10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002. Commission file number 1-16445.

Rockwell Collins, Inc.

(Exact name of registrant as specified in its charter)

Delaware	52-2314475
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 Collins Road NE
Cedar Rapids, Iowa	52498
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code:  (319) 295-6835
(Office of the Corporate Secretary)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý      No  o

182,944,934 shares of registrant’s Common Stock, par value $.01 per share, were outstanding on July 29, 2002.

ROCKWELL COLLINS, INC.

INDEX

PART I.	FINANCIAL INFORMATION:
	Item 1.		Condensed Consolidated Financial Statements:
			Condensed Consolidated Statement of Financial Position — June 30, 2002 and September 30, 2001
			Condensed Consolidated Statement of Operations — Three and Nine Months Ended June 30, 2002 and 2001
			Condensed Consolidated Statement of Cash Flows — Nine Months Ended June 30, 2002 and 2001
			Notes to Condensed Consolidated Financial Statements
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.		Quantitative and Qualitative Disclosures About Market Risk
PART II.	OTHER INFORMATION:
	Item 1.	Legal Proceedings
	Item 6.	Exhibits and Reports on Form 8-K
Signatures

1

PART I.      FINANCIAL INFORMATION

Item 1.        Condensed Consolidated Financial Statements

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

(in millions, except per share amounts)

	June 30, 2002			September 30, 2001
ASSETS
Current Assets:
Cash	$	44		$	60
Receivables	510			628
Inventories	685			727
Current deferred income taxes	176			189
Other current assets	28			24
Total current assets	1,443			1,628
Property	413			439
Goodwill	224			184
Intangible Assets	78			101
Other Assets	335			276
TOTAL ASSETS	$	2,493		$	2,628
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Short-term debt	$	80		$	202
Accounts payable	198			246
Compensation and benefits	186			231
Income taxes payable	36			15
Product warranty costs	141			146
Other current liabilities	278			295
Total current liabilities	919			1,135
Retirement Benefits	319			341
Other Liabilities	36			42
Shareowners’ Equity:
Common stock ($0.01 par value; shares authorized: 1,000; shares issued: 2002, 183.8; 2001, 183.6)	2			2
Additional paid-in capital	1,208			1,201
Retained earnings (deficit)	38			(65		)
Accumulated other comprehensive loss	(25		)	(28		)
Common stock in treasury, at cost (shares held: 2002, 0.2; 2001, -)	(4		)	—
Total shareowners’ equity	1,219			1,110
TOTAL LIABILITIES AND SHAREOWNERS’ EQUITY	$	2,493		$	2,628

See Notes to Condensed Consolidated Financial Statements.

2

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(in millions, except per share amounts)

	Three Months Ended June 30,					Nine Months Ended June 30,
	2002		2001			2002			2001
Sales	$	623	$	727		$	1,794		$	2,004
Costs and expenses:
Cost of sales	460		535			1,338			1,479
Selling, general, and administrative expenses	74		89			215			246
Interest expense	1		—			4			—
Other income	—		(1		)	(4		)	(6		)
Total costs and expenses	535		623			1,553			1,719
Income before income taxes	88		104			241			285
Income tax provision	28		36			75			98
Net income	$	60	$	68		$	166		$	187
Earnings per share:
Basic	$	0.33				$	0.91
Diluted	$	0.33				$	0.90
Weighted average common shares:
Basic	183.0					183.3
Diluted	184.8					184.4
Cash dividends per share (Note 1)	$	0.09				$	0.27

See Notes to Condensed Consolidated Financial Statements.

3

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(in millions)

	Nine Months Ended June 30,
	2002			2001
Operating Activities:
Net income	$	166		$	187
Adjustments to arrive at cash provided by operating activities:
Depreciation	59			72
Amortization of intangible assets	4			30
Pension plan contribution	(38		)	—
Deferred income taxes	17			7
Changes in assets and liabilities, excluding effects of acquisitions and divestitures:
Receivables	117			(36		)
Inventories	37			(109		)
Accounts payable	(51		)	(46		)
Income taxes payable	21			4
Compensation and benefits	(35		)	(22		)
Other assets and liabilities	(66		)	(78		)
Cash Provided by Operating Activities	231			9
Investing Activities:
Property additions	(40		)	(85		)
Acquisitions of businesses, net of cash acquired	(31		)	(292		)
Proceeds from the divestiture of a business	15			—
Proceeds from the disposition of property	6			—
Cash Used for Investing Activities	(50		)	(377		)
Financing Activities:
(Decrease) Increase in short-term borrowings	(122		)	302
Purchases of treasury stock	(42		)	—
Cash dividends	(49		)	—
Proceeds from the exercise of stock options	16			—
Special payment to Rockwell	—			(300		)
Net transfers from Rockwell	—			366
Cash (Used for) Provided by Financing Activities	(197		)	368
Net Change in Cash	(16		)	—
Cash at Beginning of Period	60			20
Cash at End of Period	$	44		$	20

See Notes to Condensed Consolidated Financial Statements.

4

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

On June 29, 2001, Rockwell Collins, Inc. (the Company or Rockwell Collins) became an independent, separately traded, publicly held company when Rockwell International Corporation, renamed Rockwell Automation, Inc., (Rockwell) spun off its former avionics and communications business (Avionics and Communications) and certain other assets and liabilities of Rockwell by means of a distribution (the Distribution) of all the outstanding shares of common stock of the Company to the shareowners of Rockwell in a tax-free spin-off. In the Distribution, each Rockwell shareowner received one share of the Company’s common stock for each share of Rockwell common stock owned as of the close of business on June 15, 2001.

The financial statements for periods prior to the Distribution reflect the results of operations and cash flows of Avionics and Communications as operated by Rockwell prior to the Distribution, as well as the Company’s share of earnings and losses from its 50 percent ownership interest in Rockwell Scientific Company, LLC (Rockwell Scientific) that was transferred to the Company in connection with the Distribution.

The financial statements for periods prior to the Distribution include an allocation for management and other services provided by Rockwell to the Company including, but not limited to, corporate oversight, financial, legal, tax, payroll and employee benefits administration services. Total costs for these services were $8 million and $27 million for the three and nine months ended June 30, 2001. Management believes that the method of allocating these costs to the Company was reasonable and the amounts approximate the costs that would have been incurred by the Company on a stand-alone basis. The financial statements for periods prior to the Distribution are not necessarily indicative of what the financial position, results of operations and cash flows would have been if Rockwell Collins had been an independent public company during such periods. Financial data included in the accompanying financial statements for periods subsequent to the Distribution have been prepared on a basis that reflects the historical assets, liabilities, and operations of the business contributed to the Company by Rockwell.

The financial statements of Rockwell Collins have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, long-term contracts, allowances for doubtful accounts, inventory obsolescence, product warranty costs, customer incentives, retirement benefits, income taxes and contingencies. Estimates and assumptions are reviewed periodically and the effects of changes, if any, are reflected in the Statement of Operations in the period that they are determined.

In the opinion of the management of Rockwell Collins, the unaudited financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 30, 2001, including the financial statements in Exhibit 13 incorporated by reference in the Form 10-K. The results of operations for the three and nine month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the full year. Prior period amounts have been adjusted to reflect the reclassification of certain exchange and rental assets previously classified as Inventory and Property to Other Assets.

At the end of each interim reporting period the Company makes an estimate of the effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. During the three and nine months ended June 30, 2002, the effective income tax rate was 31.0 percent. During the nine months ended June 30, 2002 the Company paid $32 million of income taxes.

The Company operates on a fiscal year basis with the fiscal year ending on September 30. All date references contained herein relate to the Company’s fiscal year unless otherwise stated.

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Earnings per share information for the three and nine months ended June 30, 2001 has not been presented as the Company was not an independent company during these periods. However, pro forma earnings per share has been presented in Note 17 as if the Distribution had occurred at October 1, 2000 and giving effect to earnings adjustments resulting from certain assets and liabilities assumed or incurred by the Company in connection with the Distribution.

On April 19, 2002 the Board of Directors of the Company declared a quarterly dividend of nine cents per share on its common stock, paid on June 3, 2002 to shareowners of record on May 13, 2002.

2.Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 will be adopted by the Company in 2003 and requires recording of the fair value of liabilities associated with the legal obligations to retire long-lived assets in the period in which they are incurred. The adoption of SFAS 143 is not expected to have a material effect on the Company’s results of operations and financial position.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS 144 will be adopted by the Company in 2003 and is not expected to materially change the methods used by the Company to measure impairment losses on long-lived assets, but may result in more divestitures being reported as discontinued operations than is permitted under current accounting principles.

3.Acquisitions and Divestitures

In June 2002, Rockwell Collins entered into a definitive agreement to acquire Airshow, Inc. (Airshow) for approximately $160 million in cash. Airshow provides a comprehensive, integrated suite of cabin electronics systems for business aircraft, including cabin environment controls, passenger information and entertainment, and business support systems. The acquisition of Airshow will expand the Company’s capabilities for providing airborne electronics solutions to business aviation and commercial aircraft, and will increase the Company’s ability to provide integrated solutions that bridge flight deck and cabin electronics. The transaction is subject to regulatory and third party approvals, and is expected to close during the fourth quarter of 2002.

In March 2002, Rockwell Collins acquired Communication Solutions, Inc. (Com-Sol), a provider of signals intelligence technology that is used worldwide in defense and security-related applications. The acquisition of Com-Sol expands the Company’s product portfolio in the areas of signals intelligence and surveillance solutions and enhances the electronic warfare capabilities of Rockwell Collins. The purchase price, net of cash acquired, was $24 million, of which $14 million was allocated to goodwill, and $5 million to intangibles with finite lives including patented technology and trademarks. The weighted average useful life of intangible assets with finite lives is 8 years. Goodwill resulting from this acquisition is included within Government Systems segment assets and is non-deductible for tax purposes.

In December 2000, Rockwell Collins acquired Kaiser Aerospace & Electronics Corporation (Kaiser). Kaiser is a leading supplier of flight deck display solutions for tactical aircraft, optical technologies for instrumentation and communication, and specialized aircraft products for the defense and aerospace industry. The purchase price, net of cash acquired, was approximately $302 million, of which $199 million was allocated to goodwill, $46 million was allocated to intangible assets with finite lives and $19 million was allocated to intangible assets with indefinite lives. The weighted average useful life of the intangible assets with finite lives is 11 years. Goodwill resulting from the Kaiser acquisition is non-deductible for tax purposes and was identified to the Company’s operating segments based upon the internal reporting structure, which resulted in $62 million and $137 million allocated to the Commercial Systems segment and Government Systems segment, respectively. During the nine months ended June 30, 2002 the Company paid $7 million to the former shareowners of Kaiser, bringing the total cash payments to date for this acquisition to $299 million with the remaining balance to be paid by the end of 2003.

6

The results of operations of the Com-Sol and Kaiser businesses are included in the Statement of Operations since their respective dates of acquisition. Pro forma financial information is not presented, as the combined effect of these acquisitions is not material to the Company’s results of operations or financial position.

In March 2002, Rockwell Collins sold Kaiser Fluid Technologies, Inc. (KFT) for $15 million in cash. KFT’s product lines included valves, actuators and dampers for landing gear, brake, engine, bleed air, flight control and utility control systems for aircraft. There was no gain or loss recorded by the Company in connection with this divestiture. Prior to the divestiture, KFT generated sales for the Government Systems segment in the amount of $8 million for the six months ended March 31, 2002.

4.Receivables

Receivables are summarized as follows (in millions):

	June 30, 2002			September 30, 2001
Billed	$	400		$	551
Unbilled	183			139
Less progress payments	(52		)	(42		)
Total	531			648
Less allowance for doubtful accounts	(21		)	(20		)
Receivables	$	510		$	628

5.Inventories

Inventories are summarized as follows (in millions):

	June 30, 2002			September 30, 2001
Finished goods	$	184		$	165
Work in process	236			281
Raw materials, parts, and supplies	324			331
Total	744			777
Less progress payments	(59		)	(50		)
Inventories	$	685		$	727

6. Property

Property is summarized as follows (in millions):

	June 30, 2002			September 30, 2001
Land	$	26		$	27
Buildings and improvements	213			208
Machinery and equipment	519			503
Information systems software and hardware	243			250
Construction in progress	31			51
Total	1,032			1,039
Less accumulated depreciation	(619		)	(600		)
Property	$	413		$	439

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7.         Goodwill and Intangible Assets

On October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141). SFAS 141 addresses financial accounting and reporting for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. The adoption of SFAS 141 resulted in the reclassification of assembled workforce with a net carrying value of $18 million to goodwill as assembled workforce does not meet the criteria for a separately identifiable intangible asset under this new accounting standard.

The Company also adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), on October 1, 2001. SFAS 142 provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but reviewed at least annually for impairment. Intangible assets that do not have indefinite lives will continue to be amortized over their estimated useful lives.

Changes in the carrying amount of goodwill for the nine months ended June 30, 2002 are summarized as follows (in millions):

	Commercial Systems		Government Systems			Total
Balance at September 30, 2001	$	77	$	107		$	184
Assembled workforce reclass, net of deferred taxes of $6 million	3		9			12
Balance at October 1, 2001	80		116			196
Kaiser acquisition adjustments	1		17			18
Communication Solutions acquisition	—		14			14
Kaiser Fluid Technologies divestiture	—		(4		)	(4		)
Balance at June 30, 2002	$	81	$	143		$	224

In accordance with SFAS 142, the Company performed impairment tests on goodwill as of October 1, 2001 by comparing the current fair values of its reportable units containing goodwill balances to their carrying values. Fair values were determined using outside valuation experts utilizing accepted valuation techniques. These impairment tests yielded no goodwill impairment.

Intangible assets at June 30, 2002 are summarized as follows (in millions):

	Gross		Accum Amort		Net
Intangible assets with finite lives:
Developed technology and patents	$	66	$	10	$	56
License agreements	3		3		—
Intangible assets with indefinite lives:
Trademarks and tradenames	18		1		17
Intangible asset related to minimum pension liability	5		—		5
Intangible assets	$	92	$	14	$	78

In connection with the Company’s adoption of SFAS 142, a review was performed of the remaining estimated useful lives of all recorded intangible assets. As a result of this review, trademarks and tradenames for Kaiser were determined to have indefinite lives and are no longer being amortized effective October 1, 2001. In addition, trademarks and tradenames were tested for impairment as of October 1, 2001 as required by SFAS 142 and were determined not to be impaired.

Intangible amortization expense for the three and nine months ended June 30, 2002 was $1 million and $4 million, respectively. Estimated intangible amortization expense for the full year 2002 and for each of the five succeeding years is $6 million.

Pro forma financial information for the three and nine months ended June 30, 2001, reflecting adjustments relating to the adoption of SFAS 141 and SFAS 142, is presented in Note 17.

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8.Other Assets

Other assets are summarized as follows (in millions):

	June 30, 2002		September 30, 2001
Prepaid pension cost	$	183	$	141
Exchange and rental assets, net of accumulated depreciation of $38 million June 30, 2002 and $30 million September 30, 2001	64		65
Investments in equity affiliates	54		53
Long-term deferred income taxes	14		8
Other	20		9
Other assets	$	335	$	276

Exchange and rental assets consist of Company products that are either loaned or rented to customers on a short-term basis in connections with warranty and other service related activities.  These assets are stated at acquisition or production cost and depreciated using straight-line method over 11 years.

9.Debt

Commercial paper borrowings outstanding were $80 million at June 30, 2002 and $202 million at September 30, 2001. The weighted average interest rate and maturity period of the commercial paper outstanding at June 30, 2002 was 1.9 percent and 16 days, respectively.

