PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 29, 1998)
5,010,345 SHARES
AAR CORP.
COMMON STOCK
We are offering 5,010,345 shares of our common stock, par value
$1.00 per share. The purchase price of our common stock is $7.25 per
share, for a total offering price of $36,325,000. We expect to
receive net proceeds of approximately $6.89 per share and total net
proceeds of $34,508,750, after deducting a placement fee and before
offering expenses.
Our common stock is listed on the New York Stock Exchange under
the symbol "AIR." On February 15, 2002, the last reported sale price
of our common stock on the New York Stock Exchange was $7.41 per
share.
You should consider carefully the risks that we have described in
"Risk Factors" beginning on page S-4 of this prospectus supplement
before deciding whether to invest in our common stock.
We have engaged on a reasonable best efforts basis William Blair
& Company, L.L.C. as our exclusive placement agent for this offering.
We have agreed to pay William Blair a placement fee equal to five
percent (5%) of the total offering proceeds.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus supplement is February 15, 2002.
TABLE OF CONTENTS
Prospectus Supplement
Page
ABOUT THIS PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . S-3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . S-9
AAR CORP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . S-11
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . S-12
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . S-12
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . S-13
Prospectus
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . 3
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RATIO OF EARNINGS TO FIXED CHARGES . . . . . . . . . . . . . . . . 6
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . 7
DESCRIPTION OF PREFERRED STOCK . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF DEPOSITORY SHARES . . . . . . . . . . . . . . . . . 15
DESCRIPTION OF DEBT SECURITIES . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF WARRANTS . . . . . . . . . . . . . . . . . . . . . . 26
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 27
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
In this prospectus supplement and the accompanying prospectus,
the terms "AAR," "we," "us," "our" and the "Company" refer to AAR
CORP.
We provide information to you about our common stock in two
separate documents: (a) the accompanying prospectus, dated May 29,
1998, which provides general information and (b) this prospectus
supplement, which describes the specific details regarding this
offering. If information in this prospectus supplement is
inconsistent with the accompanying prospectus, you should rely on this
prospectus supplement.
You should also read and consider the information in the
documents we have referred you to in "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" on page S-13 of this prospectus supplement.
The information incorporated by reference is considered to be part of
this prospectus supplement, and information that we file later with
the SEC will automatically update and supersede this incorporated
information.
You should rely only on the information contained in this
prospectus supplement, the accompanying prospectus and the information
we incorporate by reference into these documents. We have not, and
the placement agent has not, authorized any other person to provide
you with any information or to make any representations not contained
in this prospectus supplement or the accompanying prospectus. If
anyone provides you with different or inconsistent information, you
should not rely on it. We are not, and the placement agent is not,
making an offer of any securities other than our common stock. You
should assume that the information appearing in this prospectus
supplement and the accompanying prospectus, as well as the information
incorporated by reference, is accurate as of the date on the front
cover of those documents only or, in the case of a subsequently filed
document that is incorporated by reference, the date of filing of that
document.
The distribution of this prospectus supplement and the
accompanying prospectus, and the offering of our common stock, may be
restricted by law in certain jurisdictions. You should inform yourself
about, and observe, these restrictions. This prospectus supplement and
the accompanying prospectus do not constitute, and may not be used in
connection with, an offer or solicitation by anyone in any
jurisdiction in which the offer or solicitation is not authorized, or
in which the person making the offer or solicitation is not qualified
to do so, or to any person to whom it is unlawful to make the offer or
solicitation.
S-3
RISK FACTORS
Before purchasing our common stock, you should carefully consider the
risks discussed in this section and other information in this
prospectus supplement, the accompanying prospectus and the information
incorporated by reference. Additional risks not presently known to us
or that we currently deem immaterial may also adversely affect our
business. If any of the following risks actually occur, our business
could be materially and adversely affected and the trading price of
our common stock could decline.
WE MAY BE FURTHER AFFECTED BY CONTINUING PROBLEMS IN THE AVIATION
INDUSTRY.
As a provider of products and services to the aviation industry, we
are greatly affected by the overall economic condition of that
industry. The aviation industry is historically cyclical. Early in
calendar year 2001, the commercial aviation industry began to
experience the negative effects of a worldwide economic downturn. The
September 11, 2001 terrorist attacks exacerbated that condition,
resulting in a significant decline in air travel.
The downturn in the aviation industry, particularly since September
11, 2001, has adversely affected our business and our operating
results. For the quarter ended November 30, 2001, we incurred a net
loss of $2,798,000 before consideration of asset impairment and other
special charges. Giving effect to after-tax charges of $51,686,000
primarily related to a reduction in the carrying value of certain
inventories and equipment leases, as well as an increase in our
allowance for bad debts, our total net loss for the quarter ended
November 30, 2001 was $54,484,000. Our future operating results and
financial condition may continue to be adversely impacted by ongoing
problems affecting the aviation industry in the following ways:
* a deterioration in the financial condition of some of our
existing and potential customers;
* reductions in the need for, or the deferral of, aircraft
maintenance and repair services and spare parts support;
* acceleration of the retirement of older generation aircraft,
resulting in lower prices for spare parts and services for
those aircraft; and
* reductions in demand for used aircraft and engines.
We cannot assure you that the economic and other factors currently
affecting the aviation industry will not continue to have an adverse
impact on our business and our operating results.
OUR CUSTOMERS MAY NOT BE ABLE TO MEET THEIR FINANCIAL OBLIGATIONS TO
US.
S-4
A number of our existing and prospective customers, including domestic
and foreign commercial airlines, regional and commuter airlines,
business aircraft operators, aviation original equipment
manufacturers, aircraft leasing companies, and independent aviation
support companies, have suffered from the problems adversely affecting
the aviation industry. As a result, certain of these customers may
pose credit risks to us. Our inability to collect receivables from
one or more important customers could adversely affect our financial
position and results of operations for a particular period.
OUR GOVERNMENT CONTRACTS MAY NOT CONTINUE AT PRESENT SALES LEVELS.
Our sales to the U.S. Government, its agencies and its contractors
were approximately $139,072,000 (15.9% of total sales), $132,048,000
(12.9% of total sales) and $98,954,000 (9.4% of total sales) in fiscal
years 2001, 2000 and 1999, respectively. Because these sales are
subject to competitive bidding and government funding, no assurance
can be given that sales under our government contracts will continue
at levels previously experienced. The majority of our government
contracts are for aviation products and services used for ongoing
routine military logistic support activities. Our contracts with the
U.S. Government and its agencies and contractors are typically firm
agreements to provide aviation products and services at a fixed price
and have a term of one year or less, frequently subject to extension
for one or more additional periods of one year at the option of the
U.S. Government.
WE ARE DEPENDENT UPON FINANCING TO MANAGE OUR BUSINESS AND TO EXECUTE
OUR BUSINESS STRATEGY.
Our ability to manage our business and to execute our business
strategy is dependent, in part, on the continuing availability of debt
and equity capital. Our business strategy includes:
* increasing and developing new maintenance, repair, and
overhaul capabilities;
* acquiring new businesses and product lines;
* acquiring inventories to support newer generation aircraft
and engines; and
* capitalizing on near-term market opportunities.
Access to the debt and equity capital markets may be limited in light
of general economic conditions, the state of the aviation industry,
and our recent performance. We cannot assure you that debt and equity
capital will continue to be available to us on favorable terms, or at
all. Our inability to obtain financing on favorable terms may
adversely affect our financial condition and results of operations,
and our ability to manage our business and execute our business
strategy.
S-5
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION.
The aviation industry is highly regulated by the Federal Aviation
Administration ("FAA") in the United States and the equivalent
regulatory agencies in other countries. Before we sell any of our
products that are to be installed in an aircraft, such as engines,
engine parts and components, airframe and accessory parts and
components, they must meet certain standards of airworthiness
established by the FAA or the equivalent regulatory agencies in other
countries. We also operate repair stations that are licensed by the
FAA and in some cases the equivalent regulatory agencies in other
countries. Specific regulations vary from country to country,
although regulatory requirements in other countries are generally
satisfied by compliance with FAA requirements. Although we believe we
comply with all applicable regulatory standards, these standards may
change in the future, requiring our inventory to be modified or
scrapped. There can be no assurance that new and more stringent
government regulations will not be adopted in the future or that any
such new regulations, if enacted, would not have an adverse impact on
us. If material authorizations or approvals were revoked or suspended
by the FAA and in some cases the equivalent regulatory agencies in
other countries, our operations would be adversely affected.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.
The aviation industry and the markets for our products and services
are extremely competitive, and we face competition from a number of
sources. Our competitors include aircraft manufacturers, aircraft
parts manufacturers, aircraft and engine leasing companies, airline
and aircraft service companies, other companies providing maintenance,
repair and overhaul services, and other aircraft spare parts
distributors and redistributors.
Certain of our competitors are currently experiencing financial
difficulties, and some or all of them may respond to their financial
difficulties by reducing prices on their products and services to
increase or retain market share. Any material deterioration in our
financial condition is likely to affect our ability to compete with
price-cutting by our competitors. Some of our competitors have
substantially greater financial and other resources than we have. We
cannot assure you that competitive pressures will not materially
adversely affect our business, financial condition or results of
operations.
OUR INDUSTRY IS SUSCEPTIBLE TO PRODUCT LIABILITY CLAIMS.
