately 100 separate government agencies, was the only
customer accounting for more than 10% of consolidated net sales. Sales to the
DOD were $845 million in 1996, $717 million in 1995 and $563 million in 1994.
Export sales, principally to Pacific Rim, European and Middle Eastern
customers, totaled $95 million in 1996, $81 million in 1995 and $59 million in
1994. Income before income taxes from foreign-based operations was not
significant.
ACQUISITIONS
Cordant Acquisition
On September 26, 1996, Tracor purchased all of the outstanding shares of
Cordant Holdings, Inc. (Cordant), an employee-owned information systems company.
Cordant focuses on the design, development and integration of information
systems for a variety of applications, including mail processing, records
management and CAD/GIS (computer-aided design/geographic information systems).
The purchase price of $65.7 million is subject to a contingent payment up to an
additional $10 million based upon the potential award of a large contract. The
acquisition was financed by the use of $34.2 million of cash on hand and the
issuance of two promissory notes totaling $31.5 million. One promissory note in
the amount of $5 million, subject to adjustments for indemnification claims, is
payable March 26, 1998. The other note in the amount of $26.5 million requires a
payment of approximately $1.8 million on April 1, 1997, and an additional
payment of $3.5 million on April 1, 1997, if the contingent payment discussed
above does not occur. The remaining balance of this note is payable upon the
resolution of a former Cordant minority shareholder's lawsuit. Both promissory
notes are supported by irrevocable standby letters of credit which are fully
collateralized by cash escrow deposits. Approximately $1.8 million of the
restricted cash and promissory notes is classified as current and presented with
other current assets and current portion of long-term debt, respectively, in the
balance sheet. The remainder of the restricted cash and promissory notes is
classified as long-term.
The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price including transaction expenses ($66 million),
and the liabilities assumed ($39 million) have been allocated to the assets
acquired ($44.9 million) based on a preliminary estimate of their respective
fair values at the date of acquisition. This preliminary estimate is subject to
change based on finalization of certain fair value determinations which are not
expected to have a material effect on the consolidated financial position or
results of operations of Tracor. The resulting excess of the purchase price over
the preliminary estimate of the fair value of the net assets acquired ($60.1
million) is being amortized over 25 years.
During the fourth quarter of 1996, Tracor obtained the necessary
information to complete its cost estimates related to the planned elimination of
certain duplicative corporate functions and excess leased facilities. Estimated
liabilities of approximately $1.9 million for employee severance and excess
facilities costs
F-7
<PAGE> 106
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
have been established and are included in the liabilities assumed of $39
million. As a result, goodwill increased $1.1 million, net of deferred taxes of
$747,000, over the $59 million reported at acquisition date.
The pro forma results for the effect of the Cordant acquisition are not
presented as such effect is not material to the financial condition or results
of operations of the Company.
AEL Acquisition
On February 22, 1996, Tracor purchased all of the outstanding common shares
of AEL Industries, Inc. (AEL). AEL designs and manufactures sophisticated
countermeasures, simulation and radar warning receiver systems; installs and
integrates electronic avionics equipment in military and commercial aircraft;
and provides state-of-the-art antenna, microwave and integrated circuit
components.
The purchase price, including acquisition expenses, was approximately
$103.1 million. AEL's long-term indebtedness prior to the acquisition totaled
approximately $20 million, of which approximately $10 million was retired and
approximately $10 million was assumed by Tracor. The financing for the
transaction and related expenses was obtained through an increase of the
Company's existing bank term credit facility and from cash on hand.
The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price ($103.1 million) and the liabilities assumed
($64 million) have been allocated to the assets acquired ($98.1 million) based
on their respective fair values at the date of acquisition. Several changes to
initial estimates are described below. The resulting excess of the purchase
price over the fair value of the net assets acquired ($69 million) is being
amortized over 30 years.
In conjunction with the acquisition of AEL, Tracor developed and is
executing a plan to exit certain non-strategic activities and product lines of
AEL, dispose of certain AEL properties which are excess to the combined company,
and to relocate certain AEL operations to other Tracor facilities. Tracor has
completed the sale of AEL's Instruments Services Division and two excess AEL
properties resulting in net proceeds of approximately $13 million. Based on the
completion of a market study initiated in conjunction with the acquisition,
Tracor also decided to exit AEL's Optical Communications Division product line.
The sale of this product line resulted in proceeds of $1 million. One other
facility remains to be sold at December 31, 1996. Finally, Tracor obtained the
necessary information to finalize its review of AEL's cost estimates to complete
certain contracts which were in loss positions at the date of acquisition.
The above changes to initial fair value estimates of assets and liabilities
of approximately $14.9 million, offset by a deferred tax asset increase of
approximately $6 million, have resulted in an increase to goodwill related to
the AEL acquisition of approximately $8.9 million. Such revisions are included
in the liabilities assumed of $64 million and assets acquired of $98.1 million.
As of December 31, 1996, the Company had substantially completed the
relocation and consolidation of certain operations previously performed at AEL
facilities into other Tracor facilities and the elimination of certain corporate
functions at AEL's headquarters. Estimated liabilities of approximately $6
million for employee severance, relocation costs, facility closing-related costs
and other miscellaneous liabilities were established at the date of acquisition.
Approximately $4.1 million of these costs have been incurred through December
31, 1996.
F-8
<PAGE> 107
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The following unaudited net sales, net income and net income per share are
presented on a pro forma basis, assuming the acquisition of AEL had occurred on
January 1, 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
(UNAUDITED)
----------------------
1996 1995
---------- --------
<S> <C> <C>
Net sales................................................... $1,097,456 $996,839
Net income.................................................. 26,801 27,033
Net income per share fully diluted.......................... 1.07 1.19
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisition of AEL
occurred on January 1, 1995, nor of future results.
Westmark Acquisition
On June 13, 1996, Tracor concluded the acquisition of substantially all the
assets of Westmark Systems, Inc. (Westmark), which primarily consisted of Tracor
stock and warrants and certain other real estate holdings. Westmark held all of
Tracor's Class A stock (978,458 shares), a Series B warrant to purchase
5,249,428 shares of Tracor common stock with an exercise price of $4.42 per
share, and a Series C warrant to purchase 5,455,000 shares of Tracor common
stock with an exercise price of $7.36 per share. Under the agreement, Tracor
exchanged 8,267,435 shares of common stock for the Westmark assets. Westmark
liquidated concurrently with the closing by distributing the Tracor shares to
its shareholders. The agreement provided for a distribution of the Tracor shares
through underwritten secondary offerings of a maximum of one-half of the shares
during the first two years after the closing. Accordingly, 3,567,272 shares were
sold in a public offering concluded on July 11, 1996. See Note I.
Other Acquisitions
During 1996 and 1995, Tracor completed several business acquisitions, none
of which were individually or collectively material to the financial condition
or results of operations of the Company. These acquisitions included, in 1996,
the AEGIS shipbuilding program support business from Litton Industries, Inc.,
the Systems Integration Division of Codar Technology, Inc., and Aerial Data
Reduction Associates, Inc. and, in 1995, the chaff manufacturing business of
Lundy Technical Center (a division of TransTechnology Corporation), the Convair
Twin Engine Program from General Dynamics' Convair Division, and the
shaped-charge munitions business unit of The Titan Corporation. The aggregate
cash purchase price of these acquisitions, including expenses, was approximately
$25.8 million. The acquisitions have been accounted for using the purchase
method, and, accordingly, the purchase price and liabilities assumed ($5.6
million) have been allocated to the assets acquired ($11.2 million) based on
their respective fair values at the date of acquisition. The resulting excess of
the purchase price over the fair value of the net assets acquired ($20.2
million) is being amortized over 10 to 20 years.
GDE Acquisition
On November 17, 1994, Tracor purchased all of the outstanding common stock
of GDE Holdings, Inc. (GDE). GDE designs, develops, manufactures and supports
automatic test systems, imagery and information systems and mission planning
systems. The purchase price, including the effect of a post-closing amendment to
the acquisition that was finalized in March 1995, and related acquisition
expenses totaled $102 million. The purchase price was financed by the issuance
of approximately 1.9 million shares of Tracor's common stock (recorded at $8.50
per share), the issuance of approximately $10.9 million of Series A Notes (see
Note G),
F-9
<PAGE> 108
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
the borrowing of $55 million under the Company's amended and restated credit
agreement, and approximately $19.9 million of the Company's cash on hand.
The acquisition has been accounted for using the purchase method and,
accordingly, the purchase price and the liabilities assumed ($76 million) have
been allocated to the assets acquired ($104 million) based on their respective
fair values at the date of acquisition. The resulting excess of the purchase
price over the fair value of the net assets acquired ($74 million) is being
amortized over 30 years.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Tracor, Inc.
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts have been eliminated.
Cash Equivalents
All highly liquid investments, with a maturity of three months or less when
purchased, are considered to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions, in particular, estimates of anticipated contract costs and revenues
used in the earnings recognition process, which affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Long-term Contracts
Long-term contracts are accounted for under the percentage of completion
method, wherein revenue is recognized based on cumulative costs incurred and the
estimated cost to complete as such relates to total contract price. All costs
are expensed as incurred, and losses on contracts are estimated and recognized
when it becomes apparent a loss is to be incurred. The revenue impact of pension
costs is recognized as the pension costs are recognized for GAAP purposes. This
results in the deferral of revenue where allowable pension costs under
government accounting regulations exceed pension costs as prescribed by GAAP.
The entire amount of deferred revenue in the accompanying consolidated balance
sheets results from this accounting methodology.
The progress payment provisions of certain contracts permit Tracor to bill
for a percentage of costs incurred. The remainder of costs incurred and profit
are included in unbilled costs and fees and are billed at the completion of the
contract or upon delivery of the product. See Note C.
Inventories
Inventories, consisting principally of raw materials and purchased
components, are stated at the lower of cost (generally first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, and depreciation is
calculated on both the straight-line and accelerated methods over the useful
lives of the related assets.
F-10
<PAGE> 109
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Goodwill, Other Intangibles and Deferred Charges and Other Assets
Goodwill, the excess cost over the fair value of net assets acquired, is
amortized using the straight-line method over 10 to 30 years. Other intangibles
are recorded at cost and amortized using the straight-line method over their
economic lives. Deferred debt issuance costs, included in deferred charges and
other assets, are capitalized and amortized to interest expense using the
interest method.
It is Tracor's policy to value goodwill and other intangible assets at the
lower of unamortized cost or fair value. Management reviews the valuation and
amortization of intangible assets on a periodic basis, taking into consideration
any events or circumstances which might result in diminished fair value. If this
review indicates goodwill will not be recoverable, the carrying value of the
goodwill will be reduced in accordance with the provisions of Financial
Accounting Standards Board (FASB) Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Research and Development Costs
Tracor-funded research and development costs are expensed as incurred. Such
costs were $11.1 million in 1996, $5.4 million in 1995 and $4.7 million in 1994.
Income Taxes
In accordance with FASB Statement No. 109, Accounting for Income Taxes,
deferred income taxes are provided for temporary differences between the basis
of assets and liabilities for financial reporting purposes and for income tax
return purposes.
Reclassifications
For comparative purposes, certain reclassifications have been made to
amounts previously reported.