Interest paid for the three and nine months ended June 30, 2002 was $1 million and $5 million, respectively.

10.Other Current Liabilities

Other current liabilities are summarized as follows (in millions):

	June 30, 2002		September 30, 2001
Customer incentives	$	100	$	101
Contract loss reserves	88		86
Advance payments from customers	51		52
Other	39		56
Other current liabilities	$	278	$	295

11.Retirement Benefits

Pension Benefits

The components of net periodic pension cost are as follows (in millions):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2002			2001			2002			2001
Service cost	$	9		$	8		$	28		$	24
Interest cost	33			28			99			85
Expected return on plan assets	(42		)	(39		)	(126		)	(116		)
Amortization:
Prior service cost	1			1			2			3
Net actuarial loss	—			—			1			—
Net periodic pension expense (income)	$	1		$	(2	)	$	4		$	(4	)

The Company lowered its expected rate of return on pension plan assets in 2002 to 9.00 percent from 9.75 percent in 2001 based upon current investment mix and market outlook. This adjustment will reduce our expected return on plan assets by $14 million in 2002.

9

Retiree Medical Benefits

The components of net periodic retiree medical cost are as follows (in millions):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2002			2001			2002			2001
Service cost	$	2		$	1		$	4		$	3
Interest cost	6			4			18			12
Expected return on plan assets	—			—			(1		)	(1		)
Amortization:
Prior service cost	(5		)	(4		)	(14		)	(10		)
Net actuarial loss	3			1			8			2
Curtailment gain	(2		)	—			(14		)	—
Net periodic retiree medical expense	$	4		$	2		$	1		$	6

On November 30, 2001, the Company remeasured its liability for postretirement medical benefits to determine the effect of the significant workforce reductions in 2002 resulting from the Company’s 2001 comprehensive restructuring plan. The actuarial assumptions used in performing this remeasurement were the same as those assumptions used at the June 30, 2001 measurement date except for the discount rate and the expected return on plan assets, which were reduced to 7.0 percent and 9.0 percent, respectively. As a result of the November 30, 2001 remeasurement, the Company’s accumulated postretirement benefit obligation increased $21 million to $361 million. The Company recognized a curtailment gain resulting from the accelerated recognition of a deferred gain related to a plan amendment of approximately $14 million during the nine months ended June 30, 2002 as the workforce reductions were completed.

Employee Stock Purchase Plan

The Company offers an Employee Stock Purchase Plan, which allows employees to have withheld up to 15 percent of their base compensation toward the purchase of the Company’s stock. Under the plan, shares of the Company’s common stock may be purchased at six-month intervals at 85 percent of the lower of the fair market value on the first or the last day of the offering period. There are two offering periods during the year, each lasting six months, beginning on December 1 and June 1. During the three months ended June 30, 2002, the Company issued approximately 0.7 million shares related to this plan as consideration for a $10 million employee payroll withholding liability. This transaction was treated as a non-cash transaction in the Statement of Cash Flows.

The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The employee stock purchase plan is considered a non-compensatory plan under APB 25 and no compensation expense is recorded in connection with this employee benefit.

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12.Comprehensive Income

Comprehensive income consists of the following (in millions):

	Three Months Ended June 30,					Nine Months Ended June 30,
	2002		2001			2002		2001
Net income	$	60	$	68		$	166	$	187
Unrealized translation adjustment during the period	5		(1		)	3		(2		)
Comprehensive income	$	65	$	67		$	169	$	185

13. 2001 Restructuring Plan

In September 2001, the Company announced a comprehensive restructuring plan to reduce its workforce and streamline certain operations. These actions were undertaken in response to the sharp and sudden decline in anticipated sales volumes in the commercial air transport market resulting from the September 11, 2001 terrorist acts. As a result of this plan, the Company recorded charges of $34 million in the fourth quarter of 2001 which was comprised of $28 million of employee separation costs, $4 million of facility exit costs, and $2 million of asset write-downs.

The restructuring plan anticipated involuntary separations of approximately 2,800 employees. These employee separations were broad based and affected all business groups, with the largest number of reductions in the Commercial Systems business and organizations that support commercial product lines. Approximately 2,600, or 93 percent, of employee separations have been completed and $19 million of employee separation costs have been paid as of June 30, 2002, with the remaining employee separations expected to be completed by the end of 2002. Employee separation costs include severance, fringe benefits during the severance period, and outplacement costs.

The restructuring plan also included the consolidation of the in-flight entertainment product line into one facility in Pomona, California; the closure of certain service centers, sales and other offices in California, Illinois, Australia, and Southeast Asia; and the consolidation of certain manufacturing operations. Facility exit costs are comprised primarily of lease payments or cancellation costs pursuant to contractual obligations. Facility exit actions have been completed at service centers in California and Southeast Asia, as well as an office in Illinois. Facility consolidation of the Company’s in-flight entertainment operations in California is complete. Exit costs associated with these facility actions of $1 million have been paid as of June 30, 2002, and will continue through the term of the lease periods for these facilities.

In the second quarter of 2002, the Company determined that the cost of these restructuring actions would be $4 million lower than originally planned and recorded favorable adjustments of $3 million to Cost of Sales and $1 million to Selling, General and Administrative expenses. The primary reason for the reduction in cost relates to lower than expected severance costs resulting from higher than expected employee attrition.

The changes in the restructuring reserves during the nine months ended June 30, 2002 are as follows (in millions):

	Reserve at September 30, 2001		Cash Payments			Reserve Adjustment			Reserve at June 30, 2002
Employee separation cost	$	28	$	(19	)	$	(4	)	$	5
Facility exit costs	4		(1		)	—			3
Restructuring reserves	$	32	$	(20	)	$	(4	)	$	8

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14.Contingent Liabilities

Pursuant to the terms of the distribution agreement entered into among Rockwell, the Company and Rockwell Scientific Company LLC, the Company assumed all responsibility for current and future litigation, including environmental proceedings, against Rockwell or its subsidiaries with respect to the operations of the Company’s business.

On January 15, 1997, a civil action was filed against the Company in the United States District Court for the District of Arizona in Tucson, Universal Avionics Systems Corp. v. Rockwell International Corp. and Rockwell Collins, Inc., in which Universal, a manufacturer and marketer of aviation electronics, including Flight Management Systems (FMS), asserted four claims against the Company arising out of its participation in the FMS business: (1) attempted monopolization under Section 2 of the Sherman Act; (2) anticompetitive conduct (exclusive dealing and tying) under Section 1 of the Sherman Act and Section 3 of the Clayton Act; (3) tortious interference with business relationships and prospective economic business advantage under the common law of Arizona; and (4) unfair competition under the common law of Arizona. Universal seeks damages of approximately $35 million before trebling for the alleged antitrust violations; actual damages of an unspecified amount for the alleged common law violations; punitive damages; attorneys’ fees and injunctive relief. The Company and Rockwell have denied the allegations and have asserted counterclaims against Universal for defamation and unfair competition. On July 17, 2001, the district court granted defendants’ motion for partial summary judgment for failure to allege a relevant market entitling plaintiff to relief, certified that ruling for appeal, dismissed as moot other motions for summary judgment filed by defendants challenging plaintiff’s attempted monopolization, exclusive dealing and tying, and stayed further proceedings, including rulings on motions for summary judgment filed by defendants as to plaintiff’s other claims, pending appeal. On July 19, 2001, plaintiff filed a notice of appeal with the Ninth Circuit Court of Appeals. The parties have submitted written briefs to the appellate court.

On April 3, 2000, a civil action was filed against the Company in the Court of Common Pleas of Pennsylvania for Allegheny County, Westinghouse Air Brake Technologies Corp. v. Rockwell Collins, Inc., asserting various claims arising out of the plaintiff’s purchase of the Company’s former Railroad Electronics Business pursuant to a Sale Agreement on October 5, 1998. Specifically, the plaintiff alleged that it was entitled under provisions of the Sale Agreement to a post-closing adjustment of approximately $7 million in the purchase price, and that it was entitled to unspecified damages for alleged misrepresentations, breaches of warranty, mistake of fact, and failure by the Company to turn over certain assets and to provide certain post-closing support. On December 13, 2000, the trial court ordered that the claim for a post-closing adjustment in the purchase price be submitted to mandatory arbitration pursuant to the provisions of the Sale Agreement, but declined to stay court proceedings on the other issues during pendency of the arbitration proceeding. On June 18, 2002 the arbitrator issued a ruling in the Company’s favor and denying in its entirety the plaintiff’s claims for a post-closing adjustment to the purchase price. As a result of this ruling, the Company reversed a reserve related to the arbitration of approximately $4 million during the three months ended June 30, 2002. With respect to the litigation, the parties are in the early stages of discovery.

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On December 14, 1995, a civil action was filed in the United States District Court for the Western District of Texas, El Paso Division, United States ex. rel Staines v. Rockwell International Corp., under the qui tam provisions of the False Claims Act seeking unspecified damages for alleged violations of the Act on two contracts with an agency of the U.S. Government under which an electronics fabricating plant in El Paso now owned by The Boeing Company performed work on subcontract for another facility now owned by Boeing, and two contracts where the plant performed work on subcontract for the Company’s Dallas, Texas facility.  Specifically with respect to the work performed at the El Paso plant for the Company, the plaintiff alleges that certain components were improperly tested and that certain components removed from circuit boards for testing were thereafter reinstalled when they should not have been. The Boeing Company has agreed to defend and indemnify the Company and Rockwell for claims relating to work performed on Boeing contracts, and for any wrongdoing that may have occurred at the El Paso plant relating to work performed there for the Company, but not for wrongdoing, if any, that may have occurred at or under the direction of the Company’s Dallas facility. In October 1998, the United States declined to intervene in the action on its own behalf and the plaintiff has since proceeded to prosecute the action himself with private counsel. Rockwell and Boeing have denied wrongdoing and have vigorously defended this action. The case was set for a jury trial to commence on September 23, 2002. On July 18, 2002, plaintiff filed in the District Court a Motion for Voluntary Dismissal of the False Claims Act causes of action. The District Court granted plaintiff’s Voluntary Dismissal motion on July 22, 2002, dismissing the False Claims Act causes of action with prejudice as it relates to the plaintiff and without prejudice as it relates to the United States Government. The Motion for Voluntary Dismissal was based on the lack of sufficient evidentiary basis to pursue the False Claims Act allegations. Plaintiff also conditionally moved to dismiss his retaliation cause of action based on an agreement in principle between plaintiff and defendants on settlement of this cause of action. The conditional settlement is subject to completion of an appropriate settlement and release agreement, which the parties expect to complete within the next 30 days. The Company has agreed to reimburse Boeing a nominal amount of defense costs related to this lawsuit.

On June 18, 2001, Thales Avionics In-Flight Systems, Inc. (“Thales”) sued a Company employee, Calvin Fang (“Fang”), for conversion, breach of contract, misappropriation of trade secrets, interference with prospective economic advantage, fraud and conspiracy (“Lawsuit”). In the Lawsuit, Thales alleges that in 2001, Fang left his employment at the Company, obtained employment at Thales, misappropriated certain alleged trade secrets, left his employment at Thales, returned to the Company and disclosed the alleged trade secrets to other Company employees. On June 26, 2001, Thales served the Company with a subpoena requesting that the Company produce various electronic and other evidence but did not name the Company at that time. On September 6, 2001, Thales filed a first Amended Complaint (“Amended Complaint”) and named as additional defendants the Company and eight of its employees: Greg Nelson, Chris Jameson, Shawn Kathol, Robert Troxel, James Whitehouse, Kathy Garcia, Wayne Hitchcock and Gregory Piponius (collectively, the “Individual Defendants”). The Amended Complaint contains six causes of action against the Company and the Individual Defendants: misappropriation of trade, fraud, unfair competition, conspiracy, conversion, and interference with prospective economic advantage. In this Lawsuit, Thales has asked the court to: (a) order the Company and the Individual Defendants to return Thales’ trade secrets allegedly misappropriated by Calvin Fang; (b) enjoin the Company and the Individual Defendants from using, retaining, and disseminating the allegedly misappropriated trade secrets, (c) assess damages in the amount equal to the alleged unjust enrichment, (d) assess restitutionary damages, (e) order the Company to pay reasonable royalties if no unjust enrichment and restitution amounts are provable, (f) assess exemplary and punitive damages in an amount according to proof, and (g) order the Company and the Individual Defendants to pay Thales’ attorneys’ fees and costs. The Company has terminated Fang’s employment. The Company and each of the Individual Defendants have denied the allegations set forth in the Amended Complaint and are vigorously contesting Thales’ allegations. A trial date has been set for December 2, 2002.

In addition, various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, intellectual property, environmental, safety and health, contract and employment matters.

Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company’s business or financial condition.

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15.Business Segment Information

The sales and results of operations of the Company’s operating segments are summarized as follows (in millions):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2002			2001			2002			2001
Sales:
Commercial Systems	$	336		$	428		$	1,014		$	1,246
Government Systems	287			299			780			758
Total	$	623		$	727		$	1,794		$	2,004
Segment operating earnings:
Commercial Systems	$	44		$	68		$	130		$	192
Government Systems	50			44			132			114
Total	94			112			262			306
Interest expense	(1		)	—			(4		)	—
Earnings (losses) from equity affiliates	1			(1		)	1			1
Restructuring adjustment	—			—			4			—
General corporate - net	(6		)	(7		)	(22		)	(22		)
Income before income taxes	88			104			241			285
Income tax provision	(28		)	(36		)	(75		)	(98		)
Net income	$	60		$	68		$	166		$	187

Prior to October 1, 2001, the Company evaluated performance and allocated resources based upon, among other considerations, segment operating earnings before income taxes; unallocated general corporate expenses; incremental acquisition-related expenses resulting from purchase accounting adjustments such as goodwill and other intangible asset amortization, depreciation, inventory and purchased research and development charges; interest expense; gains and losses from the disposition of businesses; earnings and losses from corporate-level equity affiliates; special charges related to comprehensive restructuring actions; and other special items as identified by management from time to time.

Effective October 1, 2001 management changed its method of evaluating segment performance by including purchase accounting related depreciation of property and intangible asset amortization within segment operating earnings. In addition, the Company changed the composition of the Commercial Systems segment to include a business acquired as part of the Kaiser acquisition, which was previously reported as part of Government Systems. Prior period amounts have been reclassified to conform to the current year presentation.

Sales by product category are summarized as follows (in millions):

	Three Months Ended June 30,				Nine Months Ended June 30,
	2002		2001		2002		2001
Commercial avionics products	$	250	$	334	$	773	$	974
In-flight entertainment products	86		94		241		272
Defense electronics products	287		299		780		758
Total	$	623	$	727	$	1,794	$	2,004

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16.Subsequent Event

In July 2002, Rockwell Collins entered into agreements with Airbus France S.A. and Tenzing Communications, Inc. (Tenzing) to develop and provide passenger connectivity onboard commercial aircraft. The agreement with Tenzing includes an initial $5 million investment by Rockwell Collins in Tenzing with an additional $5 million investment scheduled as early as October 31, 2002, subject to certain conditions. Rockwell Collins and Tenzing will work together to develop and deliver next-generation passenger connectivity solutions, including e-mail and other messaging capabilities. This effort seeks to expand the Company’s portfolio of capabilities that enable onboard data management and global network access for commercial aircraft.

17.Pro Forma Financial Information

The following pro forma financial information is presented as though both the Distribution and the adoption of SFAS 141 and SFAS 142 occurred at October 1, 2000. The as reported and pro forma financial information presented below reflects the changes in the definition of segment operating earnings and composition of segments as discussed in Note 15. Pro forma financial information is not necessarily indicative of the financial results of the Company had the Distribution occurred at October 1, 2000.