Our business exposes us to possible claims for property damage and
personal injury or death which may result if an engine, engine part or
component, airframe part or accessory or any other aviation product
which we have sold, manufactured or repaired fails or if an aircraft
in which our products are installed crashes and the cause cannot be
determined. We carry substantial liability insurance in amounts that
S-6
we believe are adequate for our risk exposure and commensurate with
industry norms. However, we cannot assure you that claims will not
arise in the future or that our insurance coverage will be adequate to
protect us in all circumstances. Additionally, we cannot assure you
that we will be able to maintain adequate insurance coverages in the
future at an acceptable cost. Since the September 11, 2001 terrorist
attacks, insurance premiums have risen significantly and may increase
further. Any product liability claim not covered by adequate
insurance could materially adversely affect our business, financial
condition or results of operations.
THE MARKET VALUE FOR OUR AVIATION PRODUCTS FLUCTUATES.
The market value for aviation products is dependent upon a number of
factors, including system-wide capacity in the commercial aviation
industry. The terrorist attacks of September 11, 2001, which occurred
in an already weakened commercial aviation environment, caused
commercial airlines to delay the delivery of new aircraft, to park
existing aircraft indefinitely and to accelerate the scheduled
retirement plans for older generation aircraft. These actions, among
others, reduced commercial airlines' capacity by approximately 20%.
Based on this and other factors, we reduced the value of, and provided
loss accruals for, certain of our inventories and equipment leases
that support principally older generation aircraft by $75,000,000
during the quarter ended November 30, 2001. Since system capacity in
the commercial aviation system is volatile, we can give no assurance
that future write-downs of our inventories and equipment leases will
not occur.
WE MAY NOT BE ABLE TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY.
The process of integrating an acquired business into our operations
may result in ongoing operating difficulties and expenditures, may
absorb significant management attention that would otherwise be
available for the ongoing development of our business and may result
in charges against income. In addition, future acquisitions may result
in potentially dilutive issuances of equity securities, incurrences of
debt or contingent liabilities and earnings charges for the write-down
of goodwill, any of which could materially adversely affect our
operating results and financial condition.
OUR STOCK PRICE MAY BE VOLATILE AND COULD EXPERIENCE SUBSTANTIAL
DECLINES.
The market price of our common stock has historically experienced and
may continue to experience volatility. The market price is likely to
be affected by:
* fluctuations in the volume of trading;
* changes in general conditions in the economy or the
financial markets;
S-7
* variations in our quarterly operating results;
* changes in financial estimates by management and securities
analysts;
* other developments affecting us, our industry, customers or
competitors; and
* the operating and stock price performance of companies that
investors deem comparable to us.
The volatility of the stock market also has affected the market prices
of securities issued by many companies and, at times, for reasons
unrelated to their operating performance. Therefore, we cannot predict
the market price for our common stock after this offering.
PROVISIONS IN OUR CHARTER AND BYLAWS COULD MAKE IT DIFFICULT FOR
STOCKHOLDERS TO EFFECT A CHANGE IN CONTROL.
Our certificate of incorporation and bylaws may affect significantly
the ability of our stockholders to make changes to our board of
directors or the ability of holders of a substantial amount of our
common stock to acquire control of, or to remove, the incumbent board,
and might discourage transactions that involve an actual or threatened
change of control of AAR. These provisions:
* provide for a classified board of directors of which
approximately one third of the directors are elected each
year;
* allow the authorized number of directors to be changed only
by a resolution of the board of directors;
* prohibit stockholder action by written consent;
* limit who may call stockholder meetings;
* require the affirmative vote of at least 80% of voting
shares not held by interested stockholders (that is,
stockholders who own 10% or more of our common stock) for
any merger, sale and certain other business transactions
with an interested stockholder not approved by our board;
* provide that directors may be removed only for cause and
only by the affirmative vote of holders of at least 80% of
the total voting power of all shares entitled to vote in an
election of directors;
* require the affirmative vote of at least 80% of the total
voting power of all shares entitled to vote in an election
of directors or a majority of our board to amend, alter or
repeal our by-laws; and
S-8
* authorize the issuance of 250,000 shares of preferred stock
with such designations, rights and preferences as may be
determined by our board.
In addition, in July 1997, our board declared a distribution of a
common stock purchase right for each outstanding share of common
stock. The rights are transferred only with our common stock and are
not exercisable until a person acquires or announces an intention to
acquire 15% or more of our outstanding common stock. The rights,
which expire August 6, 2007, will, if exercised, cause substantial
dilution to a person or a group that attempts to acquire control of
AAR on terms not approved by our board.
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and
the documents incorporated by reference by them contain certain
statements relating to future results, which are forward-looking
statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are
based on the beliefs of our management, as well as assumptions and
estimates based on information currently available to us, and are
subject to certain risks and uncertainties that could cause actual
results to differ materially from historical results or those
anticipated, depending on a variety of factors, including those
factors discussed under the section entitled "Risk Factors." Should
one or more of those risks or uncertainties materialize adversely, or
should underlying assumptions or estimates prove incorrect, actual
results may vary materially from those described. Those events and
uncertainties are difficult or impossible to predict accurately and
many are beyond our control.
AAR CORP.
AAR CORP. was organized in 1955 as the successor to a business
founded in 1951 and was reincorporated in Delaware in 1966. We are a
leading independent provider of value-added products and services to
the worldwide aviation industry.
We report our activities in four business segments: (i) Inventory
and Logistic Services, (ii) Maintenance, Repair and Overhaul, (iii)
Manufacturing and (iv) Aircraft and Engine Sales and Leasing.
Our Inventory and Logistic Services segment activities include
the purchase and sale of a wide variety of new, overhauled and
repaired engine parts and components and airframe parts and components
for the aviation aftermarket. We also provide customized inventory
supply and management programs for engine and airframe parts and
components in support of customer maintenance activities. We are an
authorized distributor for more than 150 leading aviation and
aerospace product manufacturers. We acquire aviation products for our
Inventory and Logistic Services segment from domestic and foreign
S-9
airlines, independent aviation service companies, aircraft leasing
companies and original equipment manufacturers.
Our Maintenance, Repair and Overhaul segment activities include
the overhaul, repair and exchange of a wide variety of airframe and
engine parts and components for our commercial, and military
customers. Our repair and overhaul capabilities include most
commercial aircraft landing gear, a wide variety of avionics,
instruments, electrical, electronic, fuel, hydraulic and pneumatic
components and a broad range of internal airframe components. We also
operate an aircraft maintenance facility providing maintenance,
modification, special equipment installation, painting services and
aircraft terminal services for various models of commercial, military,
regional, business and general aviation aircraft. We also operate an
aircraft storage facility. Our repair and overhaul of parts and
components also supports our inventory management activities within
our Inventory and Logistic Services segment. We have 11 FAA-licensed
repair stations in the U.S. and two in Europe to perform airframe and
engine component overhaul services. We also provide turbine engine
overhaul and parts supply services to industrial gas and steam turbine
operators. During the second quarter of fiscal 2001, we purchased
substantially all of the net assets of Hermetic Aircraft
International, an aircraft component support company providing repair
and distribution services to the North American aftermarket primarily
on behalf of European aircraft component manufacturers.
Our Manufacturing segment activities include the design,
manufacture and installation of in-plane cargo loading and handling
systems for commercial and military aircraft and helicopters. We also
design and manufacture advanced composite materials for commercial,
business and military aircraft. In addition, we manufacture and
repair a wide array of containers, pallets and shelters in support of
military and humanitarian tactical deployment activities.
Our Aircraft and Engine Sales and Leasing segment activities
include the sale or lease of used commercial jet aircraft and the sale
or lease of a wide variety of new, overhauled and repaired engines.
For each of our segments, we furnish aviation products and
services primarily through our own employees. The principal customers
for our products and services in the Inventory and Logistic Services
and Maintenance, Repair and Overhaul segments are domestic and foreign
commercial airlines, regional and commuter airlines, business and
general aviation operators, aviation original equipment manufacturers,
aircraft leasing companies, domestic and foreign military
organizations and independent aviation support companies. In the
Manufacturing segment, our principal customers include domestic and
foreign commercial airlines, aviation original equipment manufacturers
and domestic and foreign military organizations. The principal
customers in our Aircraft and Engine Sales and Leasing segment include
domestic and foreign commercial airlines, aircraft and leasing
companies and domestic military organizations. Sales of aviation
S-10
products and services to commercial airlines are generally affected by
such factors as the number, type and average age of aircraft in
service, the levels of aircraft utilization (e.g., frequency of
schedules), the number of airline operators and the level of sales of
new and used aircraft.
Competition in the worldwide aviation/aerospace industry is based
on quality, ability to provide a broad range of products and services,
speed of delivery and price. Competitors in both aircraft and engine
parts supply businesses include the original equipment manufacturers,
commercial airlines, and other independent suppliers of parts and
services. In certain of our leasing and commercial jet aircraft and
engine sales activities, we face competition from financial
institutions, syndicators, commercial and specialized leasing
companies and other entities that provide financing. We also compete
with various repair and overhaul organizations, which include the
service arms of original equipment manufacturers, the maintenance
departments or divisions of large commercial airlines (some of which
also offer maintenance services to third parties) and independent
organizations. Our pallet, container and shelter manufacturing
activities compete with several modest-sized private companies, and
our cargo systems competitors include a number of divisions of large
corporations. Although certain of our competitors have substantially
greater financial and other resources than us, we believe that we have
maintained a satisfactory competitive position through our
responsiveness to customer needs, our attention to quality and our
unique combination of market expertise, technical capabilities and
financial strength.
At December 31, 2001, backlog believed to be firm was
approximately $115,000,000 compared to $74,100,000 at May 31, 2001.
Approximately $84,000,000 of this backlog is expected to be filled
within the next 12 months. The increase in our backlog is due primarily
to increased orders in our Manufacturing and Maintenance, Repair and
Overhaul segments.