NOTE C -- ACCOUNTS RECEIVABLE
The following table shows the components of accounts receivable (in
thousands), which include unbilled costs and fees under fixed-price and
cost-reimbursement type contracts. Billed accounts receivable are shown net of
allowances for doubtful accounts.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Billed:
U.S. government, including Foreign Military Sales (FMS)... $105,288 $ 72,338
Foreign................................................... 27,909 6,591
Domestic commercial....................................... 22,236 13,238
-------- --------
155,433 92,167
Unbilled costs and fees:
U.S. government, including FMS............................ 49,892 41,599
Foreign................................................... 6,345 5,266
Domestic commercial....................................... 11,229 2,625
-------- --------
67,466 49,490
-------- --------
$222,899 $141,657
======== ========
</TABLE>
F-11
<PAGE> 110
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Amounts included in unbilled costs and fees comprise contract amounts for
which billings have not been presented. The requirements for billing are those
commonly found in contracting situations, such as meeting contractual milestones
and fulfilling retainage provisions. Substantially all amounts not billed at
December 31, 1996, will be billed during 1997. It is also anticipated that
substantially all billed accounts receivable and unbilled costs and fees will be
collected within one year.
The following table summarizes the changes in the allowance for doubtful
accounts for 1994, 1995 and 1996 (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1994.................................. $ 78
Additions charged to costs and expenses................... 2
Additions due to GDE acquisition.......................... 804
Write-off of uncollectible accounts....................... (16)
------
Balance at December 31, 1994................................ 868
Additions charged to costs and expenses................... 285
Write-off of uncollectible accounts....................... (195)
Reduction in allowance.................................... (492)
------
Balance at December 31, 1995................................ 466
Additions charged to costs and expenses................... 223
Additions due to acquisitions............................. 1,508
Write-off of uncollectible accounts....................... (251)
------
Balance at December 31, 1996................................ $1,946
======
</TABLE>
Although Tracor has a concentration of credit risk with the U.S.
government, Tracor has not historically experienced significant collection
losses on U.S. government contracts. Also, Tracor's foreign receivables are not
concentrated within any one geographic region, nor are they subject to economic
conditions that would subject Tracor to unusual risk.
NOTE D -- INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Raw materials and purchased components...................... $ 8,996 $ 2,824
Work in process............................................. 2,859 1,651
Finished goods.............................................. 601 220
-------- --------
$ 12,456 $ 4,695
======== ========
</TABLE>
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 13,644 $ 8,942
Buildings................................................... 50,635 34,394
Equipment................................................... 94,658 71,179
Leasehold improvements...................................... 6,368 5,818
-------- --------
$165,305 $120,333
======== ========
</TABLE>
F-12
<PAGE> 111
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE F -- ACCRUED LIABILITIES
The components of accrued liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Payroll and related items................................... $ 47,553 $ 44,493
Advance payments from customers............................. 9,519 3,324
Other....................................................... 50,104 19,072
-------- --------
$107,176 $ 66,889
======== ========
</TABLE>
NOTE G -- LONG-TERM DEBT
The components of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revolving loan.............................................. $ -- $ --
Term loans.................................................. 163,205 74,550
Senior Subordinated Notes................................... 105,000 105,000
Series A Notes.............................................. 10,947 10,947
Promissory Notes payable to former Cordant shareholders (See
Note A)................................................... 31,500 --
Other....................................................... 6,232 678
-------- --------
316,884 191,175
Less current maturities..................................... 24,712 10,735
-------- --------
$292,172 $180,440
======== ========
</TABLE>
Interest paid totaled $25.9 million in 1996, $20.6 million in 1995 and
$13.8 million in 1994.
Amended and Restated Credit Agreement
Tracor's amended and restated credit agreement (Amended Credit Agreement)
consists of a $180 million term loan facility, a $60 million revolving loan
facility and a $50 million letters of credit facility. Substantially all assets
of Tracor and certain domestic, wholly-owned subsidiaries are pledged or
mortgaged under the Amended Credit Agreement, and all borrowings are guaranteed
by such subsidiaries.
The term loans are comprised of a $64 million A Term Loan, a $49.6 million
B Term Loan, and a $49.6 million C Term Loan. The A Term Loan facility is
evidenced by promissory notes maturing October 31, 1999, requiring quarterly
principal payments of approximately $5.3 million. The B Term Loan facility is
evidenced by promissory notes maturing October 31, 2000, requiring quarterly
payments of $133,333 through and including October 31, 1999, and quarterly
payments of $12 million from January 31, 2000, through October 31, 2000. The C
Term Loan facility is evidenced by promissory notes maturing April 30, 2001,
requiring quarterly payments of $131,578 through and including October 31, 2000,
and two payments of $23.8 million on January 31 and April 30, 2001. The
revolving loans facility is evidenced by promissory notes maturing December 31,
2000. The letters of credit facility provides for the issuance of letters of
credit with expiration dates generally 18 months or less from the date of
issuance (automatically renewable unless a default exists at the expiration
date) but in any event not later than December 31, 2000.
Certain mandatory prepayments may also be required from the net proceeds of
asset or equity sales and annual excess cash flow. Such mandatory repayments are
to be applied to equally and ratably prepay the A, B and C Term Loans based on
the relative principal amounts outstanding.
F-13
<PAGE> 112
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Term loans under the A Term Loan facility and the revolving loans bear
interest at Tracor's option at either the lender's base rate plus .75% or the
eurodollar rate plus 1.75% less a reduction ranging from .25% to 1.125% per
annum based on Tracor's leverage ratio, as defined. Loans under the B Term Loan
facility bear interest at Tracor's option at either the lender's base rate plus
1% or the eurodollar rate plus 2%. Loans under the C Term Loan facility bear
interest at Tracor's option at either the lender's base rate plus 1.25% or the
eurodollar rate plus 2.25%. Interest rates on the A, B and C Term Loans at
December 31, 1996, were 7.3%, 7.8% and 8.1% per annum, respectively. Interest on
base rate loans is payable quarterly, and interest on eurodollar loans is
payable at the end of the applicable interest period or every three months in
the case of interest periods in excess of three months. A commitment fee of .5%
per annum, less a reduction ranging from .125% to .25% per annum based on
Tracor's leverage ratio as defined, is charged on the unused revolving loans and
letters of credit facility and is payable quarterly in arrears. The commitment
fee at December 31, 1996, was .375% per annum. Each letter of credit bears an
issuance fee of .125% per annum plus a fee equal to .25% less than the interest
margin in effect for revolving loans maintained as eurodollar loans. The fee at
December 31, 1996, was 1.375%. At December 31, 1996, the Company had outstanding
letters of credit totaling $32.1 million relating to commitments for performance
on certain contracts with foreign customers and as collateral on certain
insurance policies.
The Amended Credit Agreement contains covenants which, among other things,
impose limitations and restrictions on the incurrence of additional
indebtedness, capital expenditures, future mergers and acquisitions, sales of
assets, payment of dividends and changes in control, as defined. In addition,
Tracor is required to satisfy certain financial covenants and tests relating to,
among other matters, interest coverage, working capital, leverage and net worth.
Senior Subordinated Notes
The acquisition of Vitro Corporation (Vitro) on August 23, 1993, was
financed by the issuance of $105 million aggregate principal amount of Senior
Subordinated Notes due August 15, 2001 (the Notes). The Notes bear interest at
an annual rate of 10 7/8%, payable semiannually on February 15 and August 15.
There is no sinking fund requirement.
The acquisition of GDE was financed in part by the issuance of
approximately $10.9 million (as adjusted by a post-closing amendment to the
acquisition that was finalized in March 1995) aggregate principal amount of
Series A Notes due August 15, 2001 (Series A Notes) in a private placement in
November 1994. The Series A Notes rank on the same level as, and are a part of
the same series of securities as, the Company's existing Notes discussed above.
The Series A Notes bear interest at an annual rate of 10 7/8%, payable
semiannually on February 15 and August 15. There is no sinking fund requirement.
The Notes and Series A Notes are redeemable, in whole or in part, at the
option of Tracor, on or after August 15, 1997, at the redemption prices of
104.661% in 1997, 103.107% in 1998, 101.554% in 1999 and 100% thereafter. In the
event of a change of control, as defined in the indenture, each holder may
require Tracor to repurchase such holder's Notes or Series A Notes, as
applicable, at 101% plus accrued and unpaid interest. Tracor is also required to
offer to repurchase a specified portion of the Notes and Series A Notes in the
event of certain asset sales.
The Notes and Series A Notes are subordinated to all senior debt,
subordinated on an equal basis with any future senior subordinated indebtedness,
and senior to all other subordinated debt of Tracor. Substantially all of
Tracor's wholly-owned subsidiaries have guaranteed the Notes and Series A Notes
on a senior subordinated basis.
The indentures pertaining to the Notes and Series A Notes contain
restrictions on the incurrence of additional indebtedness, dividends on and
redemptions of capital stock, redemptions of certain subordinated
F-14
<PAGE> 113
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
obligations, the making of certain investments, transactions with affiliates,
sales of assets, and mergers or consolidations with or transfers of assets to
other persons.
Aggregate annual long-term debt maturities for each of the next five years
are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................... $ 24,712
1998.................................... 27,692
1999.................................... 22,714
2000.................................... 48,839
2001.................................... 163,777
2002 and thereafter..................... 29,150
--------
Total................................... $316,884
========
</TABLE>
Fair Value
The fair value of Tracor's outstanding debt under the Amended Credit
Agreement approximates its carrying value. This assessment is based on the fact
that the debt has a variable interest rate. Based on the market prices for the
Notes, the fair values of Tracor's Notes and Series A Notes are $111 million and
$11.6 million, respectively, at December 31, 1996, and $108.4 million and $11.3
million, respectively, at December 31, 1995.
Subsequent to December 31, 1996, Tracor initiated transactions to
restructure its long-term debt. See Note N.
NOTE H -- RETIREMENT BENEFIT PLANS
Tracor provides retirement benefits through contributory and
noncontributory defined benefit and defined contribution plans.
Defined Benefit Pension Plan
Tracor's defined benefit pension plan (Pension Plan) covers most of its
employees. Retirement benefits are generally based on years of service and final
average compensation. Tracor's contributions are made in amounts sufficient to
satisfy funding requirements under the Employee Retirement Income Security Act
of 1974, as amended (ERISA). Significant amendments include the merger of GDE's
defined benefit plan with the Pension Plan on December 31, 1994.