Pro forma adjustments related to the Distribution include interest expense on $300 million of commercial paper borrowings used to fund the special payment to Rockwell and income and costs related to employee benefit obligations, including pension and other retirement benefits, related to former Rockwell employees not associated with the Avionics and Communications business that were assumed by the Company in connection with the Distribution. Interest expense, including debt issuance costs, was estimated to be 4.9 percent and 6.1 percent for the three and nine months ended June 30, 2001.

SFAS 141 and SFAS 142 pro forma financial information includes the adjustments to eliminate amortization expense related to goodwill, trademarks and tradenames as these intangibles are no longer being amortized. Pro forma financial information also includes adjustments to eliminate amortization related to assembled workforce as this intangible asset has been reclassified to goodwill and is no longer being amortized.

In connection with the Distribution, outstanding options to purchase Rockwell common stock held by Rockwell Collins employees generally were converted into options to purchase shares of Rockwell Collins common stock based on a formula designed to preserve the intrinsic value of the options. In addition, outstanding options to purchase Rockwell common stock held by certain other option holders who were not Rockwell Collins employees were replaced with options to purchase shares of Rockwell common stock and, in some cases, Rockwell Collins common stock, based on a formula also designed to preserve the intrinsic value of the options. Pursuant to these adjustments, the Company issued options for approximately 12.9 million shares of Rockwell Collins common stock.

The number of pro forma weighted average shares outstanding used in the basic and diluted earnings per share calculation were based upon the weighted average number of Rockwell shares outstanding for the applicable period and the Distribution ratio of one share of the Company’s common stock for each share of Rockwell common stock. The number of pro forma weighted average common share equivalents used in the diluted earnings per share calculation were based upon the number of Rockwell common share equivalents outstanding for the applicable period, adjusted for the Distribution as described in the preceding paragraph.

15

Pro forma financial information for the three months ended June 30, 2001 is calculated as follows (in millions, except per share amounts):

				Pro Forma Adjustments
	Reported			Distribution			SFAS 141 / 142			Pro Forma
Sales:
Commercial Systems	$	428		$	—		$	—		$	428
Government Systems	299			—			—			299
Total	$	727		$	—		$	—		$	727
Segment operating earnings:
Commercial Systems	$	68		$	—		$	3		$	71
Government Systems	44			—			2			46
Total	112			—			5			117
Interest expense	—			(4		)	—			(4		)
Losses from equity affiliates	(1		)	—			—			(1		)
General corporate - net	(7		)	2			—			(5		)
Income before income taxes	104			(2		)	5			107
Income tax provision	(36		)	1			(1		)	(36		)
Net income	$	68		$	(1	)	$	4		$	71
Pro forma earnings per share:
Basic										$	0.39
Diluted										$	0.38
Pro forma weighted average common shares:
Basic										183.1
Diluted										186.0

Pro forma financial information for the nine months ended June 30, 2001 is calculated as follows (in millions, except per share amounts):

				Pro Forma Adjustments
	Reported			Distribution			SFAS 141 / 142			Pro Forma
Sales:
Commercial Systems	$	1,246		$	—		$	—		$	1,246
Government Systems	758			—			—			758
Total	$	2,004		$	—		$	—		$	2,004
Segment operating earnings:
Commercial Systems	$	192		$	—		$	12		$	204
Government Systems	114			—			4			118
Total	306			—			16			322
Interest expense	—			(14		)	—			(14		)
Earnings from equity affiliates	1			—			—			1
General corporate - net	(22		)	5			—			(17		)
Income before income taxes	285			(9		)	16			292
Income tax provision	(98		)	3			(4		)	(99		)
Net income	$	187		$	(6	)	$	12		$	193
Pro forma earnings per share:
Basic										$	1.06
Diluted										$	1.04
Pro forma weighted average common shares:
Basic										182.6
Diluted										185.9

16

ROCKWELL COLLINS, INC.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Rockwell Collins became an independent publicly traded company on June 29, 2001 following its spin-off from Rockwell International Corporation, subsequently renamed Rockwell Automation, Inc. The following management discussion and analysis is based upon actual reported financial results for the three and nine months ended June 30, 2002 and pro forma financial results for the three and nine months ended June 30, 2001 and should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto in Item 1 of Part 1 of this quarterly report.

The Company operates on a fiscal year basis with the fiscal year ending on September 30. All date references contained herein relate to the Company’s fiscal year unless otherwise stated.

Pro forma net income includes the adjustments necessary to present our results of operations as if both the Distribution and our adoption of Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) occurred at October 1, 2000. Pro forma adjustments related to the Distribution include (1) interest expense on $300 million of commercial paper borrowings used to fund the special payment to Rockwell, and (2) income and costs related to employee benefit obligations, including pension and other retirement benefits, related to active and former Rockwell employees not associated with the Avionics and Communications business that were assumed by the Company in connection with the Distribution. Pro forma adjustments related to our adoption of SFAS 141 and SFAS 142 include adjustments to eliminate amortization expense related to goodwill, trademarks and tradenames and assembled workforce as these intangibles are no longer being amortized. Pro forma financial information is not necessarily indicative of the financial results of the Company had the Distribution occurred at October 1, 2000.

Effective October 1, 2001 we changed our method of evaluating segment performance by including purchase accounting related depreciation of property and intangible asset amortization within segment operating earnings. In addition, we changed the composition of the Commercial Systems segment to include a business acquired in connection with the Kaiser acquisition, which was previously reported as part of Government Systems. Prior period amounts have been reclassified to conform to the current year presentation.

17

The following table presents segment sales and operating earnings information (in millions, except per share amounts):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2002			Pro Forma 2001			2002			Pro Forma 2001
Sales:
Commercial Systems	$	336		$	428		$	1,014		$	1,246
Government Systems	287			299			780			758
Total	$	623		$	727		$	1,794		$	2,004
Segment operating earnings:
Commercial Systems	$	44		$	71		$	130		$	204
Government Systems	50			46			132			118
Total	94			117			262			322
Interest expense	(1		)	(4		)	(4		)	(14		)
Earnings (losses) from equity affiliates	1			(1		)	1			1
Restructuring adjustment	—			—			4			—
General corporate - net	(6		)	(5		)	(22		)	(17		)
Income before income taxes	88			107			241			292
Income tax provision	(28		)	(36		)	(75		)	(99		)
Net income	$	60		$	71		$	166		$	193
Earnings per share:
Basic	$	0.33		$	0.39		$	0.91		$	1.06
Diluted	$	0.33		$	0.38		$	0.90		$	1.04
Weighted average common shares:
Basic	183.0			183.1			183.3			182.6
Diluted	184.8			186.0			184.4			185.9

Three Months Ended June 30, 2002 and 2001

Sales decreased $104 million, or 14 percent, to $623 million for the three months ended June 30, 2002, compared to sales of $727 million in the same period last year. Lower sales primarily resulted from continued weakness in the commercial aircraft market in the aftermath of September 11th. Net income for the three months ended June 30, 2002 was $60 million, or 9.6 percent of sales, compared with pro forma net income of $71 million, or 9.8 percent of sales, in the same period last year. This decrease in net income resulted primarily from lower sales and less favorable sales mix from Commercial Systems, partially offset by profitability improvements from our Government Systems segment combined with lower interest expense and a lower effective income tax rate compared to prior year. Interest expense of $1 million for the three months ended June 30, 2002, was lower than pro forma interest expense of $4 million for the same period last year, resulting from lower interest rates as well as from a reduction in short-term debt. Our effective income tax rate for the three months ended June 30, 2002, decreased to 31.0 percent compared with 33.8 percent last year. For the three months ended June 30, 2002, general corporate-net included a favorable resolution of a legal matter associated with the sale of a business several years ago leading to a reversal of a reserve which increased earnings by approximately $4 million (Note 14). Diluted earnings per share for the three months ended June 30, 2002 was 33 cents, compared with diluted pro forma earnings per share of 38 cents in the same period a year ago.

18

Commercial Systems sales for the three months ended June 30, 2002 were $336 million, a decrease of $92 million, or 21 percent, compared to $428 million in the same period last year. This decline resulted primarily from lower sales of commercial avionics to the air transport marketplace, and lower business and regional jet avionics sales due to the effects of a strike at Bombardier. Sales of commercial avionics products declined 25 percent to $250 million for the three months ended June 30, 2002, compared to $334 million last year. Sales of in-flight entertainment products declined 9 percent to $86 million compared with $94 million in the same period last year. Commercial Systems’ segment operating earnings for the three months ended June 30, 2002 were $44 million compared to $71 million for the same period a year ago. Operating earnings as a percent of sales decreased to 13.1 percent for the three months ended June 30, 2002 compared with 16.6 percent in the prior year. These decreases resulted primarily from lower commercial avionics sales, less favorable sales mix, and higher costs related to the development of the integrated information system product.

Government Systems sales were $287 million for the three months ended June 30, 2002 compared with $299 million in the same period a year ago, a decrease of $12 million or 4 percent. Higher sales in GPS products resulting from increased military activities and higher sales from the C-130 integrated applications product line partially offset a $26 million decline in sales related to a KC-135 aircraft retrofit program that was completed in the third quarter of 2001. Government Systems operating earnings increased to $50 million for the three months ended June 30, 2002, an increase of $4 million compared to $46 million in the same period a year ago. Operating earnings as a percent of sales increased to 17.4 percent for the three months ended June 30, 2002, compared to 15.4 percent in the prior year as a result of an improved mix of products sold and higher engineering productivity.

Nine Months Ended June 30, 2002 and 2001

For the nine months ended, June 30, 2002, sales decreased $210 million, or 10 percent, to $1,794 million compared to sales of $2,004 million in the nine months ended June 30, 2001. Lower sales primarily resulted from weakness in the commercial aircraft markets since September 11th, partially offset by sales growth in the government markets we serve. Net income for the nine months ended June 30, 2002 was $166 million, or 9.3 percent of sales, compared with pro forma net income of $193 million, or 9.6 percent of sales, in the nine months ended June 30, 2001. The decline in net income resulted from lower sales volume and less favorable sales mix in Commercial Systems, partially offset by higher earnings in Government Systems as well as from favorable impacts from lower interest expense, a restructuring adjustment, a resolution of a legal matter, and a lower effective income tax rate. Interest expense of $4 million for the nine months ended June 30, 2002, was $10 million lower than pro forma interest expense for the same period last year due to lower interest rates and from a reduction in short-term debt. Lower severance costs resulting from higher than expected employee attrition that resulted in a favorable adjustment of $4 million. A favorable resolution of a legal matter associated with the sale of a business several years ago resulted in a $4 million reversal of a reserve (Note 14). Our effective income tax rate for the nine months ended June 30, 2002 decreased to 31.0 percent compared with 33.9 percent last year. Diluted earnings per share for the nine months ended June 30, 2002 was 90 cents, compared with diluted pro forma earnings per share of $1.04 in the first nine months last year.

Commercial Systems sales for the nine months ended June 30, 2002 were $1,014 million, a decrease of $232 million, or 19 percent, compared to $1,246 million in the same period of 2001. Commercial avionics sales into the air transport and business and regional jet markets decreased 21 percent while sales of in-flight entertainment products decreased 11 percent compared to the prior year. Commercial Systems operating earnings for the nine months ended June 30, 2002 were $130 million compared to $204 million for the first nine months last year. Operating earnings as a percent of sales decreased to 12.8 percent for the nine months ended June 30, 2002 compared with 16.4 percent last year. These decreases resulted primarily from volume declines and less favorable sales mix resulting from a significant decline in aftermarket sales. Lower operating expenses resulting from our restructuring actions initiated in 2001 partially offset the effects of lower sales and less favorable mix.

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Government Systems sales were $780 million for the nine months ended June 30, 2002 compared with $758 million in the same nine months of 2001, an increase of $22 million or 3 percent. Our Kaiser Aerospace & Electronics Corporation (Kaiser) acquisition, completed in December 2000, accounted for a $25 million increase in sales compared to prior year. In addition, sales growth in GPS products, the C-130 product line, data links, several helicopter programs, and services offset a $78 million decline in sales on a KC-135 aircraft retrofit program completed in the third quarter of 2001. Government Systems segment operating earnings increased to $132 million for the nine months ended June 30, 2002, an increase of $14 million compared to $118 million in the same period a year ago. Operating earnings as a percent of sales increased to 16.9 percent for the nine months ended June 30, 2002, compared to 15.6 percent in 2001 primarily as a result of an improved mix of products sold and improved operating costs.

Restructuring

In September 2001, we announced a comprehensive restructuring plan to reduce our workforce and streamline certain operations. These actions were undertaken in response to the sharp and sudden decline in anticipated sales volumes in the commercial air transport market resulting from the September 11th terrorist attacks. The restructuring plan anticipated involuntary separations of approximately 2,800 employees, or 16 percent of our workforce. These employee separations were broad based and affected all business groups, with the largest number of reductions in the Commercial Systems business and organizations that support commercial product lines. The restructuring plan also included the consolidation of the in-flight entertainment product line into one facility in Pomona, California; the closure of certain service centers, sales and other offices in California, Illinois, Australia, and Southeast Asia; and the consolidation of certain manufacturing operations. As a result of this plan, we recorded a restructuring charge of $34 million in the fourth quarter of 2001. This charge was comprised of $28 million of employee separation costs, $4 million of facility exit costs, and $2 million of asset write-downs.

As of June 30, 2002, approximately 2,600, or 93 percent, of employee separations have been completed, and $19 million of employee separation costs have been paid. The remaining workforce reduction is expected to be complete by September 2002. Facility exit actions are completed at service centers in California and Southeast Asia, as well as an office in Illinois. Facility consolidation of the Company’s in-flight entertainment operations in California is complete. Exit costs associated with these facility actions of $1 million have been paid as of June 30, 2002, and will continue through the term of the lease periods for these facilities.

In the second quarter of 2002, the Company determined that the cost of these restructuring actions was expected to be $4 million lower than originally planned, and recorded favorable adjustments of $3 million to Cost of Sales and $1 million to Selling, General and Administrative Expenses. The primary reason for the reduction in cost relates to lower than expected severance costs resulting from higher than expected employee attrition.

Our restructuring plan, combined with other cost saving initiatives, is expected to result in pre-tax savings of approximately $180 million in 2002, which partially offsets the sharp decline in sales volume resulting from the September 11th terrorist attacks.

Retirement Benefits

The cost of providing pension and postretirement medical benefits to our employees has significantly increased in 2002 and this trend is expected to continue in future years as a result of lower actual and expected returns on plan assets and higher health care cost trend rates. Total pension and postretirement medical expense in 2002 will approximate $25 million compared to pro forma pension and postretirement medical income of $5 million in 2001. This $30 million increase in 2002 will be partially offset by a non-recurring curtailment gain on postretirement medical benefits of approximately $14 million related to the workforce reductions associated with our 2001 comprehensive restructuring plan.

20

Net periodic retirement benefit costs are as follows (in millions):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2002			Pro Forma 2001			2002			Pro Forma 2001
Pension	$	1		$	(2	)	$	4		$	(8	)
Retiree medical	6			1			15			4
Curtailment	(2		)	—			(14		)	—
Total retiree benefit cost (income)	$	5		$	(1	)	$	5		$	(4	)

In January 2002 we made a tax-deductible cash contribution to our pension plan of $38 million in order to satisfy certain U.S. government requirements resulting from the Distribution. The contribution was funded using cash generated by operations.

Income Taxes

At the end of each interim reporting period it is our practice to make an estimate of the effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The effective income tax rates for the nine months ended June 30, 2002 and 2001 were 31.0 percent and 33.9 percent, respectively. The lower effective tax rate in 2002 is due primarily to effects from a research and development tax credit study completed in the second quarter of 2002. Management believes the 31.0 percent effective income tax rate is a sustainable tax rate for the Company.