Certain of our aviation-related activities and products are
subject to licensing, certification and other requirements imposed by
the FAA and other regulatory agencies, both domestic and foreign. We
believe that we possess all licenses and certifications that are
material to the conduct of our business.
At December 31, 2001, we employed approximately 2,350 persons
worldwide.
USE OF PROCEEDS
We expect the net proceeds from the sale of shares of our common
stock being offered by this prospectus supplement to be approximately
$34,333,750 after deducting the placement fee and offering expenses.
We intend to use substantially all of the net proceeds for working
capital and general corporate purposes.
S-11
CAPITALIZATION
The following table sets forth our capitalization as of November
30, 2001, both actual and adjusted to give effect to the sale of
shares of our common stock being offered by this prospectus
supplement, after deducting the placement fee and offering expenses,
and the application of the estimated net proceeds as described in the
section entitled "Use of Proceeds."
NOVEMBER 30, 2001
-----------------
ACTUAL ADJUSTED
------ --------
(in thousands)
Short-term borrowings, including current maturities of long-term
debt........................................................... $71,162 $ 71,162
Long-term debt................................................... 189,733 189,733
-------- --------
Total debt....................................................... $260,895 $260,895
Stockholder's equity:
Preferred stock, $1.00 par value,
authorized 250 shares; none issued........................... -- --
Common stock, $1.00 par value, authorized
100,000 shares; issued 29,407 (33,554 as adjusted)........... $ 29,407 $ 33,554
Capital surplus.................................................. $149,035 $165,440
Retained earnings................................................ $162,888 $162,888
Treasury stock 2,531 (1,668 as adjusted)......................... $(40,431) $(26,649)
Unearned restricted stock awards................................. $ (1,610) $ (1,610)
Accumulated other comprehensive income
(loss) --
Cumulative translation adjustments............................. $(11,893) $(11,893)
Minimum pension liability...................................... $ (3,052) $ (3,052)
-------- --------
Total stockholders' equity....................................... $284,344 $318,678
Total capitalization............................................. $545,239 $579,573
PLAN OF DISTRIBUTION
We have engaged on a reasonable best efforts basis William Blair
& Company, L.L.C. ("William Blair") as our exclusive placement agent for
this offering. William Blair is not obligated to purchase any shares of
our common stock. William Blair has advised us that it will not purchase
any shares of our common stock for its own account.
In consideration for acting as placement agent for this offering
and for providing other financial advisory services, we have agreed to
S-12
pay William Blair a placement fee equal to five percent (5%) of the
total offering proceeds from the sale of shares of our common stock or
$1,816,250. We have also agreed to reimburse William Blair for any
reasonable expenses incurred by it in connection with this offering.
We have agreed to indemnify William Blair, its stockholders,
directors, officers, employees, agents affiliates and controlling
persons from and against any and all claims, damages, liabilities, or
expenses, and all actions in respect thereof arising under the
Securities Act.
The expenses directly related to this offering, not including the
placement fee, are estimated to be approximately $175,000 and will be
paid by us. Expenses of the offering, exclusive of the placement fee,
include legal fees, printing expenses, transfer agent fees, exchange
listing fees and miscellaneous fees.
We entered into stock purchase agreements, effective February 15,
2002, with investors identified by William Blair, whereby the
investors agreed to purchase 5,010,345 shares of our common stock for
a total offering price of $36,325,000.
William Blair and its affiliates have in the past and may in the
future perform financial services for us, for which they have received
customary fees.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference the information we
file with them, which means that we can disclose important information
to you by referring to those documents. The information incorporated
by reference is considered to be part of this prospectus supplement,
and the information that we file at a later date with the SEC will
automatically update and supersede this information. We incorporate by
reference the documents listed below as well as any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
(a) Our annual report on Form 10-K for the fiscal year
ended May 31, 2001, filed with the SEC on August 27, 2001;
(b) Our quarterly report on Form 10-Q for the quarter ended
August 31, 2001, filed with the SEC on October 15, 2001; and
(c) Our quarterly report on Form 10-Q for the quarter ended
November 30, 2001, filed with the SEC on January 14, 2002.
S-13
You may request a copy of these filings, at no cost, by writing
or telephoning us at the following address:
AAR CORP.
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
(630) 227-2000
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PROSPECTUS
AAR CORP.
$200,000,000
COMMON STOCK, PREFERRED STOCK,
DEPOSITARY SHARES, DEBT SECURITIES AND WARRANTS
AAR CORP. ("the Company") may offer from time to time (i) common
stock, par value $1.00 per share ("Common Stock"), (ii) one or more
series of Preferred Stock, par value $1.00 per share ("Preferred
Stock"), which may be evidenced by Depositary Shares (as defined
herein), (iii) one or more series of debt securities ("Debt
Securities"), consisting of debentures, notes and/or other unsecured
evidences of indebtedness, and (iv) warrants to purchase Debt
Securities, Preferred Stock, Common Stock or Depositary Shares
("Warrants", and together with the Common Stock, Preferred Stock,
Depositary Shares and Debt Securities, "Securities"), at an aggregate
initial offering price not to exceed $200,000,000 (or its equivalent
in another currency or currency unit based on the exchange rate at the
time of sale) in amounts, at prices and on terms to be determined at
the time of offering. Securities may be offered, separately or
together, in separate series, in amounts, at prices and on terms to be
set forth in one or more supplements to this Prospectus (each a
"Prospectus Supplement").
The specific terms of the Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable
Prospectus Supplement and will include, where applicable (i) in the
case of Common Stock, the number of shares; (ii) in the case of
Preferred Stock, the specific serial designation, the number of
shares, any dividend, redemption, liquidation, conversion, exchange,
sinking fund, voting and other rights, if any, and whether interests
in such Preferred Stock will be evidenced by Depositary Shares and, if
so, the identity of the Depositary; (iii) in the case of Debt
Securities, whether they are Senior or Subordinated Debt Securities
and subordination terms, if any, the specific designation, aggregate
principal amount, the currency or currency unit in which payments are
to be made, denominations, maturity, premium, if any, rate (which may
be fixed or variable) and time of payment of interest, if any, terms
for redemption at the option of the Company or the holder, if any,
terms for sinking fund payments, if any, conversion or exchange
rights, if any; and (iv) in the case of Warrants, the duration,
offering price, exercise price and detachability of such Warrants, as
well as a description of the Common Stock, Preferred Stock, Depositary
Shares or Debt Securities issuable upon such exercise. Unless
otherwise specified in the applicable Prospectus Supplement,
Securities other than Common Stock will be issued in permanent global
form and Common Stock will be issued through the Company's transfer
agent and registrar.
The Common Stock is listed on the New York Stock Exchange, Inc.
(the "NYSE") and the Chicago Stock Exchange under the symbol "AIR".
Any Common Stock offered will be listed, subject to notice of
issuance, on such exchanges. The applicable Prospectus Supplement
will also contain information, where applicable, as to any other
listing on a securities exchange of Securities covered by such
Prospectus Supplement.
The Company may sell Securities to or through one or more
underwriters, and also may sell Securities directly to other
purchasers or through agents. The applicable Prospectus Supplement
will set forth the names of any underwriters or agents involved in the
sale of the Securities in respect of which this Prospectus is being
delivered, the number or principal amounts, if any, to be purchased by
underwriters and the compensation, if any, of such underwriters or
agents. See "Plan of Distribution." No Securities may be sold
without delivery of the applicable Prospectus Supplement describing
the method and terms of the offering of such series of Securities.
--------------------------------------------
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 MAY 29, 1998.
2
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (together with the rules
and regulations thereunder, the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission). Reports,
proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's Regional Offices in New York (7 World Trade
Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661)
and copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such material is also available from the
Commission through the internet at http://www.sec.gov. The Common
Stock is listed on the NYSE and the Chicago Stock Exchange. Reports,
proxy statements and other information relating to the Company can
also be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration
statement on Form S-3 (the "Registration Statement") (of which this
Prospectus is a part) under the Securities Act of 1933, as amended
(together with the rules and regulations thereunder, the "Securities
Act") with respect to the Securities. This Prospectus does not
contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in
this Prospectus as to the contents of any contract or other documents
are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto.
For further information regarding the Company and the Securities,
reference is hereby made to the Registration Statement and such
exhibits and schedules which may be obtained from the Commission at
its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(File No. 1-6263) pursuant to the Exchange Act are hereby incorporated
by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1997;
3
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended August 31, 1997, November 30, 1997 and February 28,
1998;
3. The Company's Current Reports on Form 8-K dated July 8, 1997,
December 4, 1997, December 10, 1997, and December 11, 1997; and
4. The descriptions of the Common Stock and the Common Stock
Purchase Rights included in the Company's Registration Statements on
Form 8-A filed July 29, 1987 and July 8, 1998, respectively, and filed
with the Commission pursuant to Section 12(d) of the Exchange Act,
including any amendments or reports filed for the purpose of updating
such descriptions.
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of any Securities are hereby
incorporated by reference into this Prospectus and shall be deemed a
part hereof from the date of filing of such documents.
Any statement contained herein, in any supplement hereto or in a
document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a
statement contained herein, in any supplement hereto or in any
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of
the Registration Statement, this Prospectus or any supplement hereto.
Copies of all documents which are incorporated herein by reference
(not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents) will be
provided without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered upon written or oral
request. Requests should be directed to AAR CORP., 1100 North Wood
Dale Road, Wood Dale, Illinois 60191, (630) 227-2000, Attn: Corporate
Secretary.
