Spirit Aerosystems Holdings (SPR)

 

 

The Board determined that the related party transactions disclosed herein are on terms that are fair and reasonable to the Company, and which are as favorable to the Company as would be available from non-related entities in comparable transactions. The Board believes that there is a Company business interest supporting the transactions and the transactions meet the same Company standards that apply to comparable transactions with unaffiliated entities. Although the aforementioned controls are not written, each determination was made by the Board and reflected in its minutes. The Board is in the process of preparing a written related party transaction policy that will be communicated to the appropriate level of management and will be posted on the Company’s internal policy website.

 

Below are the transactions that occurred since the beginning of the fiscal year 2008, or any currently proposed transactions, in which, to the Company’s knowledge, the Company was or is a party and the amount involved exceeded $120,000, and in which any director, director nominee, executive officer, holder of more than 5% of any class of the Company’s Common stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

 

On September 18, 2006, Spirit entered into a distribution agreement with Aviall Services, Inc., a wholly-owned subsidiary of Aviall, Inc. (“Aviall”). Aviall is a provider of global parts distribution and supply chain services for the aerospace industry. Spirit appointed Aviall as its exclusive distributor to sell, market, and otherwise distribute certain aftermarket products worldwide, excluding the United States and Canada. The contract extends until September 18, 2011 and automatically renews on an annual basis thereafter unless terminated by either party. Mr. Fulchino, the president and chief executive officer of Aviall, is a member of the Board. In 2008, the revenues to the Company under the agreement were approximately $5.6 million.

 

Onex Partners II LP (an affiliate of Onex) owns approximately a 49% interest in Hawker Beechcraft, Inc. (“Hawker”). Spirit’s Prestwick facility provides wing components for the Hawker 800 Series manufactured by Hawker. For the twelve months ended December 31, 2008, sales to Hawker were $27.7 million. In addition, Mr. Wright who is a member of the Company’s Board is also a member of the board of directors of Hawker.

 

Since February 2007, Mr. Schmidt, the Company’s executive vice president and chief financial officer, has been a member of the board of directors of one of the Company’s suppliers, Precision Cast Parts Corp., a manufacturer of complex metal components and products. For the twelve months ended December 31, 2008, the Company purchased $58 million of products from this supplier.

 

Mr. Turner, the Company’s president and chief executive officer, is a member of the Board of Directors of INTRUST Bank, a Wichita, Kansas bank that provides banking services to Spirit. In connection with the banking services provided to Spirit, the Company pays fees consistent with commercial terms that would be available to unrelated third parties.

 

Boeing owns and operates significant information technology systems utilized by Spirit and, as required under the acquisition agreement for the Boeing Acquisition, is providing those systems and support services to Spirit under a certain Transition Services Agreement. A number of services covered by the Transition Services Agreement have now been established by Spirit, and Spirit is scheduled to continue to use the remaining systems and support services it has not yet established. Spirit incurred a fee of $20.3 million for services performed for the period ended December 31, 2008.

 

Andrew John (Jack) Focht is the spouse of Gloria Farha Flentje, the Company’s Senior Vice President — Corporate Administration and Human Resources. Since 1998, Mr. Focht has served as special counsel to Foulston Siefkin LLP, a law firm utilized by the Company and at which Ms. Flentje was previously a partner. Although Mr. Focht is not a partner, has no right to participate in management, and holds no other positions in the firm, he has “phantom units” that entitle him to an undivided share in the net profits of the firm, including the net profits attributable to fees received from the Company. In 2008, the firm received approximately $2.1 million in fees from the Company for legal services, and Mr. Focht’s phantom unit interest in those fees was $20,485, before taking into account firm expenses.

 

In addition, the Company paid approximately $300,000, including reimbursement of expenses, to Onex during the fiscal year 2008 for various consulting services rendered by it to the Company.

Below are the transactions that occurred since the beginning of the fiscal year 2007, or any currently proposed transactions, in which, to the Company’s knowledge, the Company was or is a party, in which the amount involved exceeded $120,000, and in which any director, director nominee, executive officer, holder of more than 5% of any class of the Company’s common stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

 

On September 18, 2006, Spirit entered into a distribution agreement with Aviall Services, Inc., a wholly-owned subsidiary of Aviall, Inc. (“Aviall”). Aviall is a provider of global parts distribution and supply chain services for the aerospace industry. Spirit appointed Aviall as its exclusive distributor to sell, market, and otherwise distribute certain aftermarket products worldwide, excluding the United States and Canada. The contract extends until September 18, 2011 and automatically renews on an annual basis thereafter unless terminated by either party. Mr. Fulchino, the president and chief executive officer of Aviall, is a member of the Board. In 2007, the revenues to the Company under the agreement were approximately $5.2 million.