Outlook

We continue to anticipate sales of approximately $2.5 billion in 2002, with our current projection of 2002 earnings per share ranging from $1.23 to $1.26. Free cash flow generation for 2002 is projected to range between $250 to $275 million, after including a non-recurring tax deductible pension contribution of $38 million paid in January 2002. Our expectations are based upon, among other considerations, the following assumptions:

•Our Commercial Systems sales will decline 20 percent compared to prior year. Our projection assumes new aircraft production by Boeing and Airbus of 650 aircraft in the aggregate for 2002, while aftermarket sales in our air transport product line will decline 15 percent in 2002. Our in-flight entertainment product line will decline approximately 20 percent in 2002, including a significant decline in the last three months of 2002 when compared to 2001. This decline is due to the discretionary nature of these products and the high level of sales delivered at the end of 2001. Our business and regional product line sales will decline 15 percent in 2002 due to lower business jet deliveries and aftermarket sales, combined with the effects of the Bombardier strike.

•Our Government Systems sales will grow in the mid single digit range for 2002.

Financial Condition and Liquidity

Cash Flow Summary

Cash provided by operations was $231 million for the nine months ended June 30, 2002, compared to $9 million in the same period last year. Free cash flow was $197 million for the nine months ended June 30, 2002 after paying a non-recurring tax deductible pension contribution of $38 million. This compares to a $76 million use of free cash flow in the first nine months of 2001. We define free cash flow, an internal performance measure, as cash provided by operating activities and dispositions of property, reduced by capital expenditures. Our definition of free cash flow may be different than definitions used by other companies. Cash provided by operations and free cash flow were significantly higher in the nine months ended June 30, 2002 due to improved working capital performance, primarily from strong cash collections and improved inventory management. Reductions in capital expenditures also had a favorable impact to free cash flow.

21

Cash used for investing activities during the nine months ended June 30, 2002 was $50 million compared to $377 million last year. Capital expenditures were $40 million in the nine months ended June 30, 2002 compared with $85 million in the same period last year. We expect capital expenditures for the full year to approximate $80 million. Cash investments for the nine months ended June 30, 2002 relate principally to our acquisition of Communication Solutions, Inc. The acquisition expands our product portfolio in the areas of signals intelligence and surveillance solutions. Our cash investments in the nine months ended June 30, 2001 relate to our Kaiser acquisition. Kaiser is a leading supplier of flight deck display solutions for tactical aircraft, optical technologies for instrumentation and communication, and specialized aircraft products for the defense and aerospace industry.

Cash used for financing activities was $197 million for the nine months ended June 30, 2002. Strong free cash flow enabled us to paydown $122 million of commercial paper borrowings in the current period. In addition, we declared and paid cash dividends of $0.27 per share, totaling $49 million, for the nine months ended June 30, 2002. We expect annual dividends to be $0.36 per share in 2002 and expect to fund these dividends using cash generated by operations. In December 2001, the Board of Directors of the Company approved a program authorizing the purchase of up to $200 million of Rockwell Collins’ common shares. For the nine months ended June 30, 2002 we repurchased 1.8 million shares at a cost of $42 million.

Cash generated by operations combined with our borrowing capacity is expected to meet future operating cash flow needs, capital expenditures, dividend payments, acquisitions, and share repurchases for the foreseeable future.

Liquidity

Our primary source of liquidity is through short-term borrowings in the commercial paper market. Our access to that market is facilitated by the strength of our credit ratings and our $1 billion of committed credit facilities with several banks (Revolving Credit Facilities). Our current ratings as provided by Moody’s Investors Service, Standard & Poor’s and Fitch, Inc. are A-2 / A / A, respectively, for long-term debt and P-1 / A-1 / F-1, respectively, for short-term debt. Moody’s and Standard & Poor’s have placed a “negative outlook” on our credit ratings principally as a result of the impact the events of September 11th are expected to have on the commercial aerospace industry. The “negative outlook” ratings have not impaired our access to the commercial paper markets. Our ratings with Fitch continue to have a “stable outlook”.

Under our commercial paper program, we may sell up to $1 billion face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes may bear interest or may be sold at a discount and will have maturity of not more than 364 days from time of issuance. Commercial paper borrowings outstanding were $80 million at June 30, 2002.

Our Revolving Credit Facilities consist of a five-year $500 million portion expiring in May 2006 and a 364-day $500 million portion which expires May 28, 2003. The Revolving Credit Facilities are available to the Company for working capital needs, general corporate purposes and as support for our commercial paper program. We are subject to only one financial covenant under the Revolving Credit Facilities; that being the maintenance of a debt to total capitalization ratio below 60%. Our debt to total capital ratio at June 30, 2002 was 6 percent. At our election, the 364-day portion of the Revolving Credit Facilities can be converted to a one-year term loan. Our credit facilities do not contain any rating downgrade triggers that would accelerate the maturity of our indebtedness. There are no borrowings outstanding under our Revolving Credit Facilities as of June 30, 2002.

In addition to our Revolving Credit Facilities and commercial paper program, the Securities and Exchange Commission declared effective in November 2001 our shelf registration statement covering up to $750 million in debt securities, common stock, preferred stock or warrants that may be offered in one or more offerings on terms to be determined at the time of sale. Net proceeds of any offering will be used for general corporate purposes, with possible uses including repayment of existing indebtedness, capital expenditures, acquisitions and share repurchases.

If our credit ratings were to be adjusted downward by the rating agencies, the implications of such actions could include elimination of access to the commercial paper market and an increase in the cost of borrowing. In the event of impaired access to the commercial paper market, alternative sources of funding could include borrowings under the Revolving Credit Facilities, funds available from the issuance of securities under our shelf registration, and potential asset securitization strategies.

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The downturn in the commercial air transport market, exacerbated by the terrorist attacks of September 11th, has adversely affected the financial condition of many of our commercial airline customers. We perform ongoing credit evaluations on the financial condition of all of our customers and maintain allowances for uncollectible accounts receivable based upon expected collectibility. Although we believe our allowances are adequate, we are not able to predict with certainty the changes in the financial stability of our customers. Any material change in the financial status of any one or a group of customers could have a material adverse effect on our financial condition, results of operations, or cash flows.

Contractual Obligations and Other Commitments

The following table reflects our contractual obligations and other commitments as of June 30, 2002 (in millions):

	Payments Due By Period
	Total		Less Than 1 Year		1 — 3 Years		4 — 5 Years
Non-cancelable operating leases	$	35	$	10	$	15	$	10
Commercial paper borrowings	80		80		—		—
Total	$	115	$	90	$	15	$	10

We lease certain office and manufacturing facilities as well as certain machinery and equipment under various lease contracts with terms that meet the accounting definition of operating leases. Our commitments under these operating leases, in the form of non-cancelable future lease payments, are not reflected as a liability on our Statement of Financial Position. We have no material outstanding guarantees of debt relating to our customers, suppliers, joint venture affiliates, or any other party.

As of June 30, 2002, we have outstanding letters of credit totaling $82 million issued by banks to support certain contractual obligations to our customers. If we fail to meet these contractual obligations, these letters of credit may become a liability of the Company.

Environmental

Information with respect to the effect on the Company and its manufacturing operations of compliance with environmental protection requirements and resolution of environmental claims is contained in Note 21 of the Notes to Consolidated Financial Statements in Exhibit 13 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2001. Management believes that at June 30, 2002, there has been no material change to this information.

Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 will be adopted by the Company in 2003 and requires recording of the fair value of liabilities associated with the legal obligations to retire long-lived assets in the period in which they are incurred. The adoption of SFAS 143 is not expected to have a material effect on the Company’s results of operations and financial position.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS 144 will be adopted in 2003 and is not expected to materially change the methods used by us to measure impairment losses on long-lived assets, but may result in more divestitures being reported as discontinued operations than is permitted under current accounting principles.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management of Rockwell Collins to make estimates, judgements, and assumptions that affect the amount of assets, liabilities, sales, costs and expenses reported in the accompanying condensed consolidated financial statements as well as the related disclosure of assets and liabilities contingent upon future events.

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Understanding of the critical accounting policies discussed below and risks associated thereto are important in evaluating the financial condition and results of operations of Rockwell Collins. Management believes the following accounting policies used in the preparation of the consolidated financial statements are critical to the portrayal of our financial condition and results of operations as they involve a significant use of management judgement on matters that are inherently uncertain. If actual results differ significantly from management’s estimates, there could be a material effect on our financial condition, results of operations and cash flows.

Allowance for Doubtful Accounts

Allowances are established in order to report receivables at net realizable value on our Statement of Financial Position. The determination of these allowances requires management to make estimates and judgements as to the collectibility of customer account balances. These allowances are estimated by reviewing the financial condition together with our historical experience and relationships with customers, and by considering both current and projected economic and market conditions. Receivables from customers who file bankruptcy are generally reserved for at 100 percent with the uncollectible portion written off upon resolution from the bankruptcy court. Management currently believes that our commercial customers, especially those in the commercial airline industry, are the primary source of risk for uncollectible receivables.

Inventory Valuation Reserves

Inventory valuation reserves are recorded in order to report inventories at the lower of cost or market on our Statement of Financial Position. The determination of valuation reserves requires management to make estimates and judgements on the future salability of inventories. Valuation reserves for excess, obsolete, and slow moving inventory are estimated quarterly by comparing the inventory levels of individual parts to both future sales or production requirements and historical usage rates in order to identify inventory that is unlikely to be sold. Other factors that management considers in determining these reserves include overall market conditions and other management initiatives. Management can generally react to reduce the likelihood of severe excess and slow-moving inventory issues by changing purchasing behavior and practices provided there are no abrupt changes in market conditions. Sudden and prolonged changes in market conditions, however, can result in levels of inventories that exceed future production requirements requiring the need for additional valuation reserves.

Accounting for Long-Term Contracts

A substantial portion of our sales to government related customers and certain of our sales to commercial customers are made pursuant to long-term contracts requiring delivery of products and services over several years and often contain fixed-price purchase options for additional products. Certain of these contracts are accounted for under the percentage-of-completion method of accounting under Statement of Position 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”. The contracts we enter into with our customers typically include production of products (production-type) or product system design and other services (development-type). Sales and earnings on production-type contracts are recorded under either the percentage-of-completion method using the contractual selling prices as units are shipped (units of delivery method) or are excluded from long term contract accounting, dependent on the nature of products produced. Sales and earnings on development-type contracts are generally recorded based upon the ratio of actual incurred costs to total estimated costs expected to be incurred under the contract (cost-to-cost method).

The percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract. Assuming accurate estimates are made, the percentage-of-completion method results in the profit margin being recorded evenly over the term of the contract. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.

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The estimation of profit margins requires management to make projections of the total costs that will be incurred in order to fulfill a contract. These projections require management to make numerous assumptions and estimates relating to such items as development and engineering costs, material costs, manufacturing labor costs, overhead costs, capital costs, and manufacturing efficiency. Other variables include customer change orders for additional or revised product functionality and purchase options for additional quantities. Change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and amount of the item. Sales related to change orders are included in profit estimates only if they can be reliably estimated and collectibility is reasonably assured. Sales and costs related to profitable purchase options are included in our estimates only when the options are exercised. Sales and costs related to unprofitable purchase options are included in our estimates when exercise is determined to be probable.These estimates are typically reviewed by management on a quarterly basis and changes in these underlying estimates are accounted for using the cumulative catch-up method in the period in which revised estimates are made.

Warranty

Reserves are recorded on our Statement of Financial Position to reflect our contractual liabilities relating to warranty commitments to our customers. We provide warranty coverage of various lengths and terms to our customers dependent on standard offerings and negotiated contractual agreements. Under our warranty coverage, we agree to repair or replace, without charge, any equipment or software which is defective as to design, workmanship or material during the warranty period. We record an estimate for warranty expense at the time of sale primarily based on historical warranty return rates and repair costs.

Retiree Benefits

We provide retirement benefits to most of our employees in the form of defined benefit pension plans (Pension Benefits) and retiree medical and other insurance plans (Other Retirement Benefits). Accounting standards require the cost of providing these benefit programs to be measured on an actuarial basis. These accounting methods will generally reduce the volatility of the reported benefit obligations and net periodic benefit costs as actuarial gains and losses resulting from both normal year-to-year changes in these assumptions and the differences from actual experience are deferred and amortized using generally accepted actuarial techniques. The application of these accounting standards requires management to make numerous assumptions and judgments that can significantly affect these measurements. Critical assumptions made by management in performing these actuarial valuations include the selection of discount rates, expectations on the future rate of return on pension plan assets, and estimates of future health care cost trend rates.

Discount rates are used to determine the present values of our benefit obligations which effectively reflects the current amount at which our benefit obligations could be settled and also effect the amount of net periodic benefit cost recorded by the Company in any given period. We estimate this discount rate based on the rates of return of high quality, fixed-income investment indexes with maturity dates that reflect the expected time horizon that benefits will be paid. The effects of changes in the discount rate could have a material effect on our benefit obligations and related net periodic benefit costs.

A significant assumption made in determining the net periodic benefit cost for our Pension Benefits is the expected long-term rate of return on pension plan assets. Our current expected long-term rate of return assumption is 9.0 percent and we believe this rate of return is appropriate as our actual average return on pension plan assets over the past ten, fifteen and twenty-year periods has exceeded this expected rate of return. Over the past five years, our actual rate of return on pension plan assets has been less than our expected rate of return. Should our actual rate of return continue to remain below our expected return rate of 9.0 percent, our net periodic benefit cost for Pension Benefits may continue to increase.

Health care cost trend rates for retiree medical insurance are a significant driver of our overall Other Retirement Benefits obligation and related net periodic benefit cost. These trend rates are estimated based upon historical experience and future expectations. In recent years, we have experienced higher trend rates than anticipated and should these trend rates continue unabated, the benefit obligation and related net periodic benefit cost for Other Retirement Benefits will likely increase.

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CAUTIONARY STATEMENT

This quarterly reportcontains statements (including certain projections and business trends) accompanied by such phrases as “assumes”, “anticipates”, “believes”, “expects”, “estimates”, “projects”, “will” and other similar expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the impact of terrorist attacks and their aftermath; the timing related to restoring consumer confidence in air travel; the health of the global economy as well as the commercial aerospace industry; customer bankruptcies; dependency on U.S. government contracts and their associated unique risks; domestic and foreign government spending, budgetary and trade policies; economic and political changes in international markets where the Company competes; demand for and market acceptance of new and existing products, including potential cancellation or delay of orders by commercial or government customers for various reasons including but not limited to labor strikes; successful development of advanced technologies; favorable outcomes of certain customer procurements; new aircraft build rates; variances from management’s estimates on critical accounting policies; our ability to handle production rate increases and decreases; our suppliers ability to meet our material requirements; implementation of restructuring actions and performance objectives in accordance with management plans; and the uncertainties of litigation, as well as other risks and uncertainties, including but not limited to those set forth under “Certain Business Risks” and in other sections of our Annual Report on Form 10-K for the year ended September 30, 2001, as well as those detailed from time to time in our other Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof.

Item 3.    Quantitative And Qualitative Disclosures About Market Risk

We are exposed to market risk during the course of business from changes in interest rates and foreign currency exchange rates. The exposure to these risks is managed through a combination of normal operating and financial activities and in the case of risk associated with foreign currency exchange rates, derivative financial instruments in the form of foreign currency forward exchange contracts.