THE COMPANY
GENERAL
The Company is a worldwide leader in supplying aftermarket
products and services to the global aerospace/aviation industry. It
provides aircraft, engines and engine parts; airframe and accessories
products; overhaul, repair and maintenance services and Company-
manufactured products to customers in all segments of this industry,
including the world's largest commercial airlines, air cargo,
business, and general aviation operators, original equipment
manufacturers, domestic and foreign military and government agencies,
4
aircraft leasing companies, and maintenance service providers. The
Company's principal executive offices are located at 1100 N. Wood Dale
Road, Wood Dale, Illinois 60191, and the Company's telephone number is
630/227-2000.
The Company reports its activities in one business segment:
Aviation Services. The following table sets forth net sales and the
Company's classes of similar products and services within this segment
for the last three fiscal years:
Net Sales Year Ended May 31
----------------------------------------------------
(000's omitted)
1997 1996 1995
------- -------- -------
Aircraft and Engines $263,074 $182,229 $171,181
Airframe and Accessories 221,433 202,883 166,830
Manufacturing 104,821 119,878 113,384
-------- -------- -------
$589,328 $504,990 $451,395
AIRCRAFT AND ENGINES
The Company's Aircraft and Engines activities include (i) the
purchase, sale, lease and lease financing of new and used commercial
jet aircraft, (ii) the purchase, sale and lease of a wide variety of
new, overhauled and repaired engines and engine parts for the aviation
aftermarket, and (iii) the overhaul, repair and exchange of a wide
range of engine parts and components and other engine support services
for its commercial and military customers. The Company provides
customized inventory supply and management programs for certain engine
parts and components in support of customer maintenance activities.
The Company's primary sources of engine parts for its Aircraft and
Engine activities are domestic and foreign airlines, independent
aviation service companies, aircraft leasing companies and original
equipment manufacturers.
AIRFRAME AND ACCESSORIES
The Company's Airframe and Accessories activities consist of (i)
the purchase, sale and lease of new, overhauled and repaired airframe
parts and accessories for the aviation aftermarket, and (ii) a wide
variety of airframe and accessory parts and components overhaul,
repair and exchange services for its commercial, military and general
aviation customers. The Company provides customized inventory supply
and management programs for certain airframe parts and components in
support of customer maintenance activities. The Company's primary
sources of airframe parts for its Airframe and Accessories activities
are domestic and foreign airlines, independent aviation service
5
companies and aircraft leasing companies; the Company is also an
authorized distributor for leading aerospace/aviation product
manufacturers.
MANUFACTURING
The Company's Manufacturing activities include (i) the
manufacture and repair of a wide array of containers, pallets and
shelters in support of military and humanitarian rapid development
activities, (ii) the design, manufacture and installation of in-plane
cargo loading and handling systems for commercial and military
aircraft and helicopters, (iii) the design and manufacture of a line
of specialized protective transport cases that are used to transport
sensitive and calibrated tools and instruments, and a variety of
vacuum storage containers that protect machinery and equipment during
long-term storage, (iv) the design and manufacture of advanced
composite materials for commercial, business and military aircraft and
(v) the design and manufacture of a complete line of self-propelled
floor sweepers and scrubbers for a variety of industrial and
commercial uses, including both ride-on and walk-behind lines, powered
by gasoline, diesel fuel or battery.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus
Supplement, the Company intends to use the net proceeds from the sale
of Securities for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following is the Company's ratio of earnings to fixed charges
for the periods indicated:
Nine Months
Ended
February 28, Year Ended May 31,
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
Ratio of earnings to
fixed charges 4.3:1 3.4:1 3.5:1 2.8:1 2.1:1 2.1:1 0.8:1
For the purposes of calculating the ratio of earnings to fixed
charges, earnings consist of income before income taxes, adjusted for
fixed charges. Fixed charges consist of interest, whether expensed or
capitalized, amortization of debt expense and one-third of minimum
rental payments under operating leases (estimated by management to be
the interest factor of such rentals). In 1993, earnings, as defined,
were inadequate to cover fixed charges by $1,917,000.
6
DESCRIPTION OF COMMON STOCK
GENERAL
The following is a description of certain terms of the Common
Stock. This description does not purport to be complete and is
subject to and qualified in its entirety by reference to the
provisions of the Company's Restated Certificate of Incorporation
relating to the Common Stock.
The authorized common stock of the Company consists of 80,000,000
shares of Common Stock, $1.00 par value per share. As of March 31,
1998, there were 27,688,317 shares of Common Stock outstanding.
Holders of Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock
are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities.
Holders of Common Stock have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of Common Stock are
fully paid and non-assessable.
The rights, preferences and privileges of holders of Common Stock
are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company
may designate and issue in the future.
DIVIDENDS
Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors
applicable to Common Stock out of funds legally available therefor.
Declaration of future dividends by the Board of Directors will depend
on general business conditions encountered by the Company, earnings,
financial condition and capital requirements of the Company and such
other factors as the Board of Directors may deem relevant.
Certain of the Company's debt agreements contain provisions
restricting the payment of dividends or repurchase of its shares.
Under the most restrictive of these provisions, the Company may not
pay dividends (other than stock dividends) or acquire its capital
stock if after giving effect thereto the aggregate amounts paid on or
after June 1, 1995 exceed the sum of (i) $20,000,000 plus (ii) 50% of
consolidated net income of the Company after June 1, 1994. Certain
restrictions on the declaration or payment of dividends on Common
Stock and the repurchase of Common Stock shares by the Company apply
if there are any shares of preferred stock outstanding.
7
CERTAIN CHARTER AND BY-LAW PROVISIONS
GENERAL. The Company has implemented certain measures designed
to enhance the Board of Directors' ability to protect stockholders
against, among other things, unsolicited attempts to acquire a
significant interest in the Company or to influence the Company's
management (whether through open market purchases, tender offers or
otherwise) that do not offer an adequate price to all stockholders or
that the Board of Directors otherwise considers not in the best
interests of the Company and its stockholders.
Certain provisions in the Restated Certificate of Incorporation
of the Company may have a significant impact on the stockholders'
ability to change the composition of the incumbent Board of Directors
or the ability of a substantial holder of the Common Stock to acquire
control of, or to remove, the incumbent Board of Directors, and might
discourage certain types of transactions that involve an actual or
threatened change of control of the Company.
The provisions of the Restated Certificate of Incorporation are
intended to encourage persons seeking to acquire control of the
Company to initiate such an acquisition through arm's-length
negotiations with the Company's management and Board of Directors.
These provisions could have the effect of discouraging a third party
from making a tender offer to or otherwise attempting to obtain
control of the Company, even though such an attempt might be
beneficial to the Company and its stockholders. At the same time,
these provisions help ensure that the Board of Directors, if
confronted by an unsolicited proposal from a third party who has
recently acquired a block of Common Stock, will have sufficient time
to review the proposal and alternatives to it and to seek better
proposals for its stockholders, employees, suppliers, customers and
others. These provisions are discussed below.
INDEMNIFICATION. Pursuant to the provisions of the Delaware
General Corporation Law (the "Delaware GCL"), the Company has adopted
provisions in its Restated Certificate of Incorporation which require
the Company to indemnify its officers and directors to the fullest
extent permitted by law, and eliminate the personal liability of its
directors to the Company or its stockholders for monetary damages for
breach of their duty of due care except (i) for any breach of the duty
of loyalty; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law; (iii) for
liability under Section 174 of the Delaware GCL (relating to certain
unlawful dividends, stock repurchases or stock redemptions); or (iv)
for any transaction from which the director derived any improper
personal benefit. These provisions do not eliminate a director's duty
of care. Moreover, the provisions do not apply to claims against a
director for violation of certain laws, including Federal securities
laws. The Company believes that these provisions assist the Company
in attracting and retaining qualified individuals to serve as
directors and officers.
8
PREFERRED STOCK. The Company's Restated Certificate of
Incorporation includes a provision which allows the Board of
Directors, without stockholder approval, to issue up to 250,000 shares
of preferred stock with voting, liquidation and conversion rights that
could be superior to and adversely affect the voting power of holders
of Common Stock. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change in control of the
Company.
CLASSIFIED BOARD OF DIRECTORS. The Company's Restated
Certificate of Incorporation provides that the Board of Directors of
the Company shall be divided into three classes of directors serving
staggered three-year terms. The classification of directors has the
effect of making it more difficult for stockholders to change the
composition of the Board of Directors in a relatively short period of
time.
VOTING RESTRICTION ON CERTAIN BUSINESS COMBINATIONS. An
affirmative vote of the holders of at least 80% of the outstanding
shares of capital stock of the Company entitled to vote generally in
the election of directors is required with respect to the adoption or
approval of certain business combinations, including mergers,
consolidations, asset and securities sales, plans of liquidation or
dissolution and certain reclassifications, involving any related party
(as defined below).
A related party is defined in the Company's Restated Certificate
of Incorporation to mean the beneficial owner, directly or indirectly,
of not less than 10% of the voting stock of the Company.
The 80% affirmative voting requirement is not applicable to
business combinations approved by (i) a majority of the Board of
Directors of the Company prior to the acquisition by the related party
of 10% of the then outstanding voting stock or (ii) a majority of
those members of the Board of Directors who are not related party
directors.
SPECIAL STOCKHOLDERS' MEETINGS. The Restated Certificate of
Incorporation and By-Laws allow only the Chairman of the Board of
Directors or majority of the Board of Directors then in office to call
a special meeting of the stockholders.
NO ACTION BY STOCKHOLDER CONSENT. The Company's Restated
Certificate of Incorporation prohibits action that is required or
permitted to be taken at any annual or special meeting of stockholders
of the Company from being taken by the written consent of stockholders
without a meeting.