Assumptions used in accounting for the Pension Plan were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Weighted-average discount rate:
January 1................................................ 7.25% 8.75% 7.50%
December 31.............................................. 7.75% 7.25% 8.75%
Rate of increase in compensation levels:
January 1................................................ 4.00% 5.00% 4.00%
December 31.............................................. 4.00% 4.00% 5.00%
Expected long-term rate of return on assets................ 9.50% 9.50% 9.50%
</TABLE>
F-15
<PAGE> 114
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Substantially all Pension Plan assets are invested in publicly traded
stocks and bonds. The funded status and the amount recognized in the
consolidated balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $296,648 $304,687
======== ========
Accumulated benefit obligation............................ $306,739 $315,351
======== ========
Projected benefit obligation................................ $353,421 $365,648
Pension Plan assets at fair value........................... 370,422 350,570
-------- --------
Pension Plan assets in excess of (less than) the projected
benefit obligation........................................ 17,001 (15,078)
Unrecognized prior service cost............................. 6,668 7,394
Unrecognized net loss (gain)................................ (8,689) 30,791
-------- --------
Net prepaid pension costs recognized........................ $ 14,980 $ 23,107
======== ========
</TABLE>
The components of pension expense are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost, benefits earned during the year...... $ 14,487 $ 12,458 $ 7,877
Interest cost on projected benefit obligation...... 25,149 25,891 13,221
Actual return on Pension Plan assets............... (42,961) (73,856) 7,200
Net amortization and deferral...................... 11,452 47,193 (24,367)
-------- -------- --------
$ 8,127 $ 11,686 $ 3,931
======== ======== ========
</TABLE>
Defined Contribution Retirement Plans
Tracor's contributions under its defined contribution plans, which together
cover substantially all employees, are generally based upon a percentage of an
eligible employee's covered compensation or employee contributions. Expenses
recorded under defined contribution plans were $10 million in 1996, $9.2 million
in 1995 and $7.2 million in 1994.
Effective December 1, 1996 the Company established the Tracor Deferred
Compensation Plan for eligible employees. The plan is a nonqualified deferred
compensation plan pursuant to which certain eligible employees of the Company
may elect to defer compensation. The plan is maintained primarily for the
purpose of providing deferred compensation for highly compensated employees,
within the meaning of Section 201(2); 301(3); and 401(a)(1) of ERISA. The
Company will match contributions up to the extent of the allowable scheduled
match under the Defined Contribution Retirement Plan. Expenses under this plan
were approximately $88,000 in 1996.
Postretirement Health Care Plans
Tracor, principally through Vitro and GDE, provides postretirement health
care and life insurance benefits to certain retired employees who meet minimum
age and service requirements. The health care and life insurance plans are
contributory and contain other cost-sharing features such as deductibles and
coinsurance. Tracor's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management.
F-16
<PAGE> 115
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Upon Tracor's acquisition of Vitro, the postretirement health care plans
for Vitro employees were discontinued, leaving only the obligation that existed
at the acquisition date for eligible employees and retirees. Accordingly, the
cost of providing these benefits under the Tracor and Vitro plans is not
significant to the consolidated financial statements, and information regarding
actuarial methods and assumptions, health care cost assumptions, and components
of the obligation and annual expense is not provided. Other long-term
liabilities include $5 million at December 31, 1996, and $5.5 million at
December 31, 1995, for such benefits.
The defined benefit health care and life insurance plans sponsored by GDE
currently provide postretirement benefits; however, the salaried retiree medical
plans will terminate effective July 1, 2008. The current GDE retiree plans will
continue until that time with the premium capped at the rate in effect July 1,
1993, plus an escalation of 5% per year through 1997.
The following table (in thousands) presents the GDE plans' funded status
and the amounts recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $7,000 $ 8,149
Fully eligible active plan participants................... 840 1,596
Other active plan participants............................ 466 842
------ -------
8,306 10,587
Plan assets at fair value................................. -- --
------ -------
Accrued postretirement obligation, included in other
long-term liabilities..................................... $8,306 $10,587
====== =======
</TABLE>
Net periodic postretirement benefit cost for the GDE plans was
approximately $610,000 in 1996 and $961,000 in 1995.
For measurement of the GDE plans, 9% to 11% annual rates of increase,
depending on participant criteria, in the per capita cost of covered benefits
(i.e. health care cost trend rate) were assumed for 1996 and 1995. The rates
were assumed to decrease gradually to 6% for most participants by the year 2001
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. For example, increasing the
assumed health care trend rate by one percentage point would increase the
accumulated postretirement benefit obligation at December 31, 1996, by $130,000
and the net periodic postretirement benefit cost for 1996 by $67,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation for the GDE plans was 7.75% at December 31,
1996, and 7.25% at December 31, 1995.
NOTE I -- SHAREHOLDERS' EQUITY
Common Stock
Under certain conditions, as set forth in a registration rights agreement,
the initial holders of common stock may request Tracor to register its
securities with the Securities and Exchange Commission (SEC) for resale. This
registration right is generally not transferable to subsequent shareholders.
Tracor must bear the cost of any registration, except for underwriting
commissions, sellers' counsel fees and other selling expenses. Tracor may
include in any registration shares of common stock to be sold for its own
account, subject to certain limitations.
The acquisition of Westmark (see Note A), completed on June 13, 1996,
resulted in the issuance of 8,267,435 shares of Tracor common stock, the
retirement of the Company's Class A common stock (978,458
F-17
<PAGE> 116
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
shares) and two series of warrants to purchase a total of 10,704,428 shares of
the Company's common stock. Subsequent to the Westmark acquisition, Tracor
concluded a public offering on July 11, 1996, of 6,567,272 shares of common
stock at a price of $17.50 per share. Of the shares sold, the Company sold
3,000,000 shares and certain former shareholders of Westmark sold 3,567,272
shares. The net proceeds to the Company from the primary shares sold in the
offering totaled approximately $48 million.
On May 2, 1995, Tracor concluded a public offering of 4,600,000 shares of
common stock at a price of $11.50 per share. Of the 4,600,000 shares, Tracor
sold 1,600,000 shares and a selling stockholder sold 3,000,000 shares. Included
in shares sold by the stockholder were 616,875 shares obtained upon the exercise
of Series A Warrants. The net proceeds to Tracor from the exercise of Series A
Warrants and the primary shares sold in the offering totaled approximately $18
million.
During 1994, Tracor purchased from a major shareholder 975,000 shares of
its common stock for $7.8 million. These shares were classified as treasury
shares. In November 1995, Tracor's board of directors retired all 982,653 shares
of common stock held as treasury stock. The shares returned to the status of
authorized but unissued shares.
Common Stock Purchase Warrants
At December 31, 1996, there were outstanding 1,227,788 Series A warrants,
which entitle the holders to purchase shares of common stock at an exercise
price of $2.54. The warrants are exercisable at the option of the holder at any
time prior to December 27, 2001, and are not callable by Tracor. Under certain
conditions, as defined in the warrant agreement, the number of shares
purchasable and the exercise price may be adjusted. The holders may also request
Tracor to register the underlying securities with the SEC under substantially
the same terms described above for holders of common stock, except that the
registration rights are generally transferable to subsequent warrant holders.
Series A warrants exercised totaled 122,900 shares in 1996, 829,175 shares in
1995 and 46,472 shares in 1994.
Common Stock Option Plan
Tracor's stock option plans provide for the grant of restricted stock,
stock appreciation rights and both incentive and non-qualified options to
employees. The exercise price of each currently outstanding option is the fair
value of a share of Tracor's common stock on the date of grant. Up to 30% of
each option is exercisable one year after the grant, up to an additional 30% is
exercisable two years after the grant, and the remainder is exercisable three
years after the grant. The term of each option is 10 years from the date of
grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation (FAS 123), requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
F-18
<PAGE> 117
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined as
if the Company had accounted for its employee stock options granted subsequent
to December, 31, 1994 under the fair value method prescribed by FAS 123. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Risk-free interest rate................. 5.8% 6.3%
Dividend yield.......................... 0% 0%
Volatility factor of the expected market
price of Tracor's common stock........ .576 .576
Weighted-average expected life of the
options............................... 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, this option valuation model requires
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the Black-Scholes model does not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Pro forma stock-based compensation
expense............................... $ 2,021 $ 773
Pro forma net income.................... 34,593 27,090
Pro forma earnings per share:
Primary............................... 1.39 1.20
Fully diluted......................... 1.39 1.20
</TABLE>
Because FAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
The effects of applying FAS 123 for pro forma disclosures are not likely to
be representative of the effects on reported net income for future years.
F-19
<PAGE> 118
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
A summary of changes in common stock options during 1994, 1995 and 1996 is
as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICE
--------- --------------- --------
<S> <C> <C> <C>
Options outstanding, January 1, 1994........... 914,200 $ 1.75 - $ 8.13 $ 3.09
Granted...................................... 71,700 7.88 - 12.25 11.83
Exercised.................................... (48,500) 1.75 - 3.63 2.46
Surrendered.................................. (4,200) 3.13 3.13
--------- --------------- ------
Options outstanding, December 31, 1994......... 933,200 1.75 - 12.25 3.60
Granted...................................... 487,500 13.00 - 15.25 13.02
Exercised.................................... (69,703) 1.75 - 8.13 2.22
Surrendered.................................. -- -- --
--------- --------------- ------
Options outstanding, December 31, 1995......... 1,350,997 1.75 - 15.25 7.07
Granted...................................... 374,600 16.13 - 21.88 16.96
Exercised.................................... (188,625) 2.00 - 13.00 2.90
Surrendered.................................. (5,399) 8.12 - 13.00 10.84
--------- --------------- ------
Options outstanding, December 31, 1996......... 1,531,573 $ 1.75 - $21.88 $10.00
========= =============== ======
</TABLE>
Options outstanding at December 31, 1996 are comprised of the following:
<TABLE>
<CAPTION>
RANGE OF
EXERCISE
OPTIONS PRICES
--------- ---------------
<S> <C> <C>
548,773 $ 1.75 - $ 3.50
80,000 7.88 - 8.13
842,100 12.25 - 16.13
60,700 19.13 - 21.88
--------- ---------------
1,531,573 $ 1.75 - $21.88
========= ===============
Options exercisable, December 31,
1996................................................... 797,143 $ 1.75 - $15.25
1995................................................... 653,400 1.75 - 12.25
1994................................................... 376,600 1.75 - 8.13
</TABLE>
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Weighted-average fair value of options granted during the
year...................................................... $9.39 $7.28
Weighted-average remaining contractual life of options at
December 31............................................... 7.5 years 7.8 years
</TABLE>
Common stock reserved at December 31, 1996, consists of the following:
<TABLE>
<S> <C> <C>
For exercise of outstanding warrants...................... 1,227,788
For exercise of stock options............................. 1,668,872
---------
2,896,660
=========
</TABLE>
F-20
<PAGE> 119
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE J -- INCOME TAXES
Income before income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Domestic.............................................. $64,990 $48,212 $31,111
Foreign............................................... 1,130 482 (66)
------- ------- -------
$66,120 $48,694 $31,045
======= ======= =======
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $17,442 $14,887 $ 8,708
State............................................... 4,269 3,308 1,723
Foreign............................................. 17 (160) --
------- ------- -------
21,728 18,035 10,431
Deferred:
Federal............................................. 6,995 2,309 1,978
State............................................... 528 487 218
Foreign............................................. 255 -- (129)
------- ------- -------
7,778 2,796 2,067
------- ------- -------
$29,506 $20,831 $12,498
======= ======= =======
</TABLE>
A reconciliation between income taxes computed on income before taxes at
the statutory federal rate (35% in 1996, 1995 and 1994) and the provision for
income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income taxes at the statutory federal rate............ $23,142 $17,043 $10,866
Goodwill.............................................. 2,115 1,240 553
State income taxes, net of federal tax benefits....... 3,118 2,467 1,262
Other................................................. 1,131 81 (183)
------- ------- -------
$29,506 $20,831 $12,498
======= ======= =======
</TABLE>
F-21
<PAGE> 120
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
A summary of the tax effects of temporary differences comprising deferred
income tax assets and liabilities is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred income tax assets:
Contracts................................................. $13,383 $ 6,509
Postretirement medical obligation......................... 1,942 1,982
Accrued vacation/employee benefits........................ 8,834 8,332
Expense accruals not yet deductible....................... 4,612 820
Deferred compensation..................................... 6,894 3,426
Pension................................................... 6,891 9,243
Other..................................................... 2,242 783
------- -------
Total deferred tax assets......................... 44,798 31,095
Valuation allowance for deferred tax assets............... -- --
------- -------
Net deferred tax assets........................... 44,798 31,095
Deferred income tax liabilities:
Depreciation/amortization................................. 11,055 11,083
Pension................................................... 6,257 9,501
Other..................................................... 9,941 1,921
------- -------
Total deferred tax liabilities.................... 27,253 22,505
------- -------
Net deferred income taxes................................... $17,545 $ 8,590
======= =======
</TABLE>
Net deferred income taxes are reflected on the consolidated balance sheet
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Current deferred income taxes............................... $26,829 $15,916
Other long-term liabilities................................. (9,284) (7,326)
------- -------
Net deferred income taxes................................... $17,545 $ 8,590
======= =======
</TABLE>
Based on Tracor's taxable income in prior carryback years and forecast of
future income, management believes, it is more likely than not, that all net
deferred tax assets will be realized. The valuation allowance for capital losses
was eliminated in 1995 as a result of realized capital gains, and the related
tax benefit reduced the goodwill of GDE.