Interest Rate Risk

In addition to using cash provided by normal operating activities, we utilize short-term commercial paper borrowings to finance operations. At June 30, 2002, commercial paper outstanding was $80 million compared with $202 million at September 30, 2001. Although the interest rates are fixed through the maturity date, we are exposed to interest rate risk upon maturity of this commercial paper as we will generally refinance all or a portion of this debt by issuing new commercial paper at market interest rates that may be higher or lower at that time. If market interest rates would have averaged 25 percent higher in either 2001 or 2002, the effects on results of operations would not have been material. Due to the short-term nature of commercial paper outstanding, the fair value of these obligations approximated its carrying value at June 30, 2002.

Foreign Currency Risk

We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities (by requiring, where possible, export sales to be denominated in United States dollars) and utilizing foreign currency forward exchange contracts to manage our exposure on transactions denominated in currencies other than the applicable functional currency. For the nine months ended June 30, 2002, approximately 36 percent of our total sales consisted of sales outside of the United States, with less than 10 percent of total sales denominated in currencies other than the United States dollar. Foreign currency forward exchange contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. It is our policy not to enter into derivative financial instruments for speculative purposes. We do not hedge our exposure to the translation of reported results of our foreign subsidiaries from local currency to United States dollars.

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At June 30, 2002, we had outstanding foreign currency forward exchange contracts with notional amounts of $110 million compared with $156 million at September 30, 2001, primarily consisting of contracts to exchange the euro and pound sterling. Notional amounts are stated in the U. S. dollar equivalents at spot exchange rates at the respective dates. The use of these contracts allows us to manage transactional exposure to exchange rate fluctuations as the gains and losses incurred on the foreign currency forward exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. The fair value of our foreign currency forward exchange contracts was an asset of $2 million at June 30, 2002 compared with $0 million at September 30, 2001. A hypothetical 10 percent adverse change in underlying foreign currency exchange rates associated with these contracts would not be material to our financial condition, results of operations, or cash flows.

PART II.        OTHER INFORMATION

Item 1. Legal Proceedings

On April 3, 2000, a civil action was filed against the Company in the Court of Common Pleas of Pennsylvania for Allegheny County, Westinghouse Air Brake Technologies Corp. v. Rockwell Collins, Inc., asserting various claims arising out of the plaintiff’s purchase of the Company’s former Railroad Electronics Business pursuant to a Sale Agreement on October 5, 1998. Specifically, the plaintiff alleged that it was entitled under provisions of the Sale Agreement to a post-closing adjustment of approximately $7 million in the purchase price, and that it was entitled to unspecified damages for alleged misrepresentations, breaches of warranty, mistake of fact, and failure by the Company to turn over certain assets and to provide certain post-closing support. On December 13, 2000, the trial court ordered that the claim for a post-closing adjustment in the purchase price be submitted to mandatory arbitration pursuant to the provisions of the Sale Agreement, but declined to stay court proceedings on the other issues during pendency of the arbitration proceeding. On June 18, 2002 the arbitrator issued a ruling in the Company’s favor and denying in its entirety the plaintiff’s claims for a post-closing adjustment to the purchase price. With respect to the litigation, the parties are in the early stages of discovery.

On December 14, 1995, a civil action was filed in the United States District Court for the Western District of Texas, El Paso Division, United States ex. rel Staines v. Rockwell International Corp., under the qui tam provisions of the False Claims Act seeking unspecified damages for alleged violations of the Act on two contracts with an agency of the U.S. Government under which an electronics fabricating plant in El Paso now owned by The Boeing Company performed work on subcontract for another facility now owned by Boeing, and two contracts where the plant performed work on subcontract for the Company’s Dallas, Texas facility.  Specifically with respect to the work performed at the El Paso plant for the Company, the plaintiff alleges that certain components were improperly tested and that certain components removed from circuit boards for testing were thereafter reinstalled when they should not have been. The Boeing Company has agreed to defend and indemnify the Company and Rockwell for claims relating to work performed on Boeing contracts, and for any wrongdoing that may have occurred at the El Paso plant relating to work performed there for the Company, but not for wrongdoing, if any, that may have occurred at or under the direction of the Company’s Dallas facility. In October 1998, the United States declined to intervene in the action on its own behalf and the plaintiff has since proceeded to prosecute the action himself with private counsel. Rockwell and Boeing have denied wrongdoing and have vigorously defended this action. The case was set for a jury trial to commence on September 23, 2002. On July 18, 2002, plaintiff filed in the District Court a Motion for Voluntary Dismissal of the False Claims Act causes of action. The District Court granted plaintiff’s Voluntary Dismissal motion on July 22, 2002, dismissing the False Claims Act causes of action with prejudice as it relates to the plaintiff and without prejudice as it relates to the United States Government. The Motion for Voluntary Dismissal was based on the lack of sufficient evidentiary basis to pursue the False Claims Act allegations. Plaintiff also conditionally moved to dismiss his retaliation cause of action based on an agreement in principle between plaintiff and defendants on settlement of this cause of action. The conditional settlement is subject to completion of an appropriate settlement and release agreement, which the parties expect to complete within the next 30 days. The Company has agreed to reimburse Boeing a nominal amount of defense costs related to this lawsuit.

Pursuant to the terms of the distribution agreement entered into among Rockwell, the Company and Rockwell Scientific Company LLC, the Company assumed all responsibility for current and future litigation, including environmental proceedings, against Rockwell or its subsidiaries with respect to the operations of the Company’s business.

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Item 6. Exhibits and Reports on Form 8-K

(a)		Exhibits
	3-b-1			Amended By-Laws of the Company.
	10-o-2			Amended schedule identifying executives of the Company who are party to a Change of Control Agreement in the form set forth as Exhibit 10.7.1 to the Form 10.
	10-p-1			Form of 364-Day Credit Agreement dated as of May 29, 2002 among the Company, the Banks listed therein and JPMorgan Chase Bank, as Agent.
	10-q-1			Form of Performance Unit Agreement for FY02-03 for Persons With a Change of Control Agreement.
	10-q-2			Form of Performance Unit Agreement for FY02-03 for Persons Not With a Change of Control Agreement.
	10-r-1			Agreement and General Release between the Company and Neal J. Keating dated July 16, 2002.
	10-s-1			Transition Agreement between the Company and Donald R. Beall dated July 9, 2002.
	12			Computation of Ratio of Earnings to Fixed Charges for the nine months ended June 30, 2002.
	99.1			Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99.2			Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)	Reports on Form 8-K during the three months ended June 30, 2002:
			Form 8-K dated June 17, 2002 announcing (1) Rockwell Collins Names Clayton Jones as Chairman; Donald Beall to Chair New Executive Committee, and (2) Rockwell Collins to Acquire Airshow, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ROCKWELL COLLINS, INC.
		(Registrant)
Date:	August 5, 2002	By	/s/ P. E. Allen
			P. E. Allen
			Vice President Finance and Treasurer
			(Principal Accounting Officer)
Date:	August 5, 2002	By	/s/ G. R. Chadick
			G. R. Chadick
			Senior Vice President,
			General Counsel and Secretary

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EX-3.-B-1

Exhibit 3-b-1

AMENDED AND RESTATED

BY-LAWS OF

ROCKWELL COLLINS, INC.

ARTICLE I.
Offices

SECTION 1.  Registered Office in Delaware; Resident Agent.  The address of the Corporation’s registered office in the State of Delaware and the name and address of its resident agent in charge thereof are as filed with the Secretary of State of the State of Delaware.

SECTION 2.  Other Offices.  The Corporation may also have an office or offices at such other place or places either within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation requires.

ARTICLE II.
Meetings Of Shareowners

SECTION 1.  Place of Meetings.  All meetings of the shareowners of the Corporation shall be held at such place, within or without the State of Delaware, as may from time to time be designated by resolution passed by the Board of Directors.  The Board of Directors may, in its sole discretion, determine that the meetings shall not be held at any place, but may instead be held solely by means of remote communication.

SECTION 2.  Annual Meeting.  An annual meeting of the shareowners for the election of directors and for the transaction of such other proper business, notice of which was given in the notice of meeting, shall be held on a date and at a time as may from time to time be designated by resolution passed by the Board of Directors.

SECTION 3.  Special Meetings.  A special meeting of the shareowners for any purpose or purposes shall be called only by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board.

SECTION 4.  Notice of Meetings.  Except as otherwise provided by law, written notice of each meeting of the shareowners, whether annual or special, shall be mailed, postage prepaid, or sent by electronic transmission not less than ten nor more than sixty days before the date of the meeting, to each shareowner entitled to vote at such meeting, at the shareowner’s address as it appears on the records of the Corporation.  Every such notice shall state the place, date and hour of the meeting the means of remote communications, if any, by which shareowners and proxy holders may be deemed to be present in person or by proxy and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Notice of any adjourned meeting of the shareowners shall not be required to be given, except when expressly required by law.

SECTION 5.  List of Shareowners.  The Secretary shall, from information obtained from the transfer agent, prepare and make, at least ten days before every meeting of shareowners, a complete list of the shareowners entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareowner and the number of shares registered in the name of each shareowner.  Such list shall be open to the examination of any shareowner, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting:  (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the Corporation.  In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to shareowners of the Corporation.  If the meeting is to be held at a specified place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareowner who is present.  If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any shareowner during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting.  The stock ledger shall be the only evidence as to who are the shareowners entitled to examine the stock ledger, the list referred to in this section or the books of the Corporation, or to vote in person or by proxy at any meeting of shareowners.

SECTION 6.  Quorum.  At each meeting of the shareowners, the holders of a majority of the issued and outstanding stock of the Corporation present either in person or by proxy shall constitute a quorum for the transaction of business except where otherwise provided by law or by the Certificate of Incorporation or by these By-Laws for a specified action.  Except as otherwise provided by law, in the absence of a quorum, a majority in interest of the shareowners of the Corporation present in person or by proxy and entitled to vote shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until shareowners holding the requisite amount of stock shall be present or represented.  At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at a meeting as originally called, and only those shareowners entitled to vote at the meeting as originally called shall be entitled to vote at any adjournment or adjournments thereof.  The absence from any meeting of the number of shareowners required by law or by the Certificate of Incorporation or by these By-Laws for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if the number of shareowners required in respect of such other matter or matters shall be present.

SECTION 7.  Organization.  At every meeting of the shareowners the Chairman of the Board, or in the absence of the Chairman of the Board, a director or an officer of the Corporation designated by the Board, shall act as Chairman of the meeting.  The Secretary, or, in the Secretary’s absence, an Assistant Secretary, shall act as Secretary at all meetings of the shareowners.  In the absence from any such meeting of the Secretary and the Assistant Secretaries, the Chairman may appoint any person to act as Secretary of the meeting.  The Chairman presiding at meetings of the shareowners shall enforce the observance of the rules of order for the meetings of the shareowners.

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SECTION 8.  Notice of Shareowner Business and Nominations.

(A)  Annual Meetings of Shareowners.  (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareowners may be made at an annual meeting of shareowners (a) pursuant to the Corporation’s notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any shareowner of the Corporation who was a shareowner of record at the time of giving of notice provided for in this by-law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this by-law.

(2)  For nominations or other business to be properly brought before an annual meeting by a shareowner pursuant to clause (c) of paragraph (A)(1) of this by-law, the shareowner must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareowner action.  To be timely, a shareowner’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the case of the annual meeting to be held in 2002 or in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareowner to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation.  In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareowner’s notice as described above.  Such shareowner’s notice shall set forth (a) as to each person whom the shareowner proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a–11 thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareowner proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareowner and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareowner giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareowner, as they appear on the Corporation’s books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareowner and such beneficial owner.

Notwithstanding anything in the second sentence of paragraph (A)(2) of this by-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual

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meeting, a shareowner’s notice required by this by-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.

(B)  Special Meetings of Shareowners.  Only such business shall be conducted at a special meeting of shareowners as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareowners at which directors are to be elected pursuant to the Corporation’s notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareowner of the Corporation who is a shareowner of record at the time of giving of notice provided for in this by-law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this by-law.  In the event the Corporation calls a special meeting of shareowners for the purpose of electing one or more directors to the Board of Directors, any shareowner who shall be entitled to vote at the meeting may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the shareowner’s notice required by paragraph (A)(2) of this by-law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareowner’s notice as described above.

(C)  General.

(1)  Only such persons who are nominated in accordance with the procedures set forth in this by-law shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareowners as shall have been brought before the meeting in accordance with the procedures set forth in this by-law.  Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this by-law and, if any proposed nomination or business is not in compliance with this by-law, to declare that such defective proposal or nomination shall be disregarded.

(2)  For purposes of this by-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(3)  Notwithstanding the foregoing provisions of this by-law, a shareowner shall also comply with all applicable requirements of the Exchange Act and the rules and regulations

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thereunder with respect to the matters set forth in this by-law.  Nothing in this by-law shall be deemed to affect any rights (i) of shareowners to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a–8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances.

SECTION 9.  Business and Order of Business.  At each meeting of the shareowners such business may be transacted as may properly be brought before such meeting, except as otherwise provided by law or in these By-Laws.  The order of business at all meetings of the shareowners shall be as determined by the Chairman of the meeting, unless otherwise determined by a majority in interest of the shareowners present in person or by proxy at such meeting and entitled to vote thereat.

SECTION 10.  Voting.  Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, each shareowner shall at every meeting of the shareowners be entitled to one vote for each share of stock held by such shareowner.  Any vote on stock may be given by the shareowner entitled thereto in person or by proxy appointed by an instrument in writing, subscribed (or transmitted by electronic means and authenticated as provided by law) by such shareowner or by the shareowner’s attorney thereunto authorized, and delivered to the Secretary; provided, however, that no proxy shall be voted after three years from its date unless the proxy provides for a longer period.  Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, at all meetings of the shareowners, all matters shall be decided by the vote (which need not be by ballot) of a majority in interest of the shareowners present in person or by proxy and entitled to vote thereat, a quorum being present.

SECTION 11.  Participation at Meetings Held by Remote Communication.  If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, shareowners and proxy holders not physically present at a meeting of shareowners may, by means of remote communication:  (A) participate in a meeting of shareowners; and (B) be deemed present in person and vote at a meeting of shareowners whether such meeting is to be held at a designated place or solely by means of remote communication.

ARTICLE III.

Board of Directors

SECTION 1.  General Powers.  The property, affairs and business of the Corporation shall be managed by or under the direction of its Board of Directors.

SECTION 2.  Number, Qualifications, and Term of Office.  Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board.  A director need not be a shareowner.

The directors, other than those who may be elected by the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock

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Designation (as defined in the Certificate of Incorporation), shall be divided into three classes, as nearly equal in number as possible.  One class of directors shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2002, another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2003, and another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2004.  Members of each class shall hold office until their successors are elected and shall have qualified.  At each annual meeting of the shareowners of the Corporation, commencing with the 2002 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast for the election of directors at such meeting to hold office for a term expiring at the annual meeting of shareowners held in the third year following the year of their election.

SECTION 3.  Election of Directors.  At each meeting of the shareowners for the election of directors, at which a quorum is present, the directors shall be elected by a plurality vote of all votes cast for the election of directors at such meeting.

SECTION 4.  Quorum and Manner of Acting.  A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business at any meeting, and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors unless otherwise provided by law, the Certificate of Incorporation or these By-Laws.  In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum shall be obtained.  Notice of any adjourned meeting need not be given.  The directors shall act only as a board and the individual directors shall have no power as such.

SECTION 5.  Place of Meetings.  The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof.

SECTION 6.  First Meeting.  Promptly after each annual election of directors, the Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, at the same place as that at which the annual meeting of shareowners was held or as otherwise determined by the Board.  Notice of such meeting need not be given.  Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.

SECTION 7.  Regular Meetings.  Regular meetings of the Board of Directors shall be held at such places and at such times as the Board shall from time to time determine.  If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday.  Notice of regular meetings need not be given.