SUPERMAJORITY VOTING. The classified Board, special meeting and
stockholder consent, as well as certain other provisions, of the
Restated Certificate of Incorporation may be altered, amended, or
repealed only if the holders of 80% or more of the outstanding shares
9
of voting stock entitled to vote in the election of directors vote in
favor of such action. The By-Laws of the Company may be amended,
altered, changed or replaced by the affirmative vote of the holders of
at least 80% or more of the outstanding shares of voting stock
entitled to vote in the election of directors or by a majority of
Board of Directors then in office.
DELAWARE ANTI-TAKEOVER LAW
The Company is a Delaware corporation that is subject to Section
203 of the Delaware GCL ("Section 203"). Under Section 203 certain
"business combinations" between a Delaware corporation, whose stock
generally is publicly traded or held of record by more than 2,000
stockholders, and an "interested stockholder" are prohibited for a
three-year period following the date that such stockholder became an
interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203 (the
Company has not made such election), (ii) the business combination was
approved by the board of directors of the corporation before the other
party to the business combination became an interested stockholder,
(iii) upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the
plan) or (iv) the business combination is approved by the board of
directors of the corporation and ratified by two-thirds of the voting
stock which the interested stockholder did not own. The three-year
prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the
corporation and a person who had not been an interested stockholder
during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and
an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as those stockholders who become
beneficial owners of 15% or more of a Delaware corporation's voting
stock, together with the affiliates or associates of that stockholder.
RIGHTS AGREEMENT
Pursuant to a Rights Agreement adopted in 1997, each outstanding
share of the Company's Common Stock carries with it a right to
purchase one additional share at a price of $83.33 (subject to anti-
dilution adjustments). The rights become exercisable (and separate
from the shares) when certain specified events occur, including the
10
acquisition of 15% or more of the Common Stock by a person or group
(an "Acquiring Person") or the commencement of a tender or exchange
offer for 15% or more of the Common Stock. The rights replace Common
Stock purchase rights initially distributed to holders of the
Company's Common Stock in 1987 and which expired by their own terms in
1997.
In the event that an Acquiring Person acquires 15% or more of the
Common Stock, or if the Company is the surviving corporation in a
merger involving an Acquiring Person, or if the Acquiring Person
engages in certain types of self-dealing transactions, each right
entitles the holder to purchase for the then current exercise price
that number of shares of Common Stock having a market value of two
times the exercise price, subject to certain exceptions. Similarly,
if the Company is acquired in a merger or other business combination
or 50% of more of its assets or earning power is sold, each right
entitles the holder to purchase at the then current exercise price
that number of shares of common stock of the surviving corporation
having a market value of two times the exercise price. The rights,
which do not entitle the holder thereof to vote or to receive
dividends, expire on August 6, 2007 and may be redeemed by the Company
for $.01 per right under certain circumstances.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following is a description of certain general terms and
provisions applicable to Preferred Stock as a class. The particular
terms of any series of Preferred Stock will be described in the
applicable Prospectus Supplement. This description does not purport
to be complete and is subject to and qualified in its entirety by the
provisions of the Company's Restated Certificate of Incorporation and
a certificate of designation relating to each series of Preferred
Stock (each, a "Certificate of Designation"), which will be filed as
an exhibit to or incorporated by reference in the Registration
Statement of which this Prospectus is a part at or prior to the time
of issuance of such series of Preferred Stock.
The Company's Restated Certificate of Incorporation authorizes
the issuance of 250,000 shares of Preferred Stock, par value $1.00 per
share. No shares of Preferred Stock are currently outstanding.
Under the Company's Restated Certificate of Incorporation, the
Preferred Stock may be issued from time to time in one or more series
with such serial designation and (i) may have such voting powers, full
or limited, or may be without voting powers; (ii) may be subject to
redemption at such time or times and such prices; (iii) may be
entitled to receive dividends (which may be cumulative or
noncumulative) at such rates, on such conditions, and at such times,
and payable in preference to, or in such relation to, the dividends
payable on any other class or classes of stock; (iv) may be entitled
11
to such rights upon the dissolution of, or upon any distribution of
the assets of, the Company; (v) may be made convertible into, or
exchangeable for, shares of any other class or classes of stock of the
Company at such price or prices or at such other rates of exchange and
with such adjustments; and (vi) shall have such other preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, all as stated in
a Certificate of Designation adopted by the Board of Directors of the
Company.
The Prospectus Supplement relating to the particular Preferred
Stock offered thereby (the "Offered Preferred Stock") will describe
the following terms of the Offered Preferred Stock: (i) the
designation and stated value per share of the Offered Preferred Stock
and the number of shares offered; (ii) the amount of liquidation
preference per share of the Offered Preferred Stock; (iii) the initial
public offering price at which the Offered Preferred Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates
on which dividends shall be payable and the dates from which dividends
shall commence to cumulate, if any; (v) any redemption or sinking fund
provisions; (vi) any conversion or exchange rights; (vii) whether the
Company has elected to offer Depositary Shares as described below
under "Description of Depositary Shares"; and (viii) any additional
voting, dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions.
The Preferred Stock will have the dividend, liquidation,
redemption and voting rights set forth below unless otherwise provided
in the applicable Prospectus Supplement.
The Preferred Stock will be, upon issuance against full payment
therefor, fully paid and nonassessable. The holders of Preferred
Stock will not have any preemptive rights. The applicable Prospectus
Supplement will contain a description of certain United States Federal
income tax consequences relating to the purchase and ownership of the
Offered Preferred Stock.
RANK
With respect to dividend rights and rights upon the liquidation,
dissolution or winding up of the Company, each share of Preferred
Stock will rank on a parity with each other share of Preferred Stock,
irrespective of series, and will rank prior to the Common Stock and
any other class or series of capital stock of the Company hereafter
authorized over which the Preferred Stock has preference or priority
in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Company.
The Preferred Stock will be junior to all outstanding debt of the
Company. Each series of Preferred Stock will be subject to creation
of preferred stock ranking senior to, on a parity with or junior to
12
such Preferred Stock to the extent not expressly prohibited by the
Company's Restated Certificate of Incorporation.
DIVIDENDS
Holders of shares of Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors out of funds of the
Company legally available for payment, cash dividends, payable at such
dates and at such rates per share per annum as set forth in the
applicable Prospectus Supplement. Such rate may be fixed or variable
or both. Each declared dividend will be payable to holders of record
as they appear at the close of business on the stock books of the
Company (or, if applicable, on the records of the Depositary (as
hereinafter defined) referred to below under "Description of
Depositary Shares") on such record dates, not more than 60 calendar
days preceding the payment dates thereof, as are determined by the
Board of Directors (each of such dates, a "Record Date").
Such dividends may be cumulative or noncumulative, as provided in
the applicable Prospectus Supplement. If dividends on a series of
Preferred Stock are noncumulative and if the Board of Directors fails
to declare a dividend in respect of a dividend period with respect to
such series, then holders of such Preferred Stock will have no right
to receive a dividend in respect of such dividend period, and the
Company will have no obligation to pay the dividend for such period,
whether or not dividends are declared payable on any future dividend
payment date.
No full dividend will be declared or paid or set apart for
payment on the Preferred Stock of any series for any dividend period
unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on all the outstanding shares of
Preferred Stock for all dividend periods terminating on or prior to
the end of such dividend period. When dividends are not paid in full
as aforesaid on all shares of Preferred Stock, as the case may be, any
dividend payments (including accruals, if any) on the Preferred Stock
will be paid to the holders of the shares of the Preferred Stock
ratably in proportion to the respective sums which such holders would
receive if all dividends thereon accrued to the date of payment were
declared and paid in full. Accruals of dividends will not bear
interest. So long as any shares of Preferred Stock are outstanding,
in no event will any dividends, whatsoever, whether in cash or
property, be paid or declared, nor will any distribution be made, on
any class of stock ranking subordinate to the Preferred Stock nor will
any shares of stock ranking subordinate to the Preferred Stock be
purchased, redeemed or otherwise acquired for consideration by the
Company or any subsidiary of the Company, unless all dividends on the
Preferred Stock for all past quarterly dividend periods will have been
paid or declared and a sum sufficient for the payment thereof set
apart. The foregoing provisions will not, however, apply to a
dividend payable solely in shares of any stock ranking subordinate to
13
the Preferred Stock or to the acquisition of shares of any stock
ranking subordinate to the Preferred Stock in exchange solely for
shares of any other stock ranking subordinate to the Preferred Stock.
LIQUIDATION
In the event of a liquidation, dissolution or winding up of the
Company, the holders of the Offered Preferred Stock will be entitled,
subject to the rights of creditors, but before any distribution or
payment to the holders of Common Stock or any other security ranking
junior to the Offered Preferred Stock, to receive an amount per share
determined by the Board of Directors and set forth in the applicable
Prospectus Supplement plus accrued and unpaid dividends to the
distribution or payment date (whether or not earned or declared).
However, neither the merger, nor the sale, lease or conveyance of all
or substantially all of the assets of the Company will be deemed a
liquidation, dissolution or winding up of the Company for purposes of
this provision. In the event that the assets available for
distribution with respect to the Preferred Stock are not sufficient to
satisfy the full liquidation rights of all the outstanding Preferred
Stock, then such assets will be distributed to the holders of such
Preferred Stock ratably in proportion to the full amounts to which
they would otherwise be respectively entitled. After payment of the
full amount of the liquidation preference, the holders of Preferred
Stock will not be entitled to any further participation in any
distribution of assets by the Company.
VOTING RIGHTS
Except as required by law, the Preferred Stock will not be
entitled to any voting rights unless provided for in the applicable
Certificate of Designations and set forth in the applicable Prospectus
Supplement. As more fully described under "Description of Depositary
Shares" below, if the Company elects to issue Depositary Shares, each
representing a fraction of a share of a series of the Preferred Stock,
each such Depositary Share will, in effect, be entitled to such
fraction of a vote per Depositary Share.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any
preferences, voting powers or relative, participating, optional or
other special rights except as set forth above or in the applicable
Prospectus Supplement, the Restated Certificate of Incorporation and
the applicable Certificate of Designation or as otherwise required by
law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Offered Preferred Stock
will be described in the applicable Prospectus Supplement.