For tax purposes, the acquisitions of GDE, AEL and Cordant were accounted
for using their carryover tax basis, which resulted in the recording of
significant deferred income tax assets.
By a letter dated January 23, 1997, the Internal Revenue Service (IRS)
notified the Company of various proposed adjustments to the federal income tax
returns of GDE for its tax periods beginning November 20, 1992, and ending
November 17, 1994 (the date the Company acquired GDE). The proposed adjustments
relate primarily to GDE's acquisition of its business from General Dynamics in
1992. The Company plans to contest the proposed adjustments through the IRS's
administrative appeals process. While it is not possible to determine the final
adjustments resulting from this matter, management believes the ultimate
resolution will have no material adverse effect on the financial position or
results of operations of the Company.
Income taxes paid, net of refunds, totaled $17.4 million in 1996, $20
million in 1995 and $8.6 million in 1994.
F-22
<PAGE> 121
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE K -- LEASE COMMITMENTS
Tracor leases office space under various operating leases, which generally
contain renewal options and are subject to increases based on formulas such as
changes in the Consumer Price Index. Future minimum payments at December 31,
1996, for all noncancelable operating leases with initial terms of one year or
more are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................... $16,882
1998............................................... 13,878
1999............................................... 11,946
2000............................................... 10,082
2001............................................... 6,351
2002 and thereafter................................ 25,074
-------
$84,213
=======
</TABLE>
Rental expense for all operating leases was $16.6 million in 1996, $17.4
million in 1995 and $15.8 million in 1994.
NOTE L -- CONTINGENCIES
Tracor is involved in various lawsuits and is subject to certain
contingencies incidental to its business. While the ultimate results of these
matters cannot be predicted with certainty, management does not expect them to
have a material adverse effect on the consolidated financial position of Tracor.
NOTE M -- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Beginning in the second quarter of 1996, both primary and fully diluted net
income per share amounts are computed in accordance with the treasury stock
method using the weighted average common shares outstanding and equivalents
assuming the exercise of all outstanding warrants and options for common shares.
Prior to the second quarter of 1996, both primary and fully diluted net
income per share amounts were computed in accordance with the modified treasury
stock method using the weighted average common shares outstanding and
equivalents assuming the exercise of all outstanding warrants and options for
common shares. For purposes of net income per share computations, net income is
adjusted for the pro forma reduction of interest expense, net of investment
income (where applicable) and income taxes, resulting from the assumed use of
warrant and option exercise proceeds to reduce outstanding debt.
The weighted average common and common equivalent shares used in the fully
diluted calculation were 25,353,000 in 1996; 24,168,000 in 1995; and 22,113,000
in 1994.
NOTE N -- SUBSEQUENT EVENTS
On February 14, 1997, Tracor commenced a tender offer to purchase for cash
up to the entire outstanding principal amount of its 10 7/8% Senior Subordinated
Notes due 2001 (Old Notes) and a related solicitation of consent to modify
certain other terms of the indentures under which the Old Notes were issued. On
February 17, 1997, the Company also commenced a private placement offering
(Offering) of $250 million aggregate principal amount of 8 1/2% Senior
Subordinated Notes due 2007 (New Notes). The Offering is conditioned upon
receipt of consents and tenders representing at least a majority in aggregate
principal amount of Old Notes outstanding. Subject to the completion of the
Offering, the Company will also refinance its outstanding indebtedness under its
existing bank agreement and will obtain a new bank credit facility (New Bank
Credit Facility) providing for a five-year revolving credit facility in the
initial principal amount of
F-23
<PAGE> 122
TRACOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
$200 million. The consummation of these transactions is subject to the execution
and delivery of definitive documentation and the satisfaction of other customary
closing conditions. The financings are expected to close on or before March 31,
1997.
Interest on the New Notes will be payable semiannually commencing September
1997. The New Notes will be redeemable in whole or in part at the option of the
Company in or after March 2002, at specified redemption prices. In addition,
prior to March 2000, the Company, at its option, may redeem certain percentages
of the aggregate principal amount of the New Notes with the net cash proceeds of
one or more public equity offerings at specified redemption prices. The New
Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future senior indebtedness
of the Company. The New Notes will be subject to a registration rights
agreement, pursuant to which Tracor has agreed to file a registration statement
with respect to an offer to exchange the New Notes for registered identical
senior subordinated notes of the Company.
The New Bank Credit Facility shall be subject to commitment reductions of
$25 million on February 28, 2000, and $50 million on February 28, 2001. Certain
mandatory prepayments will also be required. All of Tracor's stock in its
subsidiaries will be pledged under the New Bank Credit Facility, and all
borrowings will be guaranteed by such subsidiaries.
The New Bank Credit Facility will bear interest at Tracor's option at
either the lender's base rate plus up to .75% or the eurodollar rate plus .625%
to 1.75%, in each case based on certain financial ratios, as defined. Interest
on base rate loans will be payable quarterly, and interest on eurodollar loans
will be payable at the end of the applicable interest period or every three
months in the case of interest periods in excess of three months. A commitment
fee ranging from .25% to .375% per annum will be charged on the unused revolving
loans and will be payable quarterly in arrears. Each letter of credit will bear
customary fees and administrative charges.
The New Bank Credit Facility and New Notes will contain covenants which,
among other things, impose limitations and restrictions on the incurrence of
additional indebtedness, capital expenditures, future mergers and acquisitions,
sales of assets, and payment of dividends. In addition, Tracor will be required
to satisfy certain financial covenants relating to, among other matters,
interest coverage, working capital, leverage, and net worth.
The above transactions will result in a one-time extraordinary charge of
approximately $10.4 million, net of an income tax benefit of $7.3 million,
consisting of $7.5 million premium to retire the Old Notes and a $10.2 million
write-off of unamortized debt issuance costs.
F-24
<PAGE> 123
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, 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 IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. ii
Prospectus Summary.................... 1
Risk Factors.......................... 11
The Transactions...................... 15
Use of Proceeds....................... 15
Capitalization........................ 16
Selected Pro Forma and Historical
Financial Data...................... 17
Selected Pro Forma and Historical
Sales Percentages................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 37
Certain Transactions.................. 47
Recent Developments................... 47
Principal Stockholders................ 48
Description of New Bank Credit
Facility............................ 51
The Exchange Offer.................... 52
Description of Notes.................. 62
Book Entry; Delivery and Form......... 85
Certain Federal Income Tax
Considerations...................... 87
Plan of Distribution.................. 89
Legal Matters......................... 90
Experts............................... 90
Financial Statements.................. F-1
</TABLE>
======================================================
======================================================
------------------------------------------
PROSPECTUS
------------------------------------------
[TRACOR LOGO]
$250,000,000
OFFER TO EXCHANGE ITS 8 1/2% SENIOR
SUBORDINATED EXCHANGE NOTES
DUE 2007 FOR ANY
AND ALL OF ITS
8 1/2% SENIOR SUBORDINATED NOTES
DUE 2007
APRIL 18, 1997
======================================================
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, the Company has the power to indemnify anyone made or
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 Company) because such person is
or was a director or officer of the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in the defense or settlement of such action, suit or
proceeding, provided that (i) such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest and
(ii) in the case of a criminal proceeding such person had no reasonable cause to
believe his conduct was unlawful.
With respect to an action or suit by or in the right of the Company to
procure a judgment in its favor, Section 145 (b) of the Delaware General
Corporation Law provides that the Company shall have the power to indemnify
anyone who was, is or is threatened to be made a party to any threatened,
pending or completed action or suit brought by or in the right of the Company to
procure a judgment in its favor because such person is or was a director or
officer of the Company against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, provided that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interests,
except that no indemnification shall be made in a case in which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall have determined 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.
Indemnification as described above shall be granted in a specific case only
upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of a
quorum of directors who were not parties to such proceeding, (b) independent
legal counsel in a written opinion if such quorum cannot be obtained or if a
quorum of disinterested directors so directs, or (c) the stockholders of the
Company.
Section 145(g) of the Delaware General Corporation Law permits the purchase
and maintenance of insurance to indemnify directors and officers against any
liability asserted against or incurred by them in any such capacity, whether or
not the Company itself would have the power to indemnify any such director or
officer against such liability. The Company has such insurance.
The Certificate of Incorporation of the Company provides for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as the same
may be amended or supplemented. The Certificate of Incorporation further
provides that the indemnification provided for therein shall not be exclusive of
any rights to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
Reference is hereby made to the relevant provisions of the Certificate of
Incorporation of the Company which has previously been filed. Any such provision
of the Certificate of Incorporation is valid only to the extent it is consistent
with Section 145 of the Delaware General Corporation Law.
The Certificate of Incorporation also contains a provision that eliminates
the personal liability of the Company's directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The provision does not limit a director's liability for (i) breaches of duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith, involving intentional misconduct or involving knowing violations of law,
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law, or (iv)
transactions in which the
II-1
<PAGE> 125
director received an improper personal benefit. Depending on judicial
interpretation, the provision may not affect liability for violations of the
federal securities laws.
The Company maintains insurance for its officers and directors which
provides for indemnification of directors and officers. The premiums for such
insurance are paid by the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 -- Restated Certificate of Incorporation, as amended, of the
Company(5)
3.2 -- Bylaws, as amended and restated, of the Company(5)
4.1 -- Registration Rights Agreement, dated as of March 14,
1997, among the Company, the Subsidiary Guarantors named
therein and BT Securities Corporation.(9)
4.2 -- Indenture, dated as of March 14, 1997, among the Company
and U.S. Trust Company of Texas, N.A. relating to the
8 1/2% Senior Subordinated Notes Due 2007.(9)
4.3 -- Form of Exchange Notes (included in Exhibit 4.2).