SECTION 8.  Special Meetings; Notice.  Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board and shall be called by the Chairman of the Board or the Secretary of the Corporation at the written request of three

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directors.  Notice of each such meeting stating the time and place of the meeting shall be given to each director by mail, telephone, other electronic transmission or personally.  If by mail, such notice shall be given not less than five days before the meeting; and if by telephone, other electronic transmission or personally, not less than two days before the meeting.  A notice mailed at least two weeks before the meeting need not state the purpose thereof except as otherwise provided in these By-Laws.  In all other cases the notice shall state the principal purpose or purposes of the meeting.  Notice of any meeting of the Board need not be given to a director, however, if waived by the director in writing before or after such meeting or if the director shall be present at the meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 9.  Organization.  At each meeting of the Board of Directors, the Chairman of the Board, or, in the absence of the Chairman of the Board, the Chairman of the Executive Committee, or, in his or her absence, a director or an officer of the Corporation designated by the Board shall act as Chairman of the meeting.  The Secretary, or, in the Secretary’s absence, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting.

SECTION 10.  Order of Business.  At all meetings of the Board of Directors, business shall be transacted in the order determined by the Board.

SECTION 11.  Resignations.  Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board or the Secretary of the Corporation.  The resignation of any director shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 12.  Compensation.  Each director shall be paid such compensation, if any, as shall be fixed by the Board of Directors.

SECTION 13.  Indemnification.

(A)  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.  The

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termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

(B)  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries, or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper.

(C)  To the extent that a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (A) and (B), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by or on behalf of such person in connection therewith.  If any such person is not wholly successful in any such action, suit or proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters therein, the Corporation shall indemnify such person against all expenses (including attorneys’ fees) actually and reasonably incurred by or on behalf of such person in connection with each claim, issue or matter that is successfully resolved.  For purposes of this subsection and without limitation, the termination of any claim, issue or matter by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

(D)  Notwithstanding any other provision of this section, to the extent any person is a witness in, but not a party to, any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries, or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise,

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such person shall be indemnified against all expenses (including attorneys’ fees) actually and reasonably incurred by or on behalf of such person in connection therewith.

(E)  Indemnification under subsections (A) and (B) shall be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in subsections (A) and (B). Such determination shall be made (1) if a Change of Control (as hereinafter defined) shall not have occurred, (a) with respect to a person who is a present or former director or officer of the Corporation, (i) by the Board of Directors by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum, or (ii) if there are no Disinterested Directors or, even if there are Disinterested Directors, a majority of such Disinterested Directors so directs, by (x) Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (y) the shareowners of the Corporation; or (b) with respect to a person who is not a present or former director or officer of the Corporation, by the chief executive officer of the Corporation or by such other officer of the Corporation as shall be designated from time to time by the Board of Directors; or (2) if a Change of Control shall have occurred, by Independent Counsel selected by the claimant in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, unless the claimant shall request that such determination be made by or at the direction of the Board of Directors (in the case of a claimant who is a present or former director or officer of the Corporation) or by an officer of the Corporation authorized to make such determination (in the case of a claimant who is not a present or former director or officer of the Corporation), in which case it shall be made in accordance with clause (1) of this sentence.  Any claimant shall be entitled to be indemnified against the expenses (including attorneys’ fees) actually and reasonably incurred by such claimant in cooperating with the person or entity making the determination of entitlement to indemnification (irrespective of the determination as to the claimant’s entitlement to indemnification) and, to the extent successful, in connection with any litigation or arbitration with respect to such claim or the enforcement thereof.

(F)  If a Change of Control shall not have occurred, or if a Change of Control shall have occurred and a director, officer, employee or agent requests pursuant to clause (2) of the second sentence in subsection (E) that the determination as to whether the claimant is entitled to indemnification be made by or at the direction of the Board of Directors (in the case of a claimant who is a present or former director or officer of the Corporation) or by an officer of the Corporation authorized to make such determination (in the case of a claimant who is not a present or former director or officer of the Corporation), the claimant shall be conclusively presumed to have been determined pursuant to subsection (E) to be entitled to indemnification if (1) in the case of a claimant who is a present or former director or officer of the Corporation, (a)(i) within fifteen days after the next regularly scheduled meeting of the Board of Directors following receipt by the Corporation of the request therefor, the Board of Directors shall not have resolved by majority vote of the Disinterested Directors to submit such determination to (x) Independent Counsel for its determination or (y) the shareowners for their determination at the next annual meeting, or any special meeting that may be held earlier, after such receipt, and (ii) within sixty days after receipt by the Corporation of the request therefor (or within ninety days after such receipt if the Board of Directors in good faith determines that additional time is

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required by it for the determination and, prior to expiration of such sixty-day period, notifies the claimant thereof), the Board of Directors shall not have made the determination by a majority vote of the Disinterested Directors, or (b) after a resolution of the Board of Directors, timely made pursuant to clause (a)(i)(y) above, to submit the determination to the shareowners, the shareowners meeting at which the determination is to be made shall not have been held on or before the date prescribed (or on or before a later date, not to exceed sixty days beyond the original date, to which such meeting may have been postponed or adjourned on good cause by the Board of Directors acting in good faith), or (2) in the case of a claimant who is not a present or former director or officer of the Corporation, within sixty days after receipt by the Corporation of the request therefor (or within ninety days after such receipt if an officer of the Corporation authorized to make such determination in good faith determines that additional time is required for the determination and, prior to expiration of such sixty-day period, notifies the claimant thereof), an officer of the Corporation authorized to make such determination shall not have made the determination; provided, however, that this sentence shall not apply if the claimant has misstated or failed to state a material fact in connection with his or her request for indemnification.  Such presumed determination that a claimant is entitled to indemnification shall be deemed to have been made (I) at the end of the sixty-day or ninety-day period (as the case may be) referred to in clause (1)(a)(ii) or (2) of the immediately preceding sentence or (II) if the Board of Directors has resolved on a timely basis to submit the determination to the shareowners, on the last date within the period prescribed by law for holding such shareowners meeting (or a postponement or adjournment thereof as permitted above).

(G)  Expenses (including attorneys’ fees) incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding to a present or former director or officer of the Corporation, promptly after receipt of a request therefor stating in reasonable detail the expenses incurred, and to a person who is not a present or former director or officer of the Corporation as authorized by the chief executive officer of the Corporation or such other officer of the Corporation as shall be designated from time to time by the Board of Directors; provided that in each case the Corporation shall have received an undertaking by or on behalf of the present or former director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this section.

(H)  The Board of Directors shall establish reasonable procedures for the submission of claims for indemnification pursuant to this section, determination of the entitlement of any person thereto and review of any such determination.  Such procedures shall be set forth in an appendix to these By-Laws and shall be deemed for all purposes to be a part hereof.

(I)  For purposes of this section,

(1)  “Change of Control” means any of the following occurring at any time after the distribution of the shares of capital stock of the Corporation to the holders of capital stock of Rockwell International Corporation (the “Distribution”):

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(a)  The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the “Outstanding Corporation Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that for purposes of this subparagraph (a), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Corporation, (x) any acquisition by the Corporation, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation, Rockwell International Corporation or any corporation controlled by the Corporation or Rockwell International Corporation or (z) any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Paragraph 13(I)(1); or

(b)  Individuals who, as of the date of the Distribution, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Corporation’s shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or

(c)  Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or the acquisition of assets of another entity (a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Corporation, of Rockwell International Corporation or of such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such

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Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Corporate Transaction; or

(d)  Approval by the Corporation’s shareowners of a complete liquidation or dissolution of the Corporation.

(2)  “Disinterested Director” means a director of the Corporation who is not and was not a party to an action, suit or proceeding in respect of which indemnification is sought by a director, officer, employee or agent.

(3)  “Independent Counsel” means a law firm, or a member of a law firm, that (i) is experienced in matters of corporation law; (ii) neither presently is, nor in the past five years has been, retained to represent the Corporation, the director, officer, employee or agent claiming indemnification or any other party to the action, suit or proceeding giving rise to a claim for indemnification under this section, in any matter material to the Corporation, the claimant or any such other party; and (iii) would not, under applicable standards of professional conduct then prevailing, have a conflict of interest in representing either the Corporation or such director, officer, employee or agent in an action to determine the Corporation’s or such person’s rights under this section.

(J)  The indemnification and advancement of expenses herein provided, or granted pursuant hereto, shall not be deemed exclusive of any other rights to which any of those indemnified or eligible for advancement of expenses may be entitled under any agreement, vote of shareowners or Disinterested Directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.  Notwithstanding any amendment, alteration or repeal of this section or any of its provisions, or of any of the procedures established by the Board of Directors pursuant to subsection (H) hereof, any person who is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of any partnership, joint venture, employee benefit plan or other enterprise shall be entitled to indemnification in accordance with the provisions hereof and thereof with respect to any action taken or omitted prior to such amendment, alteration or repeal except to the extent otherwise required by law.

(K)  No indemnification shall be payable pursuant to this section with respect to any action against the Corporation commenced by an officer, director, employee or agent unless the Board of Directors shall have authorized the commencement thereof or unless and to the extent that this section or the procedures established pursuant to subsection (H) shall specifically provide for indemnification of expenses relating to the enforcement of rights under this section and such procedures.

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ARTICLE IV.
Committees

SECTION 1.  Appointment and Powers.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more directors of the Corporation (or in the case of a special-purpose committee, one or more directors of the Corporation), which, to the extent provided in said resolution or in these By-Laws and not inconsistent with Section 141 of the Delaware General Corporation Law, as amended, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it.  Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.

SECTION 2.  Term of Office and Vacancies.  Each member of a committee shall continue in office until a director to succeed him or her shall have been elected and shall have qualified, or until he or she ceases to be a director or until he or she shall have resigned or shall have been removed in the manner hereinafter provided.  Any vacancy in a committee shall be filled by the vote of a majority of the whole Board of Directors at any regular or special meeting thereof.

SECTION 3.  Alternates.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

SECTION 4.  Organization.  Unless otherwise provided by the Board of Directors, each committee shall appoint a chairman.  Each committee shall keep a record of its acts and proceedings and report the same from time to time to the Board of Directors.

SECTION 5.  Resignations.  Any regular or alternate member of a committee may resign at any time by giving written notice to the Chairman of the Board or the Secretary of the Corporation.  Such resignation shall take effect at the time of the receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 6.  Removal.  Any regular or alternate member of a committee may be removed with or without cause at any time by resolution passed by a majority of the whole Board of Directors at any regular or special meeting.

SECTION 7.  Meetings.  Regular meetings of each committee, of which no notice shall be necessary, shall be held on such days and at such places as the chairman of the committee shall determine or as shall be fixed by a resolution passed by a majority of all the members of such committee.  Special meetings of each committee will be called by the Secretary at the request of any two members of such committee, or in such other manner as may be determined by the committee.  Notice of each special meeting of a committee shall be mailed to

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each member thereof at least two days before the meeting or shall be given personally or by telephone or other electronic transmission at least one day before the meeting.  Every such notice shall state the time and place, but need not state the purposes of the meeting.  No notice of any meeting of a committee shall be required to be given to any alternate.

SECTION 8.  Quorum and Manner of Acting.  Unless otherwise provided by resolution of the Board of Directors, a majority of a committee (including alternates when acting in lieu of regular members of such committee) shall constitute a quorum for the transaction of business and the act of a majority of those present at a meeting at which a quorum is present shall be the act of such committee.  The members of each committee shall act only as a committee and the individual members shall have no power as such.

SECTION 9.  Compensation.  Each regular or alternate member of a committee shall be paid such compensation, if any, as shall be fixed by the Board of Directors.

ARTICLE V.
Officers

SECTION 1.  Officers.  The officers of the Corporation shall be a Chief Executive Officer, one or more Vice Presidents (one or more of whom may be Executive Vice Presidents, Senior Vice Presidents or otherwise as may be designated by the Board), a Secretary and a Treasurer, all of whom shall be elected by the Board of Directors.  Any two or more offices may be held by the same person.  The Board of Directors may also from time to time elect such other officers as it deems necessary.

SECTION 2.  Term of Office.  Each officer shall hold office until his or her successor shall have been duly elected and qualified in his or her stead, or until his or her death or until he or she shall have resigned or shall have been removed in the manner hereinafter provided.

SECTION 3.  Additional Officers; Agents.  The Chief Executive Officer may from time to time appoint and remove such additional officers and agents as may be deemed necessary.  Such persons shall hold office for such period, have such authority, and perform such duties as provided in these By-Laws or as the Chief Executive Officer may from time to time prescribe.  The Board of Directors or the Chief Executive Officer may from time to time authorize any officer to appoint and remove agents and employees and to prescribe their powers and duties.

SECTION 4.  Salaries.  Unless otherwise provided by resolution passed by a majority of the whole Board, the salaries of all officers elected by the Board of Directors shall be fixed by the Board of Directors.

SECTION 5.  Removal.  Except where otherwise expressly provided in a contract authorized by the Board of Directors, any officer may be removed, either with or without cause, by the vote of a majority of the Board at any regular or special meeting or, except

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in the case of an officer elected by the Board, by any superior officer upon whom the power of removal may be conferred by the Board or by these By-Laws.

SECTION 6.  Resignations.  Any officer elected by the Board of Directors may resign at any time by giving written notice to the Chief Executive Officer or the Secretary.  Any other officer may resign at any time by giving written notice to the Chief Executive Officer.  Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 7.  Vacancies.  A vacancy in any office because of death, resignation, removal or otherwise, shall be filled for the unexpired portion of the term in the manner provided in these By-Laws for regular election or appointment to such office.

SECTION 8.  Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general and overall charge of the business and affairs of the Corporation and of its officers.  The Chief Executive Officer shall keep the Board of Directors appropriately informed on the business and affairs of the Corporation.  The Chief Executive Officer shall enforce the observance of the By-Laws of the Corporation.

SECTION 9.  Executive and Senior Vice Presidents.  One or more Executive or Senior Vice Presidents shall, subject to the control of the Chief Executive Officer, have lead accountability for components or functions of the Corporation as and to the extent designated by the Chief Executive Officer.  Each Executive or Senior Vice President shall keep the Chief Executive Officer appropriately informed on the business and affairs of the designated components or functions of the Corporation.

SECTION 10.  Vice Presidents.  The Vice Presidents shall perform such duties as may from time to time be assigned to them or any of them by the Chief Executive Officer.

SECTION 11.  Secretary.  The Secretary shall keep or cause to be kept in books provided for the purpose the minutes of the meetings of the shareowners, of the Board of Directors and of any committee constituted pursuant to Article IV of these By-Laws.  The Secretary shall be custodian of the corporate seal and see that it is affixed to all documents as required and attest the same.  The Secretary shall perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her.

SECTION 12.  Assistant Secretaries.  At the request of the Secretary, or in the Secretary’s absence or disability, the Assistant Secretary designated by the Secretary shall perform all the duties of the Secretary and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary.  The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them.

SECTION 13.  Treasurer.  The Treasurer shall have charge of and be responsible for the receipt, disbursement and safekeeping of all funds and securities of the Corporation.  The Treasurer shall deposit all such funds in the name of the Corporation in such

15

banks, trust companies or other depositories as shall be selected in accordance with the provisions of these By-Laws.  From time to time and whenever requested to do so, the Treasurer shall render statements of the condition of the finances of the Corporation to the Board of Directors.  The Treasurer shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her.

SECTION 14.  Assistant Treasurers.  At the request of the Treasurer, or in the Treasurer’s absence or disability, the Assistant Treasurer designated by the Treasurer shall perform all the duties of the Treasurer and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer.  The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them.