14
DESCRIPTION OF DEPOSITARY SHARES
The following is a description of certain general terms and
provisions of the Depositary Shares. The particular terms of any
series of Depositary Shares will be described in the applicable
Prospectus Supplement. If so indicated in a Prospectus Supplement,
the terms of any such series may differ from the terms set forth
below. The summary of terms of the Deposit Agreement (as defined
below) and of the Depositary Shares and Depositary Receipts (as
defined below) contained in this Prospectus does not purport to be
complete and is subject to, and qualified in its entirety by,
reference to the forms of the Deposit Agreement and Depositary
Receipts which will be filed with the Commission at or prior to the
time of the offering of such Depositary Shares.
GENERAL
The Company may, at its option, elect to offer fractional
interests in shares of Preferred Stock rather than shares of Preferred
Stock. In the event such option is exercised, the Company will
provide for the issuance by a Depositary to the public of receipts for
Depositary Shares ("Depositary Receipts"), each of which will
represent a fractional interest.
The shares of any series of the Preferred Stock underlying the
Depositary Shares will be deposited under a separate Deposit Agreement
(the "Deposit Agreement") between the Company and a bank or trust
company selected by the Company having its principal office in the
United States and having a combined capital and surplus of at least
$50,000,000 (the "Depositary"). The Prospectus Supplement relating to
a series of Depositary Shares will set forth the name and address of
the Depositary. Subject to the terms of the Deposit Agreement, each
owner of a Depositary Share will be entitled, in proportion to the
applicable fractional interest in a share of Preferred Stock
underlying such Depositary Shares, to all the rights and preferences
of the Preferred Stock underlying such Depositary Share (including
dividend, voting, redemption, conversion and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts
issued pursuant to the Deposit Agreement.
Pending the preparation of definitive engraved Depositary
Receipts, the Depositary may, upon the written order of the Company,
issue temporary Depositary Receipts substantially identical to (and
entitling the holders thereof to all the rights pertaining to) the
definitive Depositary Receipts but not in definitive form. Definitive
Depositary Receipts will be prepared thereafter without unreasonable
delay, and temporary Depositary Receipts will be exchangeable for
definitive Depositary Receipts at the Company's expense.
Upon surrender of Depositary Receipts at the office of the
Depositary and upon payment of the charges provided in the Deposit
15
Agreement and subject to the terms thereof, a holder of Depositary
Shares is entitled to have the Depositary deliver to such holder the
whole shares of Preferred Stock underlying the Depositary Shares
evidenced by the surrendered Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the applicable Preferred Stock to
the record holders of Depositary Shares relating to such Preferred
Stock in proportion to the numbers of such Depositary Shares owned by
such holders on the relevant record date. The Depositary shall
distribute only such amount, however, as can be distributed without
attributing to any holder of Depositary Shares a fraction of one cent,
and any balance not so distributed shall be added to and treated as
part of the next sum received by the Depositary for distribution to
record holders of Depositary Shares.
In the event of a distribution other than in cash, the Depositary
will distribute property received by it to the record holders of
Depositary Shares entitled thereto, unless the Depositary determines
that it is not feasible to make such distribution, in which case the
Depositary may, with the approval of the Company, sell such property
and distribute the net proceeds from such sale to such holders.
The Deposit Agreement will also contain provisions relating to
the manner in which any subscription or similar rights offered by the
Company to holders of the Preferred Stock shall be made available to
holders of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of the Preferred Stock underlying the Depositary
Shares is subject to redemption, the Depositary Shares will be
redeemed from the proceeds received by the Depositary resulting from
the redemption, in whole or in part, of such series of the Preferred
Stock held by the Depositary. The Depositary shall mail notice of
redemption not less than 30 and not more than 60 days prior to the
date fixed for redemption to the record holders of the Depositary
Shares to be so redeemed at their respective addresses appearing in
the Depositary's books. The redemption price per Depositary Share
will be equal to the applicable fraction of the redemption price per
share payable with respect to such series of the Preferred Stock.
Whenever the Company redeems shares of Preferred Stock held by the
Depositary, the Depositary will redeem as of the same redemption date
the number of Depositary Shares relating to shares of Preferred Stock
so redeemed. If less than all of the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot
or pro rata as may be determined by the Depositary.
After the date fixed for redemption, the Depositary Shares so
called for redemption will no longer be deemed to be outstanding and
16
all rights of the holders of the Depositary Shares will cease, except
the right to receive the moneys payable upon such redemption and any
money or other property to which the holders of such Depositary Shares
were entitled upon such redemption upon surrender to the Depositary of
the Depositary Receipts evidencing such Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
Preferred Stock are entitled to vote, the Depositary will mail the
information contained in such notice of meeting to the record holders
of the Depositary Shares relating to such Preferred Stock. Each
record holder of such Depositary Shares on the record date (which will
be the same date as the record date for such Preferred Stock) will be
entitled to instruct the Depositary as to the exercise of the voting
rights pertaining to the number of shares of Preferred Stock
underlying such Depositary Shares in accordance with such
instructions, and the Company will agree to take all action which may
be deemed necessary by the Depositary in order to enable the
Depositary to do so. The Depositary will abstain from voting shares
of Preferred Stock to the extent it does not receive specific
instructions from the holders of Depositary Shares relating to such
Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares
and any provision of the Deposit Agreement may at any time be amended
by agreement between the Company and the Depositary. However, any
amendment which materially and adversely alters the rights of the
existing holders of Depositary Shares will not be effective unless
such amendment has been approved by the record holders of at least a
majority of the Depositary Shares then outstanding. The Deposit
Agreement may be terminated by the Company or the Depositary only if
(i) all outstanding Depositary Shares relating thereto have been
redeemed or (ii) there has been a final distribution in respect of the
Preferred Stock of the relevant series in connection with any
liquidation, dissolution or winding up of the Company and such
distribution has been distributed to the holders of the related
Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of the
depositary arrangements. The Company will pay charges of the
Depositary in connection with the initial deposit of the Preferred
Stock and any redemption of the Preferred Stock. Holders of
Depositary Shares will pay other transfer and other taxes and
governmental charges and such other charges as are expressly provided
in the Deposit Agreement to be for their accounts.
17
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Shares
all reports and communications from the Company which are delivered to
the Depositary and which the Company is required to furnish to the
holders of the applicable Preferred Stock.
Neither the Depositary nor the Company will be liable if it is
prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The
obligations of the Company and the Depositary under the Deposit
Agreement will be limited to performance in good faith of their duties
thereunder and they will not be obligated to prosecute or defend any
legal proceeding in respect of any Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. They may rely upon
written advice of counsel or accountants, or information provided by
persons presenting Preferred Stock for deposit, holders of Depositary
Shares or other persons believed to be competent and on documents
believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any
time remove the Depositary, any such resignation or removal to take
effect upon the appointment of a successor Depositary and its
acceptance of such appointment. Such successor Depositary must be
appointed within 60 days after delivery of the notice of resignation
or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus
of at least $50,000,000.
DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which
any Prospectus Supplement may relate. The particular terms of the
Debt Securities offered by any Prospectus Supplement (the "Debt
Securities") will be described in the Prospectus Supplement relating
to such Debt Securities.
Senior Debt Securities ("Senior Debt Securities") are to be
issued under an indenture dated as of October 15, 1989 between the
Company and U.S. Bank Trust National Association (formerly known as
First Trust, National Association, as successor in interest to
Continental Bank, National Association), as Trustee, as supplemented
and amended by the First Supplemental Indenture dated as of August 26,
1991, and the Second Supplemental Indenture dated as of December 10,
1997 (collectively, the "Indenture"). Subordinated Debt Securities
("Subordinated Debt Securities," and together with the Senior Debt
Securities, "Debt Securities") are to be issued under a new indenture
or a supplement to the Indenture ("Subordinated Indenture"). A copy
18
of the Indenture has been included as an exhibit to the Registration
Statement. The following summary of certain provisions of the Debt
Securities and the Indentures does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, which are incorporated by reference
herein. Capitalized terms used herein have the respective meanings
set forth in the Indenture, and references to sections are to sections
of the Indenture.
As of the date of this Prospectus, the Company has outstanding
under the Indenture $65,000,000 aggregate principal amount of its
9.50% Notes due November 1, 2001, $50,000,000 aggregate principal
amount of its 7.25% Notes due October 15, 2003 and $60,000,000
aggregate principal amount of its 6.875% Notes due December 15, 2007.
GENERAL
The Indenture provides that Debt Securities may be issued
thereunder, without limit as to aggregate principal amount, in one or
more series by the Company from time to time upon satisfaction of
certain conditions precedent. The Company may, from time to time, fix
the terms of such Debt Securities, including: (i) the title of the
Debt Securities; (ii) any limit upon the aggregate principal amount of
the Debt Securities; (iii) the date or dates on which the principal of
the Debt Securities is payable; (iv) the rate or rates (which may be
fixed or variable) per annum at which the Debt Securities will bear
interest, if any, the date or dates from which such interest will
accrue, the Interest Payment Dates on which such interest will be
payable and the Regular Record Date for the interest payable on any
Interest Payment Date; (v) the place or places where the principal of
and premium, if any, and interest on the Debt Securities will be
payable; (vi) the period or periods within which, the price or prices
at which and the terms and conditions upon which the Debt Securities
will, pursuant to any mandatory sinking fund provisions, or may,
pursuant to any optional sinking fund provisions, be redeemed in whole
or in part by the Company; (vii) the period or periods within which,
the price or prices at which and the terms and conditions upon which
the Debt Securities may be repaid, in whole or in part, at the option
of the Holder thereof; (viii) if other than denominations of $1,000
and any integral multiple thereof, the denominations in which the Debt
Securities may be repaid, in whole or in part, at the option of the
Holder thereof; (viii) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which the Debt
Securities shall be issuable; (ix) if the Debt Securities are Original
Issue Document Securities, the portion of principal of such Debt
Securities that shall be payable upon declaration of acceleration of
the Maturity thereof; and (x) any other terms of the Debt Securities.