4.4 -- Series A Indenture, dated as of November 17, 1994, among
the Company, each Subsidiary Guarantor, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the
Series A Notes (the "Series A Indenture")(4)
4.5 -- First Supplemental Indenture, dated as of April 11, 1995,
to the Series A Indenture(5)
4.6 -- Second Supplemental Indenture, dated as of February 2,
1996, to the Series A Indenture(5)
4.7 -- Third Supplemental Indenture, dated September 26, 1996,
to the Series A Indenture.(9)
4.8 -- Fourth Supplemental Indenture, dated March 14, 1997, to
the Series A Indenture.(9)
4.9 -- Specimen Series A Note(4)
4.10 -- Indenture, dated as of August 15, 1993, among the
Company, each Subsidiary Guarantor, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the
Existing Notes (the "Existing Note Indenture")(2)
4.11 -- First Supplemental Indenture, dated as of November 17,
1994, to the Existing Note Indenture(4)
4.12 -- Second Supplemental Indenture, dated as of February 22,
1996, to the Existing Note Indenture(5)
4.13 -- Third Supplemental Indenture, dated September 26, 1996,
to the Existing Note Indenture(9)
4.14 -- Fourth Supplemental Indenture, dated March 14, 1997, to
the Existing Note Indenture(9)
4.15 -- Credit Agreement among Tracor, the lending institutions
party to the Credit Agreement, Credit Lyonais, The First
National Bank of Chicago and Wells Fargo (Texas),
National Association, as Co-Agents and Bankers Trust
Company, as Agent, dated as of March 14, 1997.(9)
4.16 -- 1995 Stock Plan for Employees of Tracor, Inc. and
Subsidiaries(6)
4.17 -- Specimen Certificate representing Common Stock of Tracor,
Inc.(7)
5.1 -- Opinion of Winstead Sechrest & Minick P.C.*
</TABLE>
II-2
<PAGE> 126
<TABLE>
<C> <S>
8.1 -- Opinion of Winstead Sechrest & Minick P.C. regarding tax matters*
10.1 -- Form of Employment Agreement (Form One)(9)
10.2 -- Form of Employment Agreement (Form Two)(10)
10.3 -- Employment Agreement and Executive Stock Agreement, dated November 20, 1995 between GDE
Systems and Dr. Terry A. Straeter(9)
11.1 -- Computation of Income per Common and Common Equivalent Share(10)
11.2 -- Computation of Unaudited Pro Forma Income per Common and Common Equivalent Share(10)
12.1 -- Computation of Historical Ratio of Earnings to Fixed Charges(10)
12.2 -- Computation of Pro Forma Ratio of Earnings to Fixed Charges(10)
21.1 -- Subsidiaries of the Registrant(9)
23.1 -- Consent of Ernst & Young LLP(10)
23.2 -- Consent of Winstead Sechrest & Minick P.C. (contained in their opinion filed as Exhibit
5.1 to the Registration Statement)*
24.1 -- Powers of Attorney(10)
25.1 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of
1939 of U.S. Trust Company of Texas, N.A.(10)
99.1 -- Form of Letter of Transmittal*
99.2 -- Form of Notice of Guaranteed Delivery*
</TABLE>
- ---------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-65448) on July 2, 1993 and
incorporated herein by reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-67562) on August 18, 1993 and
incorporated herein by reference.
(3) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-89886) on March 2, 1995 and
incorporated herein by reference.
(4) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-89578) on February 17, 1995 and
incorporated herein by reference.
(5) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-4/S-3 (No. 333-03330) on April 10, 1996
and incorporated herein by reference.
(6) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-8 (No. 33-93186) on June 2, 1995 and
incorporated herein by reference.
(7) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-10 (No. 0-20227) on July 17, 1992 and
incorporated herein by reference.
(8) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K dated March 9, 1996 and incorporated herein by
reference.
(9) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
(10) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-4 (No. 333-24319) on April 1, 1997 and
incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because the required information is included
elsewhere in the financial statements or is otherwise inapplicable.
II-3
<PAGE> 127
ITEM 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) 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.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 128
(7) 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.
(8) 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 other 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.
(9) To supply by means of 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-5
<PAGE> 129
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 Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Austin, State of Texas, on the 16th day
of April, 1997.
TRACOR, INC.
By: /s/ JAMES B. SKAGGS
----------------------------------
Name: James B. Skaggs
Title: President and Chief
Executive 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 dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
By: /s/ JAMES B. SKAGGS Director, President and Chief April 16, 1997
------------------------------------------------- Executive Officer (Principal
James B. Skaggs Executive Officer)
By: /s/ ROBERT K. FLOYD* Vice President, (Principal April 16, 1997
------------------------------------------------- Financial and Accounting
Robert K. Floyd Officer of Registrant)
By: /s/ JULIAN DAVIDSON* Director April 16, 1997
-------------------------------------------------
Julian Davidson
By: /s/ ANTHONY GRILLO* Director April 16, 1997
-------------------------------------------------
Anthony Grillo
By: /s/ BOB MARBUT* Director April 16, 1997
-------------------------------------------------
Bob Marbut
By: /s/ ELVIS L. MASON* Director April 16, 1997
-------------------------------------------------
Elvis L. Mason
By: /s/ WILLIAM E. CONWAY* Director April 16, 1997
-------------------------------------------------
William E. Conway
By: /s/ THOMAS P. STAFFORD* Director April 16, 1997
-------------------------------------------------
Thomas P. Stafford
*Signed by James B. Skaggs
as attorney-in-fact
By: /s/ JAMES B. SKAGGS
-------------------------------------------------
James B. Skaggs
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 130
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 -- Restated Certificate of Incorporation, as amended of the
Company(5)
3.2 -- Bylaws, as amended and restated of the Company(5)
4.1 -- Registration Rights Agreement, dated as of March 14,
1997, among the Company, the Subsidiary Guarantors named
therein and BT Securities Corporation.(9)
4.2 -- Indenture, dated as of March 14, 1997, among the Company
and U.S. Trust Company of Texas, N.A. relating to the
8 1/2% Senior Subordinated Notes Due 2007.(9)
4.3 -- Form of Exchange Notes (included in Exhibit 4.2).
4.4 -- Series A Indenture, dated as of November 17, 1994, among
the Company, each Subsidiary Guarantor, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the
Series A Notes (the "Series A Indenture")(4)
4.5 -- First Supplemental Indenture, dated as of April 11, 1995,
to the Series A Indenture(5)
4.6 -- Second Supplemental Indenture, dated as of February 2,
1996, to the Series A Indenture(5)
4.7 -- Third Supplemental Indenture, dated September 26, 1996,
to the Series A Indenture.(9)
4.8 -- Fourth Supplemental Indenture, dated March 14, 1997, to
the Series A Indenture.(9)
4.9 -- Specimen Series A Note(4)
4.10 -- Indenture, dated as of August 15, 1993, among the
Company, each Subsidiary Guarantor, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the
Existing Notes (the "Existing Note Indenture")(2)
4.11 -- First Supplemental Indenture, dated as of November 17,
1994, to the Existing Note Indenture(4)
4.12 -- Second Supplemental Indenture, dated as of February 22,
1996, to the Existing Note Indenture(5)
4.13 -- Third Supplemental Indenture, dated September 26, 1996,
to the Existing Note Indenture(9)
4.14 -- Fourth Supplemental Indenture, dated March 14, 1997, to
the Existing Note Indenture(9)
4.15 -- Credit Agreement among Tracor, the lending institutions
party to the Credit Agreement, Credit Lyonais, The First
National Bank of Chicago and Wells Fargo (Texas),
National Association, as Co-Agents and Bankers Trust
Company, as Agent, dated as of March 14, 1997.(9)
4.16 -- 1995 Stock Plan for Employees of Tracor, Inc. and
Subsidiaries(6)
4.17 -- Specimen Certificate representing Common Stock of Tracor,
Inc.(7)
5.1 -- Opinion of Winstead Sechrest & Minick P.C.*
8.1 -- Opinion of Winstead Sechrest & Minick P.C. regarding tax
matters*
10.1 -- Form of Employment Agreement (Form One)(9)
10.2 -- Form of Employment Agreement (Form Two)(10)
10.3 -- Employment Agreement and Executive Stock Agreement, dated
November 20, 1995 between GDE Systems and Dr. Terry A.
Straeter(9)
11.1 -- Computation of Income per Common and Common Equivalent
Share(10)
</TABLE>
<PAGE> 131
<TABLE>
<C> <S>
11.2 -- Computation of Unaudited Pro Forma Income per Common and Common Equivalent Share(10)
12.1 -- Computation of Historical Ratio of Earnings to Fixed Charges(10)
12.2 -- Computation of Pro Forma Ratio of Earnings to Fixed Charges(10)
21.1 -- Subsidiaries of the Registrant(9)
23.1 -- Consent of Ernst & Young LLP(10)
23.2 -- Consent of Winstead Sechrest & Minick P.C. (contained in their opinion filed as Exhibit
5.1 to the Registration Statement)*
24.1 -- Powers of Attorney(10)
25.1 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of
1939 of U.S. Trust Company of Texas, N.A.(10)
99.1 -- Form of Letter of Transmittal*
99.2 -- Form of Notice of Guaranteed Delivery*
</TABLE>
- ---------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-65448) on July 2, 1993 and
incorporated herein by reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-67562) on August 18, 1993 and
incorporated herein by reference.
(3) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-89886) on March 2, 1995 and
incorporated herein by reference.
(4) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-89578) on February 17, 1995 and
incorporated herein by reference.
(5) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-4/S-3 (No. 333-03330) on April 10, 1996
and incorporated herein by reference.
(6) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-8 (No. 33-93186) on June 2, 1995 and
incorporated herein by reference.
(7) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-10 (No. 0-20227) on July 17, 1992 and
incorporated herein by reference.
(8) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K dated March 9, 1996 and incorporated herein by
reference.
(9) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
(10) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-4 (No. 333-24319) on April 1, 1997 and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 5.1
WINSTEAD SECHREST & MINICK
5400 RENAISSANCE TOWER
1201 ELM STREET
DALLAS, TEXAS 75270-2199
Direct Dial: (214) 745-5255
[email protected]
April 16, 1997
Tracor, Inc.
6500 Tracor Lane
Austin, Texas 78725
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Tracor, Inc., a Delaware corporation (the
"Company"), in connection with the Company's Registration Statement on Form S-4
(the "Registration Statement"), filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and the issuance of up to $250,000,000 aggregate principal of
the Company's 8 1/2% Senior Subordinated Notes due 2007 (the "Securities")
pursuant to the Registration Statement.
In this capacity, we have examined the Company's charter and bylaws, the
proceedings of the Board of Directors of the Company relating to the issuance of
the Securities, the indenture under which the Securities are to be issued (the
"Indenture") and such other statutes, certificates, instruments and documents
relating to the Company and matters of law as we have deemed necessary to the
issuance of this opinion.
Based upon the foregoing, we are of the opinion that the Securities to be
issued by the Company pursuant to the Registration Statement have been duly
authorized and, when issued as contemplated in the Registration Statement and in
accordance with the terms of the Indenture, the Securities will constitute
legal, valid and binding obligations of the Company entitled to the benefits of
the Indenture and enforceable against the Company in accordance with their
terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, (ii) public policy
considerations and (iii) general equitable principles with respect to
enforceability (whether enforcement is sought in a proceeding at law or in
equity).