SECTION 15.  Certain Agreements.  The Board of Directors shall have power to authorize or direct the proper officers of the Corporation, on behalf of the Corporation, to enter into valid and binding agreements in respect of employment, incentive or deferred compensation, stock options, and similar or related matters, notwithstanding the fact that a person with whom the Corporation so contracts may be a member of its Board of Directors.  Any such agreement may validly and lawfully bind the Corporation for a term of more than one year, in accordance with its terms, notwithstanding the fact that one of the elements of any such agreement may involve the employment by the Corporation of an officer, as such, for such term.

ARTICLE VI.
Authorizations

SECTION 1.  Contracts.  The Board of Directors, except as in these By-Laws otherwise provided, may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

SECTION 2.  Loans.  No loan shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name, unless authorized by the Board of Directors.

SECTION 3.  Checks, Drafts, Etc.  All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, employee or employees, of the Corporation as shall from time to time be determined in accordance with authorization of the Board of Directors.

SECTION 4.  Deposits.  All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may from time to time designate, or as may be designated by any officer or officers of the Corporation to whom such power may be delegated by the Board, and for the purpose of such deposit the officers and employees who have been authorized to do so in accordance with the determinations of the Board may endorse, assign and deliver checks, drafts, and other orders for the payment of money which are payable to the order of the Corporation.

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SECTION 5.  Proxies.  Except as otherwise provided in these By-Laws or in the Certificate of Incorporation, and unless otherwise provided by resolution of the Board of Directors, the Chief Executive Officer or any other officer may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareowner or otherwise in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporations, or to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such vote or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as such officer may deem necessary or proper in the premises.

ARTICLE VII.
Shares and Their Transfer

SECTION 1.  Shares of Stock.  Certificates for shares of the stock of the Corporation shall be in such form as shall be approved by the Board of Directors.  They shall be numbered in the order of their issue, by class and series, and shall be signed by the Chief Executive Officer or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation.  If a share certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile.  In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a share certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.The Board of Directors may by resolution or resolutions provide that some or all of any or all classes or series of the shares of stock of the Corporation shall be uncertificated shares.  Notwithstanding the preceding sentence, every holder of uncertificated shares, upon request, shall be entitled to receive from the Corporation a certificate representing the number of shares registered in such shareowner’s name on the books of the Corporation.

SECTION 2.  Record Ownership.  A record of the name and address of each holder of the shares of the Corporation, the number of shares held by such shareowner, the number or numbers of any share certificate or certificates issued to such shareowner and the number of shares represented thereby, and the date of issuance of the shares held by such shareowner shall be made on the Corporation’s books.  The Corporation shall be entitled to treat the holder of record of any share of stock (including any holder registered in a book–entry or direct registration system maintained by the Corporation or a transfer agent or a registrar designated by the Board of Directors) as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by law.

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SECTION 3.  Transfer of Stock.  Shares of stock shall be transferable on the books of the Corporation by the holder of record of such stock in person or by such person’s attorney or other duly constituted representative, pursuant to applicable law and such rules and regulations as the Board of Directors shall from time to time prescribe.  Any shares represented by a certificate shall be transferable upon surrender of such certificate with an assignment endorsed thereon or attached thereto duly executed and with such guarantee of signature as the Corporation may reasonably require.

SECTION 4.  Lost, Stolen and Destroyed Certificates.  The Corporation may issue a new certificate of stock or may register uncertificated shares, if then authorized by the Board of Directors, in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such person’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate, the issuance of such new certificate or the registration of such uncertificated shares.

SECTION 5.  Transfer Agent and Registrar; Regulations.  The Corporation shall, if and whenever the Board of Directors shall so determine, maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors, where the shares of the stock of the Corporation shall be directly transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered, and no certificate for shares of the stock of the Corporation, in respect of which a registrar and transfer agent shall have been designated, shall be valid unless countersigned by such transfer agent and registered by such registrar. The Board of Directors may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of shares of stock of the Corporation and concerning the registration of pledges of uncertificated shares.

SECTION 6.  Fixing Record Date.  For the purpose of determining the shareowners entitled to notice of or to vote at any meeting of shareowners or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.  If no record date is fixed (1) the record date for determining shareowners entitled to notice of or to vote at a meeting of shareowners shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and (2) the record date for determining shareowners for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.  A determination of shareowners of record entitled to notice of or to vote at a meeting of shareowners shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

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SECTION 7.  Examination of Books by Shareowners.  The Board of Directors shall, subject to the laws of the State of Delaware, have power to determine from time to time, whether and to what extent and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the shareowners; and no shareowner shall have any right to inspect any book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the shareowners of the Corporation.

ARTICLE VIII.
Notice

SECTION 1.  Manner of Giving Written Notice.

(A)  Any notice in writing required by law or by these By-Laws to be given to any person shall be effective if delivered personally, given by depositing the same in the post office or letter box in a postpaid envelope addressed to such person at such address as appears on the books of the Corporation or given by a form of electronic transmission consented to by such person to whom the notice is to be given.  Any such consent shall be deemed revoked if (i) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

(B)  Notice by mail shall be deemed to be given at the time when the same shall be mailed and notice by other means shall be deemed given when actually delivered (and in the case of notice transmitted by a form of electronic transmission, such notice shall be deemed given (i) if by facsimile telecommunication, when directed to a number at which the shareowner has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the shareowner has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the shareowner of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the shareowner).

SECTION 2.  Waiver of Notice.  Whenever any notice is required to be given to any person, a waiver thereof by such person in writing or transmitted by electronic means (and authenticated if and as required by law), whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE IX.
Seal

The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal” and “Delaware”.

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ARTICLE X.
Fiscal Year

The fiscal year of the Corporation shall end on September 30 in each year.

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APPENDIX

Procedures for Submission and

Determination of Claims for Indemnification

Pursuant to Article III, Section 13 of the By-Laws.

SECTION 1.  Purpose.  The Procedures for Submission and Determination of Claims for Indemnification Pursuant to Article III, Section 13 of the By-Laws (the “Procedures”) are to implement the provisions of Article III, Section 13 of the By-Laws of the Corporation (the “By-Laws”) in compliance with the requirement of subsection (H) thereof.

SECTION 2.  Definitions.  For purposes of these Procedures:

(A)  All terms that are defined in Article III, Section 13 of the By-Laws shall have the meanings ascribed to them therein when used in these Procedures unless otherwise defined herein.

(B)  “Expenses” include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in, a Proceeding; and shall also include such retainers as counsel may reasonably require in advance of undertaking the representation of an Indemnitee in a Proceeding.

(C)  “Indemnitee” includes any person who was or is, or is threatened to be made, a witness in or a party to any Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under Article III, Section 13 of the By-Laws) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise.

(D)  “Proceeding” includes any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee unless the Board of Directors shall have authorized the commencement thereof.

SECTION 3.  Submission and Determination of Claims.

(A)  To obtain indemnification or advancement of Expenses under Article III, Section 13 of the By-Laws, an Indemnitee shall submit to the Secretary of the Corporation a written request therefor, including therein or therewith such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to permit a determination as to whether and what extent the Indemnitee is entitled to indemnification or advancement of Expenses, as the case may be.  The Secretary shall, promptly upon receipt of a request for indemnification, advise the Board of Directors (if the Indemnitee is a present or former director

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or officer of the Corporation) or the officer of the Corporation authorized to make the determination as to whether an Indemnitee is entitled to indemnification (if the Indemnitee is not a present or former director or officer of the Corporation) thereof in writing if a determination in accordance with Article III, Section 13(E) of the By-Laws is required.

(B)  Upon written request by an Indemnitee for indemnification pursuant to Section 3(A) hereof, a determination with respect to the Indemnitee’s entitlement thereto in the specific case, if required by the By-Laws, shall be made in accordance with Article III, Section 13(E) of the By-Laws, and, if it is so determined that the Indemnitee is entitled to indemnification, payment to the Indemnitee shall be made within ten days after such determination.  The Indemnitee shall cooperate with the person, persons or entity making such determination, with respect to the Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination.

(C)  If entitlement to indemnification is to be made by Independent Counsel pursuant to Article III, Section 13(E) of the By-Laws, the Independent Counsel shall be selected as provided in this Section 3(C).  If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Corporation shall give written notice to the Indemnitee advising the Indemnitee of the identity of the Independent Counsel so selected.  If a Change of Control shall have occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board of Directors, in which event the immediately preceding sentence shall apply), and the Indemnitee shall give written notice to the Corporation advising it of the identity of the Independent Counsel so selected.  In either event, the Indemnitee or the Corporation, as the case may be, may, within seven days after such written notice of selection shall have been given, deliver to the Corporation or to the Indemnitee, as the case may be, a written objection to such selection.  Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Article III, Section 13 of the By-Laws, and the objection shall set forth with particularity the factual basis of such assertion.  If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit.  If, within twenty days after the next regularly scheduled Board of Directors meeting following submission by the Indemnitee of a written request for  indemnification pursuant to Section 3(A) hereof, no Independent Counsel shall have been selected and not objected to, either the Corporation or the Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or the Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Independent Counsel under Article III, Section 13(E) of the By-Laws.  The Corporation shall pay any and all reasonable fees and expenses (including without limitation any advance retainers reasonably required by counsel) of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Article III, Section 13(E) of the By-Laws, and the Corporation shall pay all reasonable fees and expenses (including

22

without limitation any advance retainers reasonably required by counsel) incident to the procedures of Article III, Section 13(E) of the By-Laws and this Section 3(C), regardless of the manner in which Independent Counsel was selected or appointed.  Upon the delivery of its opinion pursuant to Article III, Section 13 of the By-Laws or, if earlier, the due commencement of any judicial proceeding or arbitration pursuant to Section 4(A)(3) of these Procedures, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(D)  If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification under the By-Laws, the person, persons or entity making such determination shall presume that an Indemnitee is entitled to indemnification under the By-Laws if the Indemnitee has submitted a request for indemnification in accordance with Section 3(A) hereof, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.

SECTION 4.  Review and Enforcement of Determination.

(A)  In the event that (1) advancement of Expenses is not timely made pursuant to Article III, Section 13(G) of the By-Laws, (2) payment of indemnification is not made pursuant to Article III, Section 13(C) or (D) of the By-Laws within ten days after receipt by the Corporation of written request therefor, (3) a determination is made pursuant to Article III, Section 13(E) of the By-Laws that an Indemnitee is not entitled to indemnification under the By-Laws, (4) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Article III, Section 13(E) of the By-Laws and such determination shall not have been made and delivered in a written opinion within ninety days after receipt by the Corporation of the written request for indemnification, or (5) payment of indemnification is not made within ten days after a determination has been made pursuant to Article III, Section 13(E) of the By-Laws that an Indemnitee is entitled to indemnification or within ten days after such determination is deemed to have been made pursuant to Article III, Section 13(F) of the By-Laws, the Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of the Indemnitee’s entitlement to such indemnification or advancement of Expenses.  Alternatively, the Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association.  The Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within one year following the date on which the Indemnitee first has the right to commence such proceeding pursuant to this Section 4(A).  The Corporation shall not oppose the Indemnitee’s right to seek any such adjudication or award in arbitration.

(B)  In the event that a determination shall have been made pursuant to Article III, Section 13(E) of the By-Laws that an Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 4 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the Indemnitee shall not be prejudiced by reason of that adverse determination.  If a Change of Control shall have occurred, the Corporation shall have the burden of proving in any judicial proceeding or arbitration

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commenced pursuant to this Section 4 that the Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

(C)  If a determination shall have been made or deemed to have been made pursuant to Article III, Section 13(E) or (F) of the By-Laws that an Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 4, absent (1) a misstatement or omission of a material fact in connection with the Indemnitee’s request for indemnification, or (2) a prohibition of such indemnification under applicable law.

(D)  The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4 that the procedures and presumptions of these Procedures are not valid, binding and enforceable, and shall stipulate in any such judicial proceeding or arbitration that the Corporation is bound by all the provisions of these Procedures.

(E)  In the event that an Indemnitee, pursuant to this Section 4, seeks to enforce the Indemnitee’s rights under, or to recover damages for breach of, Article III, Section 13 of the By-Laws or these Procedures in a judicial proceeding or arbitration, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses (of the types described in the definition of Expenses in Section 2 of these Procedures) actually and reasonably incurred in such judicial proceeding or arbitration, but only if the Indemnitee prevails therein.  If it shall be determined in such judicial proceeding or arbitration that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by the Indemnitee in connection with such judicial proceeding or arbitration shall be appropriately prorated.

SECTION 5.  Amendments.  These Procedures may be amended at any time and from time to time in the same manner as any by-law of the Corporation in accordance with the Certificate of Incorporation; provided, however, that notwithstanding any amendment, alteration or repeal of these Procedures or any provision hereof, any Indemnitee shall be entitled to utilize these Procedures with respect to any claim for indemnification arising out of any action taken or omitted prior to such amendment, alteration or repeal except to the extent otherwise required by law.

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EX-10.-O-2

EXHIBIT 10-o-2

Amended schedule of Executives of the Company who are a party to a Change of Control Agreement:

1.C. M. Jones

2.B. M. Abzug

3.G. R. Chadick

4.R. M. Chiusano

5.G. S. Churchill

6.L.A. Erickson

7.J. J. Gaspar

8.H. M. Reininga

9.W. J. Richter

EX-10.-P-1

Exhibit 10-p-1

$500,000,000

364-DAY

CREDIT AGREEMENT

dated as of May 29, 2002

among

Rockwell Collins, Inc.,

The Banks Listed Herein,

JPMorgan Chase Bank,

as Agent

Bank of America, N.A.,

as Syndication Agent

and

UBS AG, Stamford Branch,

Bank One, NA (Main Office Chicago),

Wachovia Bank, National Association,

as Co-Documentation Agents

J.P. Morgan Securities Inc.,

Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

Article 1

Definitions

Article 2

The Credits

Article 3

Conditions

Article 4

Representations and Warranties

i

Article 5

Covenants

Article 6

Defaults

Article 7

The Agent

Article 8

Change in Circumstances

Article 9

Miscellaneous

ii

Pricing Schedule

Exhibit A –   Note

Exhibit B –   Competitive Bid Quote Request

Exhibit C –   Invitation for Competitive Bid Quotes

Exhibit D –   Competitive Bid Quote

Exhibit E –   Opinion of General Counsel of the Company

Exhibit F –   Opinion of Special Counsel for the Agent

Exhibit G –   Assignment and Assumption Agreement

Exhibit H –   Designation Agreement

iii

364-DAY
CREDIT AGREEMENT

AGREEMENT dated as of May 29, 2002 among ROCKWELL COLLINS, INC., the BANKS listed on the signature pages hereof and JPMORGAN CHASE BANK, as Agent.

The parties hereto agree as follows:

ARTICLE 1
Definitions

Section 1.01.  Definitions.  The following terms, as used herein, have the following meanings:

“Absolute Rate Auction” means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Absolute Rates pursuant to Section 2.03.

“Additional Bank” means any financial institution that becomes a Bank for purposes hereof in connection with an increase in the aggregate amount of the Commitments pursuant to Section 2.17.

“Administrative Questionnaire” means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Company) duly completed by such Bank.

“Agent” means JPMorgan Chase Bank in its capacity as agent for the Banks hereunder, and its successors in such capacity.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro–Dollar Loans, its Euro–Dollar Lending Office and (iii) in the case of its Competitive Bid Loans, its Competitive Bid Lending Office.

“Approved Fund” means any Fund that is administered or managed by (i) a Bank, (ii) an affiliate of a Bank or (iii) an entity or an affiliate of an entity that administers or manages a Bank.

“Assignee” has the meaning set forth in Section 9.06(c).