 

Andrew John (Jack) Focht is the spouse of Gloria Farha Flentje, the Company’s Vice President, General Counsel, and Secretary. Since 1998, Mr. Focht has served as special counsel to Foulston Siefkin LLP, a law firm utilized by the Company and at which Ms. Flentje was previously a partner. Although Mr. Focht is not a partner, has no right to participate in management, and holds no other positions in the firm, he has “phantom units” that entitle him to an undivided share in the net profits of the firm, including the net profits attributable to fees received from the Company. In 2007, the firm received approximately $2.2 million in fees from the Company for legal services, and Mr. Focht’s phantom unit interest in those fees was $31,000, before taking into account firm expenses.

 

In addition, the Company paid during the fiscal year 2007 approximately $519,000 to Onex for various consulting services rendered by it to the Company.

Company’s common stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

 

Under the intercompany agreement, in exchange for an annual service fee of $3.0 million, Onex Partners Manager, L.P. (“Onex Manager”) provided the Company and Spirit with corporate finance and strategic planning consulting services. Onex and its affiliates, including Onex Manager, are the Company’s principal stockholders. In 2006, the Company paid Onex Manager $1.5 million for its services. The Company paid Onex Manager a lump sum of $4.0 million in 2006 in connection with the termination of the intercompany agreement.

 

On September 18, 2006, Spirit entered into a distribution agreement with Aviall Services, Inc., a wholly-owned subsidiary of Aviall, Inc. (“Aviall”). Aviall is a provider of global parts distribution and supply chain services for the aerospace industry. Spirit appointed Aviall as its exclusive distributor to sell, market, and otherwise distribute certain aftermarket products worldwide, excluding the United States and Canada. The contract extends until September 18, 2011 and automatically renews on an annual basis thereafter unless terminated by either party. Mr. Fulchino, the president and chief executive officer of Aviall, is a member of the Board. In 2006 following entry into the agreement, the revenues to the Company under the agreement were approximately $1.2 million.

 

Prior to November 27, 2006, Spirit had an unsecured term loan pursuant to a Term Loan Agreement from a lender (“Onex Lender”) that is an indirect subsidiary of Onex Wind Finance LP (“Onex Wind”), which is an indirect subsidiary of the Company’s principal stockholders, Onex. Under the Term Loan Agreement, Onex Lender made a term loan to Spirit in a principal amount equal and with identical repayment terms to the amount Onex Wind borrowed under the Term Loan B, at a rate of interest that may exceed the rate under the Term Loan B by up to 10 basis points. Spirit had provided a secured guarantee of the debt of Onex Wind under the senior secured credit facility. Spirit’s obligations in respect of the term loan from Onex Wind made pursuant to the Term Loan Agreement were subordinated to its obligations under its guarantee of the debt of Onex Wind under the senior secured credit facility. Spirit was not permitted to make a payment to Onex Lender under the Term Loan Agreement unless a payment in equal amount was made by Onex Lender contemporaneously in respect of amounts payable by it under the senior secured credit facility. Prior to the initial public offering on November 27, 2006, Spirit paid interest and principal in the amounts of $56.5 and $5.3 million, respectively, to Onex Lender on the term loan. The Term Loan Agreement with Onex Lender was terminated upon completion of the IPO on November 27, 2006, and Spirit became the direct borrower of the then-outstanding principal amount under the senior credit facility. The Company’s management believes the interest rate payable under the Term Loan Agreement was commercially reasonable. Onex received a Canadian tax benefit from this structure at an insignificant cost to Spirit. The largest amount outstanding during fiscal year 2006 was $696.5 million, and it was zero on December 31, 2006.

 

Spirit and Onex Wind also entered into a Delayed-Draw Term Loan Agreement pursuant to which Onex Lender agreed to make unsecured term loans to Spirit from time to time. No loans were made under this Agreement and the Agreement has been terminated.

 

Andrew John (Jack) Focht is the spouse of Gloria Farha Flentje, the Company’s Vice President, General Counsel, and Secretary. Since 1998, Mr. Focht has served as special counsel to Foulston Siefkin LLP, a law firm utilized by the Company and at which Ms. Flentje was previously a partner. Although Mr. Focht is not a partner, has no right to participate in management, and holds no other positions in the firm, he has “phantom units” that entitle him to an undivided share in the net profits of the firm, including the net profits attributable to fees received from the Company. In 2006, the firm received $1.5 million in fees from the Company for legal services, and Mr. Focht’s phantom unit interest in those fees was $19,234, before taking into account firm expenses.