The opinion expressed herein is as of the date hereof and is based on the
assumptions set forth herein and the laws and regulations currently in effect,
and we do not undertake and hereby disclaim any obligations to advise you of any
change with respect to any matter set forth herein. To the extent that the
opinion set forth herein is governed by laws other than the federal laws of the
United States, our opinion is based solely upon our review of the General
Corporation Law of the State of Delaware and upon certificates from public
officials or governmental offices of such state. We express no opinion as to any
matter other than as expressly set forth herein, and no opinion is to, or may,
be inferred or implied herefrom.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us under the heading "Legal Matters"
in the Prospectus contained therein. In giving our consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
WINSTEAD SECHREST & MINICK P.C.
By: /s/ DARREL A. RICE
----------------------------------
2
<PAGE> 1
EXHIBIT 8.1
WINSTEAD SECHREST & MINICK
5400 RENAISSANCE TOWER
1201 ELM STREET
DALLAS, TEXAS 75270-2199
Direct Dial: (214) 745-5342
April 16, 1997
Tracor, Inc.
6500 Tracor Lane
Austin, Texas 78725
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4, File no.
333-24319 (the "Registration Statement") filed with the Securities and Exchange
Commission in connection with the offer (the "Exchange Offer") by Tracor, Inc.
(the "Company") for all outstanding 8 1/2% Senior Subordinated Notes Due 2007
(the "Original Notes") of the Company in exchange for the Company's 8 1/2%
Senior Subordinated Exchange Notes due 2007 (the "Exchange Notes").
We have prepared the discussion contained under the caption "Certain
Federal Income Tax Considerations" in the Prospectus that is part of the
Registration Statement. In our opinion such discussion sets forth the material
federal income tax consequences applicable to initial purchasers of the Original
Notes that exchange Original Notes for Exchange Notes.
This opinion is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to the qualifications, exceptions,
definitions, limitations on coverage and other limitations more particularly
described in the Accord, and this opinion should be read in conjunction
therewith.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to our firm under the captions "Certain Federal
Income Tax Considerations" and "Legal Matters" in the Prospectus that is part of
the Registration Statement.
Sincerely yours,
WINSTEAD SECHREST & MINICK P.C.
By: /s/ THOMAS R. HELFAND
----------------------------------
Thomas R. Helfand
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER 8 1/2% SENIOR SUBORDINATED NOTES DUE 2007
OF
TRACOR, INC.
PURSUANT TO THE PROSPECTUS
DATED APRIL 18, 1997
BY
TRACOR, INC.
THE OFFER TO EXCHANGE WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 16,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
TO THE EXCHANGE AGENT:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Mail or Courier: By Hand:
U.S. Trust Company of Texas, U.S. Trust Company of Texas, U.S. Trust Company of Texas,
N.A. N.A. N.A.
Corporate Trust Corporate Trust Corporate Trust
P.O. Box 841 770 Broadway, 13th Floor 111 Broadway, Lower Level
Cooper Station New York, New York 10003-9598 New York, New York 10006-1906
New York, New York 10276-0841
Facsimile Transmission Number: Confirm by Telephone: Information:
(212) 420-6504 (212) 420-6624 (800) 225-2398
(212) 420-6624
</TABLE>
<PAGE> 2
Delivery of this instrument to an address other than as set forth above
will not constitute a valid delivery. The accompanying instructions should be
read carefully before this Letter of Transmittal is completed.
The undersigned acknowledges that he has received and reviewed the
Prospectus dated April 18, 1997 (the "Prospectus") of Tracor, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Company's offer to exchange (the
"Exchange Offer") $1,000 principal amount of 8 1/2% Senior Subordinated Notes
due 2007 (the "Exchange Notes") for each $1,000 principal amount of its
outstanding 8 1/2% Senior Subordinated Notes due 2007 (the "Original Notes") as
set forth in the Prospectus. The Original Notes that are not exchanged will
remain restricted securities and may be resold only (i) to the Company, (ii)
pursuant to Rule 144A or Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), (iii) outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement under the Securities Act. See
"The Exchange Offer -- Consequences of Failure to Exchange" in the Prospectus.
Upon the terms and subject to the conditions set forth in the Prospectus
and in this Letter of Transmittal, the Company will exchange $1,000 principal
amount of the Exchange Notes, registered under the Securities Act pursuant to a
registration statement on Form S-4 filed by the Company, for each $1,000
principal amount of its outstanding Original Notes properly delivered by a
Holder thereof to U.S. Trust Company of Texas, N.A., as exchange agent (the
"Exchange Agent"), and not withdrawn on or prior to the Expiration Date. No
Holder may withdraw a tender following the Expiration Date. In order to be
entitled to receive the Exchange Notes, a tendering Holder must properly tender
the Original Notes to the Exchange Agent, and not withdraw such tender, on or
prior to the Expiration Date. If a Holder's Original Notes are not properly
tendered by the Expiration Date pursuant to the Exchange Offer, such Holder will
not receive Exchange Notes.
By executing the Letter of Transmittal, the undersigned represents to the
Company that, among other things, (i) the Exchange Notes to be acquired by the
Holder of the Original Note in connection with the Exchange Offer are being
acquired by the Holder in the ordinary course of business of the Holder, (ii)
the Holder has no arrangement or understanding with any person to participate in
the distribution of Exchange Notes, (iii) the Holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in no-action letters (see "The
Exchange Offer -- Resale of Exchange Notes"), (iv) the Holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such Holder in exchange for Original Notes acquired
by such Holder directly from the Company should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the Holder is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. If the Holder is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Original Notes
that were acquired as a result of market-making activities or other trading
activities, by executing this Letter of Transmittal, the Holder 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 Holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "The Exchange Offer -- Procedures for Tendering."
The Exchange Offer may be extended, terminated, amended or consummated as
provided in the Prospectus. During any such extension of the Exchange Offer, all
Original Notes previously tendered and not withdrawn pursuant to such Exchange
Offer will remain subject to the Exchange Offer and may be accepted thereafter
for exchange by the Company.
No alternative, conditional or contingent tenders will be accepted. A
tendering Holder, by execution of this Letter of Transmittal, or facsimile
hereof, waives all rights to receive notice of acceptance of such Holder's
Original Notes for exchange. Capitalized terms used but not defined herein have
the meanings given to them in the Prospectus.
2
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
This Letter of Transmittal is to be completed by Holders of Original Notes
if certificates representing such Original Notes are to be forwarded herewith or
if delivery of such certificates are to be made by book-entry transfer to the
account maintained by the Exchange Agent at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering."
Holders whose certificates representing the Original Notes are not
immediately available or who cannot deliver certificates and all other required
documents to the Exchange Agent or complete the procedure for book-entry
transfer on or prior to the Expiration Date may nevertheless tender Original
Notes pursuant to the guaranteed delivery procedure set forth in the Prospectus
under the caption "Principal Terms of the Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 2 below. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent. In order
to ensure participation in the Exchange Offer, Original Notes must be properly
tendered on or before the Expiration Date.
List below the Original Notes that are to be tendered pursuant to this
Letter of Transmittal. If the space below is inadequate, list the information
requested below on a separate signed schedule and affix the list to this Letter
of Transmittal.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT REPRESENTED PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)(1) BY CERTIFICATE(S) TENDERED(2)
- ------------------------------------------------------------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total Principal Amount Tendered
- ------------------------------------------------------------------------------------------------------------
(1) Need not be completed by Holders who tender by book-entry.
(2) Unless otherwise indicated in this column, any tendering Holder will be deemed to have tendered the
entire principal amount represented by the Original Notes indicated in the column labeled "Aggregate
Principal Amount Represented by Certificate(s)." See Instruction 5.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS
IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER NOTES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
-----------------------------------------------------------------------------
Account Number:
------------------------------------------------------------------------------
Transaction Code Number:
------------------------------------------------------------------------------
3
<PAGE> 4
[ ]CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s):
-----------------------------------------------------------------------------
Window Ticket Number (if any):
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------------------------------------
Name of Eligible Institution that guaranteed delivery:
-------------------------------------------------------
[ ] Check box if delivered by Book-Entry Transfer
Account Number:
-----------------------------------------------------------------------------
Transaction Code Number:
-----------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Only Holders are entitled to tender their Original Notes in the Exchange
Offer. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system and whose name appears on a security position listing
as the record owner of the Original Notes and who wishes to make book-entry
delivery of Original Notes as described above must complete and execute a
participant's letter (which will be distributed to participants by the
Book-Entry Transfer Facility) instructing the Book-Entry Transfer Facility's
nominee to complete and sign the proxy attached thereto. Persons who are
beneficial owners of Original Notes but are not Holders and who seek to tender
Original Notes should (i) contact the Holder of such Original Notes and instruct
such Holder to tender on his behalf, (ii) obtain and include with this Letter of
Transmittal Original Notes properly endorsed for transfer by the Holder, with
signatures on the endorsement guaranteed by a firm that is a member of a
registered national securities exchange, a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trading company having an
office in the United States (each, an "Eligible Institution") or (iii) effect a
record transfer of such Original Notes from the Holder to such beneficial owner
and comply with the requirements applicable to Holders for tendering Original
Notes prior to 5:00 P.M., New York City time, on the Expiration Date.
HOLDERS WHO WISH TO RECEIVE THE EXCHANGE NOTES MUST TENDER THEIR ORIGINAL
NOTES ON OR PRIOR TO THE EXPIRATION DATE. See "The Exchange Offer -- Procedures
for Tendering" in the Prospectus.
4
<PAGE> 5
To: Tracor, Inc. (the "Company")
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company, the Original Notes indicated above.
Subject to, and effective upon, acceptance for exchange of the Original Notes
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of the Company, all right, title and interest in and to all such
Original Notes tendered hereby. The undersigned hereby irrevocably constitutes
and appoints the Exchange Agent the true and lawful agent and attorney-in-fact
of the undersigned (with full knowledge that the Exchange Agent also acts as
agent of the Company) with respect to such Original Notes, with full power of
substitution and resubstitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to (a) deliver certificates
representing such Original Notes, or transfer ownership of such Original Notes
on the account books maintained by the Book-Entry Transfer Facility, together,
in each such case, with all accompanying evidences of transfer and authenticity
to or upon the order of the Company, (b) present such Original Notes for
transfer on the relevant register and (c) receive all benefits or otherwise
exercise all rights of beneficial ownership of such Original Notes (except that
the Exchange Agent will have no rights to or control, except as agent for the
Company, for the Exchange Notes delivered in connection with the Exchange Offer)
all in accordance with the terms of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, SELL, ASSIGN AND TRANSFER THE ORIGINAL NOTES
TENDERED HEREBY AND, THAT WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY
WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF
ALL SECURITY INTERESTS, LIENS, RESTRICTIONS, CLAIMS, CHARGES, ENCUMBRANCES,
CONDITIONAL SALES AGREEMENTS OR OTHER OBLIGATIONS RELATING TO THE SALE OR
TRANSFER THEREOF, AND NOT BE SUBJECT TO ANY ADVERSE CLAIM. THE UNDERSIGNED WILL,
UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE
EXCHANGE AGENT OR THE COMPANY TO BE NECESSARY OR DESIRABLE TO COMPLETE THE
ASSIGNMENT, TRANSFER AND PURCHASE OF THE ORIGINAL NOTES TENDERED HEREBY. THE
UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER. DELIVERY OF ENCLOSED ORIGINAL NOTES SHALL BE EFFECTED, AND RISK
OF LOSS AND TITLE TO SUCH ORIGINAL NOTES SHALL PASS, ONLY UPON PROPER DELIVERY
THEREOF TO THE EXCHANGE AGENT.