Reference is made to the Prospectus Supplement for the terms of the
Offered Debt Securities being offered thereby. (Section 301)
The Debt Securities will be issued only in fully registered form
without coupons, in denominations set forth in the Prospectus
19
Supplement. No service charge will be made for any registration of
transfer or exchange of such Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other
governmental charges that may be imposed in connection therewith.
Any principal, premium and interest will be payable, the transfer
of the Debt Securities will be registrable, and Debt Securities will
be exchangeable at the office or agency designated for such purpose in
the Prospectus Supplement. Payment of interest may be made at the
option of the Company by check mailed to the address of the person
entitled thereto as shown on the Security Register.
The Debt Securities will be unsecured and will rank pari passu
with all other unsecured and unsubordinated indebtedness of the
Company, except Subordinated Debt Securities will, to the extent set
forth in the Subordinated Indenture, be subordinated in right of
payment to the prior payment in full of all Senior Debt Securities.
Debt Securities may be issued under the Indenture as Original
Issue Discount Securities to be offered and sold at a substantial
discount from the principal amount thereof. If the Offered Debt
Securities are Original Issue Discount Securities, special federal
income tax, accounting and other considerations applicable thereto
will be described in the Prospectus Supplement relating thereto.
"Original Issue Discount Security" means any Debt Security which
provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration of Maturity thereof
upon the occurrence of an Event of Default and the continuation
thereof.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part
in the form of one or more global securities that will be deposited
with, or on behalf of, a Depositary ("Global Security Depositary") or
its nominee identified in the applicable Prospectus Supplement. In
such a case, one or more global securities will be issued in a
denomination or aggregate denominations equal to the portion of the
aggregate principal amount of outstanding Debt Securities of the
series to be represented by such global security or securities.
Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a global security may not be registered
for transfer or exchange except as a whole by the Global Security
Depositary for such global security to a nominee of such Depositary or
by a nominee of such Depositary to such Depositary or another nominee
of such Depositary or by such Depositary or any nominee to a successor
Depositary or a nominee of such successor Depositary and except in the
circumstances described in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to
any portion of a series of Debt Securities to be represented by a
global security will be described in the applicable Prospectus
20
Supplement. However, the Company expects that the following
provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus
Supplement, Debt Securities which are to be represented by a global
security to be deposited with or on behalf of a Global Security
Depositary will be represented by a global security registered in the
name of such Depositary or its nominee. Upon the issuance of such
global security, and the deposit of such global security with or on
behalf of the Global Security Depositary for such global security,
such Depositary will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Debt
Securities represented by such global security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by
the underwriters or agents of such Debt Securities or by the Company,
if such Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in such global security will be
limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in
such global security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained
by the Global Security Depositary or its nominee for such global
security. Ownership of beneficial interests in such global security
by persons that hold through participants will be shown on, and the
transfer of that ownership interest within such participant will be
effected only through, records maintained by such participant. The
laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated
form. The foregoing limitations and such laws may impair the ability
to transfer beneficial interests in such global securities.
So long as the Global Security Depositary for a global security,
or its nominee, is the registered owner of such global security, such
Depositary or such nominee, as the case may be, will be considered the
sole owner or Holder of the Debt Securities represented by such global
security for all purposes under the Indenture. Unless otherwise
specified in the applicable Prospectus Supplement, owners of
beneficial interests in such global security will not be entitled to
have Debt Securities of the series represented by such global security
registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated
form and will not be considered the Holders thereof for any purposes
under the Indenture. Accordingly, each person owning a beneficial
interest in such global security must rely on the procedures of the
Global Security Depositary and, if such person is not a participant,
on the procedures of the participant through which such person owns
its interest, to exercise any rights of a Holder under the Indenture.
The Company understands that under existing industry practices, if the
Company requests any action of holders or an owner of a beneficial
interest in such global security desires to give any notice or take
any action a Holder is entitled to give or take under the Indenture,
21
the Global Security Depositary would authorize the participants to
give such notice or take such action, and participants would authorize
beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Principal of and any premium and interest on a global security
will be payable in the manner described in the applicable Prospectus
Supplement.
CERTAIN DEFINITIONS
The term "Subsidiary" is defined as a corporation a majority of
the outstanding voting stock of which is owned, directly or
indirectly, by the Company and/or one or more Subsidiaries of the
Company. The term "Restricted Subsidiary" is defined as any
Subsidiary of the Company except (a) a Subsidiary which neither
transacts any substantial portion of its business nor regularly
maintains any substantial portion of its fixed assets within the
United States and/or Canada, or which is engaged primarily in
financing the operations of the Company or its Subsidiaries outside
the United States and Canada and (b) AAR Financial Services Corp. and
any Subsidiary of the Company created or acquired after the date of
the Indenture the primary business of which consists of financing
operations in connection with leasing and conditional sales
transactions on behalf of the Company and the Subsidiaries of the
Company, or which is otherwise primarily engaged in the business of a
finance company. The term "Principal Property" is defined to include
any single manufacturing, production, distribution or service
facility, plant or warehouse owned or leased by the Company or any
Restricted Subsidiary (excluding all related land but including
fixtures, machinery and equipment) which is located within the United
States or Canada and the gross book value (without deduction of any
depreciation reserves) of which on the date as of which the
determination is being made exceeds 1% of Consolidated Net Tangible
Assets, other than any such facility, plant or warehouse or portion
thereof which, in the opinion of the Board of Directors, is not of
material importance to the total business conducted by the Company and
its subsidiaries as an entirety. As of the date hereof, approximately
ten of the Company's properties would be Principal Properties. The
term "Attributable Debt" is defined to mean the total net amount of
rent required to be paid during the remaining term of certain leases,
discounted at the weighted average rate per annum borne by the Debt
Securities compounded semi-annually. The term "Consolidated Net
Tangible Assets" is defined as the aggregate amount of assets (less
applicable reserves and other properly deductible items) after
deducting therefrom (a) all current liabilities (excluding any thereof
constituting Funded Debt by reason of their being renewable or
extendible) and (b) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all
as set forth on the most recent consolidated balance sheet of the
22
Company and its consolidated and computed in accordance with generally
accepted accounting principles. (Section 101)
RESTRICTIONS ON SECURED DEBT
If the Company or any Restricted Subsidiary shall incur, issue,
assume or guarantee any Debt secured by a Mortgage on any Principal
Property or by a Mortgage on any shares of stock or Debt of any
Restricted Subsidiary, the Company will secure or cause such
Restricted Subsidiary to secure the Debt Securities, equally and
ratably with (or prior to) such Secured Debt, unless after giving
effect thereto the aggregate amount of all such Debt so secured,
together with all Attributable Debt in respect of sale and leaseback
transactions involving Principal Properties (see "Restrictions on
Sales and Leasebacks" below), would not exceed 10% of Consolidated Net
Tangible Assets. This restriction will not apply to, and there will
be excluded from secured Debt in any computation under such
restriction, Debt secured by (a) Mortgages on property of, or on any
shares of stock or Debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary, (b) Mortgages on
property, shares of stock or Debt existing at the time of acquisition
thereof (including acquisition through merger or consolidation), (c)
Mortgages on property, shares of stock or Debt hereafter acquired (or,
in the case of property, constructed) by the Company or any Restricted
Subsidiary and created prior to, at the time of, or within 120 days
after acquisition (or, in the case of property, the completion of
construction and commencement of commercial operation, whichever is
later) to secure or provide for the purchase price (or, in the case of
property, construction price) thereof, (d) Mortgages in favor of the
Company or a Restricted Subsidiary, (e) Mortgages in favor of the
United States or any State thereof, or Canada or any Province thereof,
or any instrumentality of any thereof to secure progress, advance or
other payments pursuant to any contract or provision of any statute,
and (f) any extension, renewal or replacement of any Mortgage referred
to in the foregoing clauses (a) through (e), inclusive. (Section
1007)
RESTRICTIONS ON CERTAIN UNSECURED DEBT
The Debt (other than Secured Debt referenced under "Restrictions
on Secured Debt" above) of all consolidated Restricted Subsidiaries
may not exceed 15% of the Consolidated Net Tangible Assets of the
Company. (Section 1011)
MERGER AND CONSOLIDATION
The Company may not consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, or permit any Person to
consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the
Company, unless (i) either the Company shall be the continuing
23
corporation or the successor or purchasing Person shall be a domestic
corporation and shall expressly assume the payment of the principal of
and premium, if any, and interest, if any, on the Debt Securities and
the performance of every covenant of the Indenture binding upon the
Company, (ii) immediately after such transaction no Event of Default,
and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing,
(iii) if, as a result of the transaction, properties or assets of the
Company would become subject to an encumbrance not permitted by the
Indenture, the Company or such successor corporation or Person shall
take steps necessary to secure the Debt Securities equally and ratably
with (or prior to) all indebtedness secured by such encumbrance and
(iv) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel stating that such transaction complies with
the Indenture. (Section 801)
RESTRICTIONS ON SALES AND LEASEBACKS
Neither the Company nor any Restricted Subsidiary may enter into
any sale and leaseback transaction involving any Principal Property,
completion of construction and commencement of commercial operation of
which has occurred more than 120 days prior thereto, unless (a) the
Company or such Restricted Subsidiary could mortgage such property
pursuant to the restrictions on secured Debt described above in an
amount equal to the Attributable Debt with respect to the sale and
leaseback transaction without equally and ratably securing the Debt
Securities or (b) the Company, within 120 days, applies to the
retirement of its Funded Debt an amount equal to the greater of (i)
the net proceeds of the sale of the Principal Property so leased
pursuant to such arrangement or (ii) the fair value of the Principal
Property so leased (subject to credits for certain voluntary
retirements of Funded Debt and Debt Securities). This restriction
will not apply to any sale and lease-back transaction (a) between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries
or (b) involving a lease for a period of less than three years.
(Section 1008)
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by
the Company and the Trustee with the consent of the Holders of not
less than 66-% in principal amount of the Outstanding Debt Securities
of each series affected thereby, provided that no such modification or
amendment may, without the consent of the Holder of each Outstanding
Security affected thereby, (a) change the Stated Maturity of any
installment of principal of, or interest on, any Debt Security or
change the redemption price; (b) reduce the principal amount of, or
interest on, any Debt Security; (c) change the place or currency of
any payment of principal or interest on any Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or
with respect to any Debt Security; (e) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the
24
consent of whose Holders is required to modify or amend the Indenture;
or (f) modify the foregoing requirements or reduce to less than a
majority the percentage of Outstanding Debt Securities necessary to
waive any past default. Except with respect to certain fundamental
provisions, the Holders of not less than a majority in principal
amount of Outstanding Debt Securities of any series may, with respect
to such series, waive past defaults under the Indenture and waive
compliance by the Company with certain provisions of the Indenture.
(Sections 902, 513)
EVENTS OF DEFAULT
Under the Indenture, the following will be Events of Default with
respect to any series of Debt Securities: (a) default in the payment
of any interest upon any Debt Security of that series when due,
continued for 30 days; (b) default in the payment of any principal or
premium, if any, on any Debt Security of that series when due; (c)
default in the deposit of any sinking fund payment, when due, in
respect of any Debt Security of that series; (d) default in the
performance, or breach, of any other covenant or warranty of the
Company contained in the Indenture or in the Debt Securities of such
series, continued for 60 days after written notice as provided in the
Indenture; (e) acceleration of any indebtedness for money borrowed in
an aggregate principal amount exceeding $10,000,000 by the Company
under the terms of the instrument under which such indebtedness is
issued or secured, if such acceleration is not annulled, or such
indebtedness is not discharged, within 10 days after written notice as
provided in the Indenture; (f) certain events in bankruptcy,
insolvency or reorganization; and (g) any other Event of Default with
respect to Debt Securities of that series. The Trustee or the Holders
of 25% in principal amount of the Outstanding Debt Securities of that
series may declare the principal amount of all Outstanding Debt
Securities of that series due and payable immediately if any Event of
Default with respect to Debt Securities of such series shall occur and
be continuing at the time of declaration. At any time after
declaration of acceleration has been made with respect to Debt
Securities of any series but before a judgment or decree for payment
of money due has been obtained by the Trustee, the Holders of a
majority in principal amount of Outstanding Debt Securities of that
series may rescind any declaration of acceleration and its
consequences, if all payments due (other than those due as a result of
acceleration) have been made and all Events of Default have been cured
or waived. Any Event of Default with respect to Debt Securities of
any series may be waived by the Holders of a majority in principal
amount of all Outstanding Debt Securities of that series, except a
default (i) in the payment of principal or premium, if any, or
interest on any Debt Security of that series or (ii) in respect of a
covenant or provision which cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of such series
affected. (Sections 501, 502, 513)
25
The Holders of a majority in principal amount of the Outstanding
Debt Securities of a series may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to
Debt Securities of such series, provided that such direction shall not
be in conflict with any rule of law or the Indenture. Before
proceeding to exercise any right or power under the Indenture at the
direction of such Holders, the Trustee shall be entitled to receive
from such Holders reasonable indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such
direction. (Sections 512, 507)
The Company is required to furnish to the Trustee annually a
statement as to the fulfillment by the Company of all of its
obligations under the Indenture.
REGARDING THE TRUSTEE
U.S. Bank Trust National Association (formerly known as First
Trust, National Association, as successor in interest to Continental
Bank, National Association) is currently the trustee with respect to
the Company's 9.50% Notes due November 1, 2001, 7.25% Notes due
October 15, 2003, and 6.875% Notes due December 15, 2007 outstanding
under the Indenture.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants, including Warrants to purchase
Debt Securities ("Debt Warrants"), as well as other types of Warrants
("Other Warrants"). Warrants may be issued independently or together
with any securities and may be attached to or separate from such
Securities. Each series of Warrants will be issued under a separate
warrant agreement (each a "Warrant Agreement") to be entered into
between the Company and a warrant agent ("Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection
with the Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial
owners of Warrants. The summary of terms of the Debt Warrants and the
Other Warrants contained in this Prospectus does not purport to be
complete and is subject to, and qualified in its entirety by reference
to, the form of the Warrant Agreement which has been or will be filed
with the Commission at or prior to the time of the offering of such
Warrants.
DEBT WARRANTS
The Prospectus Supplement relating to particular Debt Warrants
offered thereby will describe the following terms of such Debt
Warrants: (i) the title of such Debt Warrants; (ii) the aggregate
number of such Debt Warrants; (iii) the price or prices at which such
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Debt Warrants will be issued; (iv) the currency or currencies,
including composite currencies, in which the price of such Debt
Warrants may be payable; (v) the designation, aggregate principal
amount and term of the Debt Securities purchasable upon exercise of
such Debt Warrants; (vi) if applicable, the designation and terms of
the Debt Securities with which such Debt Warrants are issued and the
number of such Debt Warrants issued with each such Debt Security;
(vii) the currency or currencies, including composite currencies, in
which the principal of or any premium or interest on the Debt
Securities purchasable upon exercise of such Debt Warrant will be
payable; (viii) if applicable, the date on and after which such Debt
Warrants and the related Debt Securities will be separately
transferable; (ix) the price at which and currency or currencies,
including composite currencies, in which the Debt Securities
purchasable upon exercise of such Debt Warrants may be purchased; (x)
the date on which the right to exercise such Debt Warrants shall
commence and the date on which such right shall expire; (xi) if
applicable, the minimum or maximum amount of such Debt Warrants which
may be exercised at any one time; (xii) information with respect to
book-entry procedures, if any; (xiii) if applicable, a discussion of
certain United States Federal income tax considerations; and (xiv) any
other terms of such Debt Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Debt
Warrants.
OTHER WARRANTS
The Prospectus Supplement relating to particular Other Warrants
offered thereby will describe the following terms of such Other
Warrants: (i) the title of such Other Warrants; (ii) the securities
(which may include Preferred Stock, Depositary Shares or Common Stock)
for which such Other Warrants are exercisable; (iii) the price or
prices at which such Other Warrants will be issued; (iv) the currency
or currencies, including composite currencies, in which the price of
such Other Warrants may be payable; (v) if applicable, the designation
and terms of the Debt Securities, Preferred Stock or Depositary Shares
with which such Other Warrants are issued and the number of such Other
Warrants issued with each such Debt Security, share of Preferred Stock
or Depositary Share; (vi) if applicable, the date on and after which
such Other Warrants and the related Debt Securities, Preferred Stock
or Depositary Shares will be separately transferable; (vii) if
applicable, a discussion of certain United States Federal income tax
considerations; and (viii) any other terms of such Other Warrants,
including terms, procedures and limitations relating to the exchange
and exercise of such Other Warrants.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through underwriters and
also may sell Securities directly to other purchasers or through
agents. Any such underwriter(s) or agent(s) included in the offer and
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sale of Securities will be named in the applicable Prospectus
Supplement.
The distribution of the Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may
be changed, or at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated
prices.
In connection with the sale of Securities, underwriters may
receive compensation from the Company or from purchasers of Securities
for whom they act as agents in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers,
and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters,
dealers and agents that participate in the distribution of Securities
may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of
Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act.
A Prospectus Supplement will set forth the terms of Securities
offered hereby, including the name or names of any underwriters, the
purchase price of Securities, and proceeds to the Company from the
sale, any underwriting discounts and other items constituting
underwriters' compensation, any public offering price, any discounts
or concessions allowed or reallowed or paid to dealers, and any
securities exchange or market on which Securities may be listed. Only
underwriters so named in such Prospectus Supplement are deemed to be
underwriters in connection with Securities offered thereby.
Under agreements which may be entered into by the Company,
underwriters and agents who participate in the distribution of
Securities may be entitled to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents
to solicit offers by certain institutions to purchase Securities from
the Company pursuant to contracts providing for payment and delivery
on a future date. Institutions with which such contracts may be made
include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions
and others, but in all cases such institutions must be approved by the
Company. The obligations of any purchaser under any such contract
will be subject to the condition that the purchase of the Securities
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and
such other agents will not have any responsibility in respect of the
validity or performance of such contracts.
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LEGAL OPINIONS
The validity of any Securities will be passed upon for the
Company by Schiff Hardin & Waite, Chicago, Illinois, and for the
Underwriters by counsel selected by the Underwriters and acceptable to
the Company.
EXPERTS
The consolidated financial statements of the Company incorporated
by reference in this Prospectus, and elsewhere in the registration
statement, have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as indicated in their reports with
respect thereto and are included or incorporated by reference herein
in reliance on the authority of such firm as experts in auditing and
accounting.
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