All authority conferred or agreed to be conferred pursuant to this Letter
of Transmittal and every obligation of the undersigned hereunder shall be
binding upon the successors, assigns, heirs, executors, administrators, trustees
in bankruptcy, and personal and legal representatives of the undersigned and
shall not be affected by, and shall survive, the death or incapacity of the
undersigned. Original Notes properly tendered may be withdrawn at any time prior
to the Expiration Date. Holders will receive the Exchange Notes only if their
tenders have been properly delivered on or prior to the Expiration Date and not
revoked on or prior to the Expiration Date.
Original Notes may not be withdrawn after the Expiration Date unless the
Exchange Offer with respect to such Original Notes is terminated without any
Original Notes being accepted for exchange thereunder. In the event of such a
termination, such Original Notes tendered by the undersigned will be returned to
the undersigned as promptly as practicable.
The Exchange Offer is subject to a number of conditions, each of which may
be waived or modified by the Company, in whole or in part, at any time and from
time to time, as described in the Prospectus under the caption "The Exchange
Offer -- Certain Conditions to the Exchange Offer." The undersigned recognizes
that as a result of such conditions the Company may not be required to accept
the Original Notes properly tendered hereby. In such event, the tendered
Original Notes not accepted for exchange will be returned to the undersigned
without cost to the undersigned as soon as practicable following the earlier to
occur of the Expiration Date or the date on which the Exchange Offer with
respect to such issue is terminated without any Original Notes being purchased
thereunder, at the address shown below the undersigned's signature(s) unless
otherwise indicated under "Special Issuance Instructions" below.
Unless otherwise indicated under "Special Issuance Instructions" below, the
Exchange Agent will issue the Exchange Notes for any Original Notes tendered
hereby that are accepted for exchange, and/or return any certificates
representing Original Notes not tendered or not accepted for exchange in the
name(s) of the Holder(s) appearing under "Description of Securities Tendered."
Similarly, unless otherwise indicated under
5
<PAGE> 6
"Special Delivery Instructions," the Exchange Notes, and/or any certificates
representing Original Notes not tendered or not accepted for exchange (and
accompanying documents, as appropriate) to be returned will be sent to the
address(es) of the Holder(s) appearing under "Description of Securities
Tendered." In the event that both the Special Issuance Instructions and the
Special Delivery Instructions are completed, the Exchange Notes will be issued,
if applicable, and the certificates representing any Original Notes not tendered
or not accepted for exchange (and any accompanying documents, as appropriate)
will be returned in the name of, and delivered to, the person or persons so
indicated. Unless otherwise indicated under "Special Issuance Instructions," in
the case of a book-entry delivery of Original Notes, the account maintained at
the Book-Entry Transfer Facility indicated above will be credited with any
Original Notes not tendered or not accepted for exchange. The undersigned
recognizes that neither the Exchange Agent nor the Company, has any obligation
pursuant to the Special Issuance Instructions to transfer any Original Notes
from the name of the Holder thereof if the Company does not accept for exchange
any of the Original Notes so tendered.
6
<PAGE> 7
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the certificates representing the Exchange Notes
and/or certificates representing Original Notes not accepted for exchange are to
be issued in the name of someone other than the undersigned, or if Original
Notes delivered by book-entry transfer not accepted for exchange are to be
returned by credit to an account maintained at a Book-Entry Transfer Facility
other than the account indicated above.
Issue Certificate(s) to:
Name:
- -------------------------------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Including Zip Code)
- -------------------------------------------------------------------------------
(Taxpayer Identification or Social Security Number)
[ ] Credit unaccepted Original Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
- -------------------------------------------------------------------------------
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the Exchange Notes and/or certificates representing
Original Notes not accepted for exchange are to be sent to someone other than
the undersigned or to the undersigned at an address other than that shown above.
Mail Certificate(s) to:
Name:
- -------------------------------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Including Zip Code)
- -------------------------------------------------------------------------------
(Taxpayer Identification or Social Security Number)
7
<PAGE> 8
SIGNATURES
HOLDERS OF ORIGINAL NOTES
SIGN HERE
IMPORTANT: COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 IN
THIS LETTER OF TRANSMITTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Signature(s) of Holder(s) of Notes)
Date: , 1997
- ------------------------
(Must be signed by the Holder(s) exactly as name(s) appear(s) on
certificate(s) representing the Original Notes or on a security position listing
or by person(s) authorized to become Holder(s) by certificates and documents
transmitted herewith. If signature is by attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or other person
acting in a fiduciary or representative capacity, please provide the following
information and see Instruction 6.)
Capacity (Full Title):
- --------------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
Tax Identification or Social Security No.
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)
- --------------------------------------------------------------------------------
(Authorized Signature)
Name:
- --------------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address -- Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Date:
- ---------------------------------------------
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal need
not be guaranteed if the Original Notes tendered hereby are tendered (a) by the
registered Holder(s) (which term, for purposes of this document, shall include
any participant in the Book-Entry Transfer Facility's system and whose name
appears on a security position listing as the record owner of the Original
Notes) thereof, unless such Holder has completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the preceding page, or (b) for the account of a firm that is a
member of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial hank trust company
having an office in the United States (each, an "Eligible Institution"). In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution. Persons who are beneficial owners of Original Notes but
are not Holders and who seek to tender Original Notes should (i) contact the
Holder of such Original Notes and instruct such Holder to tender on his behalf,
(ii) obtain and include with this Letter of Transmittal, Original Notes properly
endorsed for transfer by the Holder, with signatures on the endorsement
guaranteed by an Eligible Institution or (iii) effect a record transfer of such
Original Notes from the Holder to such beneficial owner and comply with the
requirements applicable to Holders for tendering Original Notes on or prior to
the Expiration Date. See Instruction 6.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by
Holders either if certificates are to be forwarded herewith or if delivery of
Original Notes is to be made pursuant to the procedures for book-entry transfer
set forth in the Prospectus under the caption "The Exchange Offer -- Procedures
for Tendering." For a Holder to properly tender Original Notes pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal (or
a facsimile thereof), together with any signature guarantees and any other
documents required by these Instructions, must be received by the Exchange Agent
at one of the addresses set forth herein on or prior to the Expiration Date and
either (i) certificates representing such Original Notes must be received by the
Exchange Agent at such address or (ii) such Original Notes must be transferred
pursuant to the procedures for book-entry transfer described in the Prospectus
under the caption "The Exchange Offer -- Procedures for Tendering" and a
Book-Entry Confirmation must be received by the Exchange Agent, in each case, on
or prior to the Expiration Date. A Holder who desires to tender Original Notes
and who cannot comply with procedures set forth herein for tender on a timely
basis or whose Original Notes are not immediately available must comply with the
guaranteed delivery procedures described below.
Holders whose certificates representing Original Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent or complete the procedures for book-entry
transfer prior to the Expiration Date may tender their Original Notes by
properly completing and duly executing the Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedure set forth in the Prospectus under
the caption "The Exchange Offer -- Guaranteed Delivery Procedures." Pursuant to
such procedures, (a) the tender must be made by or through an Eligible
Institution; (b) a Notice of Guaranteed Delivery, substantially in the form
provided herewith, properly completed and duly executed, must be received by the
Exchange Agent as provided below on or prior to the Expiration Date; and (c) the
certificates representing all tendered Original Notes, or a Book-Entry
Confirmation with respect to all tendered Original Notes, together with this
Letter of Transmittal, properly completed and duly executed, and any required
signature guarantees and all other documents required by the Letter of
Transmittal, must be received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of the Notice of Guaranteed
Delivery.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING ORIGINAL NOTES, THIS
LETTER OF TRANSMITTAL, REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING HOLDER AND DELIVERY WILL BE DEEMED MADE
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
All tendering Holders, by execution of this Letter of Transmittal waive any
right to any notice of the acceptance of their Original Notes for exchange.
9
<PAGE> 10
3. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS. Tenders of Original
Notes may be withdrawn at any time until the Expiration Date. Tendered Original
Notes may not be withdrawn on or after the Expiration Date, unless the Exchange
Offer is terminated without any Original Notes being accepted for exchange
thereunder. In the event of such termination, such Original Notes will be
returned to the tendering Holder as promptly as practicable.
Any Holder of Original Notes who has tendered Original Notes or who
succeeds to the record ownership of Original Notes in respect of which such
tenders have previously been given may withdraw such Original Notes on or prior
to the Expiration Date by delivery of a written notice of withdrawal subject to
the limitations described herein. To be effective, a written or facsimile
transmission notice of withdrawal of a tender must (i) be received by the
Exchange Agent, at the addresses specified on the back cover of this Letter of
Transmittal on or before the Expiration Date, (ii) specify the name of the
Holder of the Original Notes to be withdrawn, (iii) contain the description of
the Original Notes to be withdrawn, the certificate numbers shown on the
particular certificates representing such Original Notes and the aggregate
principal amount represented by such Original Notes and (iv) be signed by the
Holder of such Original Notes in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee register the
transfer of relevant Original Notes into the name of the person withdrawing such
Original Notes. The signature(s) on the notice of withdrawal of any tendered
Original Notes must be guaranteed by an Eligible Institution unless the relevant
Original Notes have been tendered for the account of an Eligible Institution. If
the Original Notes to be withdrawn have been delivered or otherwise identified
to the Exchange Agent, a signed notice of withdrawal is effective immediately
upon receipt by the Exchange Agent of written or facsimile transmission of the
notice of withdrawal even if physical release is not yet effected. A withdrawal
of Notes can only be accomplished in accordance with the foregoing procedures.
No Holder may withdraw Original Notes following the Expiration Date.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal will be determined by the Company, whose
determination will be final and binding on all parties. A purported notice of
withdrawal that is not received by the Exchange Agent in a timely fashion will
not be effective to withdraw tendered Original Notes. Any Original Notes that
have been tendered but that are not accepted for exchange will be returned to
the Holder thereof without cost to such Holder as soon as practicable following
the Expiration Date.
A withdrawal of a tender of Original Notes may not be rescinded and any
Original Notes properly withdrawn will not be deemed to be validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with respect
thereto. However, withdrawn Original Notes may be retendered by repeating one of
the procedures described in Instruction 2 above at any time on or prior to the
Expiration Date.
4. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF ORIGINAL NOTES WHO TENDER
BY BOOK-ENTRY TRANSFER). If less than the entire principal amount of any
Original Notes evidenced by a submitted certificate is tendered, the tendering
holder should fill in the applicable principal amount of the Original Notes that
are to be tendered in the box entitled "Description of Original Notes Tendered."
The entire principal amount represented by the certificates for all Original
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Original Notes
is not tendered or not accepted for payment, new certificate(s) representing the
remainder of the principal amount of the Original Notes that were evidenced by
the old certificate(s) will be sent to the Holder, unless otherwise provided in
the boxes entitled "Special Payment Instructions" or "Special Delivery
Instructions" above, as soon as practicable after the expiration of the Exchange
Offer.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; ENDORSEMENTS. If this Letter
of Transmittal is signed by the Holder(s) of the Original Notes tendered hereby,
the signature(s) must correspond exactly with the name(s) as written on the face
of the certificate(s) without alteration, enlargement or any change whatsoever.
If any of the Original Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal. If any
tendered Original Notes are registered in different names
10
<PAGE> 11
on several certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are names in which certificates
are held.
If this Letter of Transmittal or any certificates are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to the
Company of their authority so to act must be submitted, unless waived by the
Company.
If this Letter of Transmittal is signed by the Holder(s) of the Original
Notes listed and transmitted hereby, no endorsements of certificates are
required unless payment is to be made to, or certificates for Original Notes not
tendered or not accepted for purchase are to be issued to, a person other than
the Holder(s). Signatures on such certificates must be guaranteed by an Eligible
Institution (unless signed by an Eligible Institution).
If this Letter of Transmittal is signed by a person other than the
Holder(s) of the Original Notes listed, the certificates representing such Notes
must be properly endorsed for transfer by the Holder, together with a properly
completed irrevocable proxy that authorizes such person to consent to the
Proposed Amendments on behalf of such Holder, with signatures on the endorsement
guaranteed by an Eligible Institution.
6. TRANSFER TAXES. The Company will pay or cause to be paid any transfer
taxes with respect to the transfer and sale of Original Notes to it or its order
pursuant to the Exchange Offer. If, however, the Exchange Notes are to be
registered in the name of any person other than the Holder(s), or if tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any transfer taxes (whether
imposed on the Holder(s) or such other person) payable on account of the
transfer to such person will be deducted from the interest paid on the Exchange
offer unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be
issued in the name of, and/or certificates representing Original Notes not
accepted for exchange are to be returned to, a person other than the person(s)
signing this Letter of Transmittal or if Exchange Notes are to be sent and/or
such certificates are to be returned to a person other than the person(s)
signing this Letter of Transmittal or to an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed. Holders
delivering Original Notes by book-entry transfer may request that Original Notes
not accepted for payment be credited to such account maintained at a Book-Entry
Transfer Facility as such Holder(s) may designate hereon. If no such
instructions are given, such Original Notes not accepted for payment will be
returned by crediting the account at the Book-Entry Transfer Facility designated
above.
8. WAIVER OF CONDITIONS. To the extent permitted by applicable law, the
Company reserves the right to waive any and all conditions to the Exchange Offer
and accept for exchange any Original Notes tendered.
9. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income tax law
generally requires that a Holder whose tendered Original Notes are accepted for
exchange, or such Holder's assignee (in either case, the "Payee"), provide the
Company (the "Payor"), with his or her correct Taxpayer Identification Number
("TIN"), which, in the case of a Payee who is an individual, is his or her
social security number. If the Payor is not provided with the correct TIN or an
adequate basis for an exemption, such Payee may be subject to a $50 penalty
imposed by the Internal Revenue Service and backup withholding in an amount
equal to 31% of the interest paid on the Exchange Offer. If withholding results
in an overpayment of taxes, a refund may be obtained.
To prevent backup withholding, each Payee must provide his correct TIN by
completing the "Substitute Form W-9" set forth herein, certifying that the TIN
provided is correct (or that such Payee is awaiting a TIN) and that (i) the
Payee is exempt from backup withholding, (ii) the Payee has not been notified by
the Internal Revenue Service that he is subject to backup withholding as a
result of a failure to report all interest
11
<PAGE> 12
or dividends, or (iii) the Internal Revenue Service has notified the Payee that
he is no longer subject to backup withholding.
If the Payee does not have a TIN, such Payee should consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 (the "W-9 Guidelines") for instructions on applying for a TIN, write
"Applied For" in the space for the TIN in Part I of the Substitute Form W-9, and
sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer
Identification Number set forth herein. Note: Writing "Applied For" on the form
means that the Payee has already applied for a TIN or that such Payee intends to
apply for one in the near future.
If the Original Notes are held in more than one name or are not in the name
of the actual owner, consult the W-9 Guidelines for information on which TIN to
report.
Exempt Payees (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt Payee
should write "Exempt" in Part 2 of Substitute Form W-9. See the W-9 Guidelines
for additional instructions. In order for a nonresident alien or foreign entity
to qualify as exempt, such person must submit a completed Form W-8, "Certificate
of Foreign Status." Such form may be obtained from the Payor.
10. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES. Any Holder whose
Original Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at one of the addresses indicated above for further instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to the Dealer Manager at its address set forth below or from the
tendering Holder's broker, dealer, commercial bank or trust company. Additional
copies of the Prospectus, this Letter of Transmittal, the Notice of Guaranteed
Delivery, and the Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 may be obtained from the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL, TOGETHER WITH CERTIFICATES FOR, OR
CONFIRMATION OF BOOK-ENTRY TRANSFER WITH RESPECT TO, ANY TENDERED ORIGINAL
NOTES, WITH ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS
MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY
MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE EXPIRATION DATE.
12
<PAGE> 13
TO BE COMPLETED BY ALL PAYEES
(SEE INSTRUCTION 9)
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: BANKERS TRUST COMPANY
-------------------------------------------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9 Name -----------------------------------------------------------------------------
Address---------------------------------------------------------------------------
(Number and Street)
----------------------------------------------------------------------------------
(City) (State) (Zip Code)
-------------------------------------------------------------------------------------
DEPARTMENT OF THE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE
TREASURY INTERNAL BOX AT RIGHT AND CERTIFY BY SIGNING AND TIN ------------------------------------
REVENUE SERVICE DATING BELOW (Social Security Number or
Employer Identification Number)
-------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR PART 2 -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING PLEASE WRITE "EXEMPT" HERE
TAXPAYER IDENTIFICATION
NUMBER (TIN) AND (SEE INSTRUCTIONS)
CERTIFICATION
-------------------------------------------------------------------------------------
PART 3 -- CERTIFICATION UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) The number
shown on this form is my correct TIN (or I am waiting for a number to be issued to
me), and (2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends or (c) the IRS has notified me that I am no longer
subject to backup withholding.
SIGNATURE _______________________________________ DATE ________
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out Part 2 above if you have been notified by the IRS that
you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART 1
OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and that I have mailed or delivered an application to
receive a taxpayer identification number of the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a taxpayer identification number to the Payor, the Payor is required to
withhold 31 percent of all cash payments made to me until I provide a number.
SIGNATURE DATE________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
13
<PAGE> 14
The Exchange Agent is:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Mail or Courier: By Hand:
U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A.
Corporate Trust Corporate Trust Corporate Trust
P.O. Box 841 770 Broadway, 13th Floor 111 Broadway, Lower Level
Cooper Station New York, New York 10003-9598 New York, New York 10006-1906
New York, New York 10276-0841
Facsimile Transmission Number: Confirm by Telephone: Information:
(212) 420-6504 (212) 420-6624 (800) 225-2398
(212) 420-6624
</TABLE>
14
<PAGE> 1
Notice of Guaranteed Delivery
for
TRACOR, INC.
Offer to Exchange
Any and all of its 8 1/2% Senior Subordinated Notes due 2007
Pursuant to the Prospectus dated April 18, 1997
by
TRACOR, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 16,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
As set forth in the Prospectus dated April 18, 1997 (the "Exchange
Memorandum") under the caption "Procedures for Tendering Notes -- Guaranteed
Delivery" and the accompanying Letter of Transmittal dated April 10, 1997 (the
"Letter of Transmittal") and Instruction 2 thereto, this form, or one
substantially equivalent hereto, must be used to accept the Exchange Offer if
certificates representing the 8 1/2% Senior Subordinated Notes due 2007 (the
"Notes") of Tracor, Inc., a Delaware corporation (the "Company"), are not
immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit a Holder's certificates or
other required documents to reach the Exchange Agent on or prior to the
Expiration Date. Such form may be delivered by hand or transmitted by telegram,
telex, facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution unless such form is submitted on behalf of
an Eligible Institution. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Exchange Memorandum.
The Exchange Agent is:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Mail or Courier: By Hand:
U.S. Trust Company of Texas, U.S. Trust Company of Texas, U.S. Trust Company of Texas,
N.A. N.A. N.A.
Corporate Trust Corporate Trust Corporate Trust
P.O. Box 841 770 Broadway, 13th Floor 111 Broadway, Lower Level
Cooper Station New York, New York 10003-9598 New York, New York 10006-1906
New York, New York 10276-0841
Facsimile Transmission Number: Confirm by Telephone: Information:
(212) 420-6504 (212) 420-6624 (800) 225-2398
(212) 420-6624
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION VIA A FACSIMILE
NUMBER OTHER THAN THE ONES LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies & Gentlemen:
Upon the terms and subject to the conditions set forth in the Exchange
Memorandum and accompanying Letter of Transmittal, receipt of which is hereby
acknowledged, the undersigned hereby tenders to Tracor, Inc., a Delaware
corporation (the "Company"), $ principal amount (at maturity) of
Original Notes, pursuant to the guaranteed delivery procedures set forth in the
Exchange Memorandum and accompanying Letter of Transmittal.
<TABLE>
<CAPTION>
CERTIFICATE NUMBERS OF ORIGINAL NOTES
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
<S> <C>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
If Original Notes will be tendered by book-entry transfer: (check one)
<TABLE>
<S> <C>
Names of Tendering Institution: [ ] The Depository Trust Company
- -----------------------------------------------------
[ ] The Midwest Securities Trust Company
Account No. ------------------------------------ at [ ] The Philadelphia Depository Trust Company
</TABLE>
The undersigned authorizes the Exchange Agent to deliver this Notice of
Guaranteed Delivery to the Company and U.S. Trust Company of Texas, N.A. with
respect to the Original Notes tendered pursuant to the Exchange Offer.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
SIGN HERE
- --------------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or
Authorized Signatory
- --------------------------------------------------------------------------------
Name(s) of Registered Holders
(Please Type or Print)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code and Telephone Number
Dated: , 1997
- ------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office in the United States, hereby (a) represents
that the above-named person(s) has a net long position in the Original Notes
tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange
Act of 1934, as amended, (b) represents that such tender of Original Notes
complies with Rule 14e-4 and (c) guarantees delivery to the Exchange Agent of
certificates representing the Original Notes tendered hereby, in proper form for
transfer, or confirmation of book-entry transfer of such Original Notes into the
Exchange Agent's account at a Book-Entry Transfer Facility (as defined in the
Exchange Memorandum), in each case together with a properly completed and duly
executed Letter of Transmittal with any required signature guarantees and any
other documents required by the Letter of Transmittal, within three New York
Stock Exchange trading days after the date hereof.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
Name of Firm Title
- -------------------------------------------- --------------------------------------------
Authorized Signature Name (Please Type or Print)
Dated:
----------------------------------------,
1997
- --------------------------------------------
Address
- --------------------------------------------
Area code and Telephone Number
</TABLE>
NOTE: DO NOT SEND CERTIFICATES REPRESENTING ORIGINAL NOTES WITH THIS FORM.
CERTIFICATES FOR ORIGINAL NOTES MUST BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
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