“Bank” means each bank or other institution listed on the signature pages hereof, each Additional Bank, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors.

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“Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 2 of 1% plus the Federal Funds Rate for such day.

“Base Rate Loan” means a Committed Loan that bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election, Section 2.18(c)(ii) or Article 8.

“Borrowing” has the meaning set forth in Section 1.03.

“Commission” means the Securities and Exchange Commission, or any successor to its duties under the Securities Exchange Act of 1934.

“Commitment” means (i) with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, (ii) with respect to each Additional Bank which becomes a Bank pursuant to Section 2.17, the amount of the Commitment thereby assumed by it or (iii) with respect to any Assignee, the amount of the transferor Bank’s Commitment assigned to such Assignee pursuant to Section 9.06(c), in each case as such amount may be reduced from time to time pursuant to Section 2.10, increased from time to time pursuant to Section 2.17 or changed as a result of an assignment pursuant to Section 9.06(c).

“Committed Loan” means a Revolving Credit Loan or a Term Loan; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Committed Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Company” means Rockwell Collins, Inc., a Delaware corporation and its successors.

“Competitive Bid Absolute Rate” has the meaning set forth in Section 2.03(d).

“Competitive Bid Absolute Rate Loan” means a loan made or to be made by a Bank pursuant to an Absolute Rate Auction.

“Competitive Bid Lending Office” means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Competitive Bid Lending Office by notice to the Company and the Agent; provided that any Bank may from time to time by notice to the Company and the Agent designate separate Competitive Bid Lending Offices for its Competitive Bid LIBOR Loans, on the one hand, and its Competitive Bid Absolute Rate Loans, on the other hand, in which case all references herein to the Competitive Bid Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require.

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“Competitive Bid LIBOR Loan” means a loan made or to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)).

“Competitive Bid Loan” means a Competitive Bid LIBOR Loan or a Competitive Bid Absolute Rate Loan.

“Competitive Bid Margin” has the meaning set forth in Section 2.03(d).

“Competitive Bid Quote” means an offer by a Bank to make a Competitive Bid Loan in accordance with Section 2.03.

“Consolidated Debt” means, at any date, the Debt of the Company and its Restricted Subsidiaries, as consolidated and determined as of such date in accordance with GAAP.

“Consolidated Funded Debt” means, at any date, the Funded Debt of the Company and its Restricted Subsidiaries, as consolidated and determined as of such date in accordance with GAAP.

“Consolidated Subsidiary” means, as to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date.

“Debt” of any Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with GAAP, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Guarantees by such Person of Debt of another Person (each such Guarantee to constitute Debt in an amount equal to the amount of such other Person’s Debt Guaranteed thereby).

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Designated Bank” means, with respect to any Designating Bank, an Eligible Designee designated by it pursuant to Section 9.07(a) as a Designated Bank for purposes of this Agreement.

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“Designating Bank” means, with respect to each Designated Bank, the Bank that designated such Designated Bank pursuant to Section 9.07(a).

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.

“Domestic Lending Office” means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Company and the Agent.

“Effective Date” means the date this Agreement becomes effective in accordance with Section 3.01.

“Eligible Designee” means a special purpose corporation that (i) is organized under the laws of the United States or any state thereof, (ii) is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and (iii) issues (or the parent of which issues) commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment or the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment, including (without limitation) ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean–up or other remediation thereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

“Euro–Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.

“Euro–Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro–Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro–Dollar Lending Office by notice to the Company and the Agent.

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“Euro–Dollar Loan” means a Committed Loan that bears interest at a Euro–Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election.

“Euro–Dollar Margin” has the meaning set forth in Section 2.07(b).

“Euro-Dollar Rate” means a rate of interest determined pursuant to Section 2.07(b) on the basis of the London Interbank Offered Rate.

“Euro–Dollar Reference Banks” means the principal London offices of JPMorgan Chase Bank, Bank of America, N.A. and Citibank, N.A., and “Euro–Dollar Reference Bank” means any of the foregoing.

“Euro–Dollar Reserve Percentage” has the meaning set forth in Section 2.16.

“Events of Default” has the meaning set forth in Section 6.01.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to JPMorgan Chase Bank on such day on such transactions as determined by the Agent.

“Final Maturity Date” means the first anniversary of the Termination Date or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Fixed Rate Loans” means Euro–Dollar Loans or Competitive Bid Loans (excluding Competitive Bid LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing.

“Fully Drawn Margin” means at any date, the Euro-Dollar Margin applicable at such date under the Pricing Schedule assuming Usage greater than 50%.

“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

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“Funded Debt” of any Person means, at any date of computation, all indebtedness for borrowed money of such Person which by its terms matures more than 12 months after such date or which is extendible or renewable at the option of such Person to a time more than 12 months after such date; provided, however, that (i) Funded Debt shall include all obligations in respect of lease rentals which under GAAP appear on a balance sheet of such Person as a liability item other than a current liability, (ii) in the case of the Company, Funded Debt shall not include Subordinated Debt and (iii) outstanding preferred stock of a Restricted Subsidiary that is not owned by the Company or a Wholly-Owned Restricted Subsidiary shall be deemed to constitute a principal amount of Funded Debt equal to the par value or involuntary liquidation value, whichever amount is higher, of such preferred stock.

“GAAP” means generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Company’s independent public accountants) with the most recent audited consolidated financial statements of the Company and its Consolidated Subsidiaries delivered to the Banks.

“Group of Loans” means, at any time, a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” used as a verb has a corresponding meaning.

“Hazardous Substances” means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives and by–products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

“Indemnitee” has the meaning set forth in Section 9.03(b).

“Interest Period” means: (1) with respect to each Euro–Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Company may elect in such notice; provided that:

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(a)           any Interest Period which would otherwise end on a day which is not a Euro–Dollar Business Day shall be extended to the next succeeding Euro–Dollar Business Day unless such Euro–Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro–Dollar Business Day; and

(b)           any Interest Period which begins on the last Euro–Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro–Dollar Business Day of a calendar month;

                (2)           with respect to each Competitive Bid LIBOR Borrowing, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter as the Company may elect in accordance with Section 2.03; provided that:

(a)           any Interest Period which would otherwise end on a day which is not a Euro–Dollar Business Day shall be extended to the next succeeding Euro–Dollar Business Day unless such Euro–Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro–Dollar Business Day; and

(b)           any Interest Period which begins on the last Euro–Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro–Dollar Business Day of a calendar month;

                (3)           with respect to each Competitive Bid Absolute Rate Borrowing, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 7 days) as the Company may elect in accordance with Section 2.03; provided that any Interest Period which would otherwise end on a day which is not a Euro–Dollar Business Day shall be extended to the next succeeding Euro–Dollar Business Day;

provided further that:

(x)            no Interest Period applicable to any Revolving Credit Loan or Competitive Bid Loan may end after the Termination Date; and

(y)           no Interest Period applicable to any Term Loan may end after the Final Maturity Date.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

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“Issuing Bank” means JPMorgan Chase Bank or any other Bank designated by the Company, in its capacity as an issuer of any Letters of Credit hereunder, that may agree to issue letters of credit hereunder pursuant to an instrument in form reasonably satisfactory to the Agent.

“Letter of Credit” means a letter of credit to be issued hereunder by an Issuing Bank.

“Letter of Credit Liabilities” means, for any Bank and at any time, such Bank’s ratable participation in the sum of (x) the aggregate amount then owing by the Company in respect of amounts paid by the Issuing Bank upon a drawing under a Letter of Credit issued hereunder and (y) the aggregate amount then available for drawing under all outstanding Letters of Credit.

“LIBOR Auction” means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Margins based on the London Interbank Offered Rate pursuant to Section 2.03.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has substantially the same practical effect as a security interest, in respect of such asset.  For purposes hereof, the Company or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” means a Committed Loan or a Competitive Bid Loan and “Loans” means Committed Loans or Competitive Bid Loans or any combination of the foregoing.

“London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

“Material Debt” means a Single Issue (other than the Notes) of the Company and/or one or more of its Subsidiaries in a principal amount exceeding $50,000,000.

“Notes” means promissory notes of the Company, substantially in the form of Exhibit A hereto, evidencing the obligation of the Company to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

“Notice of Borrowing” means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Competitive Bid Borrowing (as defined in Section 2.03(f)).

“Notice of Interest Rate Election” has the meaning specified in Section 2.09.

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“Parent” means, with respect to any Bank, any Person controlling such Bank.

“Participant” has the meaning set forth in Section 9.06(b).

“Percentage” means, with respect to any Bank at any time, the percentage which the amount of its Commitment at such time represents of the aggregate amount of all the Commitments at such time.  At any time after the Commitments shall have terminated, the term “Percentage” shall refer to a Bank’s Percentage immediately before such termination, adjusted to reflect any subsequent assignments pursuant to Section 9.06(c).

“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Pricing Schedule” means the Schedule attached hereto identified as such.

“Prime Rate” means the rate of interest publicly announced by JPMorgan Chase Bank from time to time as its Prime Rate.

“Principal Property” means any real property (including buildings and other improvements) of the Company or any Restricted Subsidiary whether currently owned or hereafter acquired (other than any property hereafter acquired for the control or abatement of atmospheric pollutants or contaminants or water, noise, odor or other pollution, or for purposes of developing a cogeneration facility or a small power production facility as such terms are defined in the Public Utility Regulatory Policies Act of 1978, as amended) which (i) has, at any date of determination, a book value in excess of 5% of Shareowners’ Equity and (ii) in the opinion of the board of directors of the Company (or any duly authorized committee thereof) is of material importance to the total business conducted by the Company and its Restricted Subsidiaries as a whole.

“Quarterly Payment Dates” means each March 31, June 30, September 30 and December 31.

“Regulation T, U or X” means Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Reimbursement Obligation” has the meaning specified in Section 2.18(c).

“Required Banks” means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding more than 50% of the aggregate unpaid principal amount of the Loans.

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“Restricted Subsidiary” means any Subsidiary of the Company other than an Unrestricted Subsidiary.

“Revolving Credit Loan” means a loan made by a Bank pursuant to Section 2.01(a).

“Revolving Credit Period” means the period from and including the Effective Date to but excluding the Termination Date.

“SEC” means the Securities and Exchange Commission.

“Secured Debt” means indebtedness for borrowed money of the Company or a Restricted Subsidiary (other than indebtedness owed by a Restricted Subsidiary to the Company, by a Restricted Subsidiary to another Restricted Subsidiary or by the Company to a Restricted Subsidiary), which is secured by (a) a mortgage or other lien on any Principal Property of the Company or a Restricted Subsidiary or (b) a pledge, lien or other security interest on any shares of stock or indebtedness of a Restricted Subsidiary.  The amount of Secured Debt at any time outstanding shall be the amount then owing thereon by the Company or a Restricted Subsidiary.

“Shareowners’ Equity” means, at any date of computation, the aggregate of capital stock, capital surplus and earned surplus, after deducting the cost of shares of capital stock of the Company held in its treasury, of the Company and its Restricted Subsidiaries, as consolidated and determined in accordance with GAAP.

“Sale and Lease-Back Transaction” has the meaning specified in Section 5.08.

“Single Issue” means indebtedness for borrowed money arising in a single transaction or a series of related transactions.  Indebtedness issued in discrete offerings but governed by a single shelf indenture shall not be aggregated as a Single Issue, but indebtedness owing to multiple lenders under parallel agreements comprising a single private placement and indebtedness arising from multiple takedowns under a single or a series of related commitments from one or more lenders shall be so aggregated.

“Subordinated Debt” means any unsecured Debt of the Company which: (1) has a final maturity subsequent to the Final Maturity Date; (2) does not provide for mandatory payment or retirement prior to said date, whether by means of serial maturities or sinking fund or other analogous provisions or plan, fixed or contingent, requiring, or which on the happening of a contingency may require, the payment or retirement of such Debt in amounts which as of any particular time would aggregate more than such portion of the original principal amount thereof as is obtained by multiplying such original principal amount by a fraction the numerator of which shall be the

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number of months elapsed from the date of creation of such Debt to such time and the denominator of which shall be the number of months from the date of creation thereof to the final maturity thereof; and (3) is expressly made subordinate and junior in right of payment to the Loans and such other Debt of the Company (except other Subordinated Debt) as may be specified in the instruments evidencing the Subordinated Debt or the indenture or other similar instrument under which it is issued (which indenture or other instrument shall be binding on all holders of such Subordinated Debt).

“Subsidiary” means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, “Subsidiary” means a Subsidiary of the Company.

“Termination Date” means May 28, 2003, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Term Loan” means a loan made by a Bank pursuant to Section 2.01(b).

“Total Capitalization” means, at any date, the sum (without duplication) of (i) Consolidated Debt as of such date and (ii) all preferred stock of the Company and its Restricted Subsidiaries and the consolidated shareowners’ equity of the Company and its Restricted Subsidiaries as of the date of the Company’s most recent financial statements referred to in Section 4.04 or delivered pursuant to Section 5.01.

“Total Outstanding Amount” means, at any time, the sum of (i) the aggregate outstanding principal amount of the Loans (including both Committed Loans and Competitive Bid Loans) determined at such time after giving effect, if one or more Loans are being made at such time, to any substantially concurrent application of the proceeds thereof to repay one or more other Loans plus, without duplication, (ii) the aggregate amount of the Letter of Credit Liabilities of all Banks at such time.

“United States” means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

“Unrestricted Subsidiary” means (a) any Subsidiary which, in accordance with the provisions of this Agreement, has been designated by the Company as an Unrestricted Subsidiary after the Effective Date, unless and until such Subsidiary shall, in accordance with the provisions of this Agreement, be designated by the Company as a Restricted Subsidiary; and (b) any corporation of which any one or more Unrestricted Subsidiaries directly or indirectly own outstanding shares of capital stock having voting power sufficient to elect, under ordinary circumstances (not dependent upon the happening of a contingency), a majority of the directors.

“Wholly-Owned Restricted Subsidiary” means a Restricted Subsidiary all of the outstanding capital stock of which, other than directors’ qualifying

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shares, and all of the Funded Debt of which, shall at the time be owned by the Company or by one or more Wholly-Owned Restricted Subsidiaries, or by the Company in conjunction with one or more Wholly-Owned Restricted Subsidiaries.

Section 1.02. Accounting Terms and Determinations.  Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP.

Section 1.03. Types of Borrowings.  The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Company pursuant to Article 2 on a single date, all of which Loans are of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same initial Interest Period.  Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro–Dollar Borrowing” is a Borrowing comprised of Euro–Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a “Committed  Borrowing” is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a “Competitive Bid Borrowing” is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith).

ARTICLE 2
The Credits

Section 2.01. Commitments to Lend.  (a) During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Company pursuant to this Section from time to time in amounts such that (i) the aggregate principal amount of Committed Loans by such Bank at any one time outstanding plus the aggregate amount of its Letter of Credit Liabilities at such time shall not exceed the amount of its Commitment and (ii) the Total Outstanding Amount shall not exceed the aggregate amount of the Commitments.  Within the foregoing limits, the Company may borrow under this Section 2.01(a), repay, or to the extent permitted by Section 2.12, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section 2.01(a).

(b)   Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan to the Company on the Termination Date in an amount up to but not exceeding the amount of its Commitment.  Amounts of any Loans made pursuant to this Section 2.01(b) which are prepaid pursuant to Section 2.12 shall not be reborrowed.

(c)   Each Borrowing under this Section 2.01 shall be in an aggregate principal amount of $25,000,000  or any larger multiple of $1,000,000 (except

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that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments.

Section 2.02. Notice of Committed Borrowing.  The Company shall give the Agent notice (a “Notice of Committed Borrowing”) not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro–Dollar Business Day before each Euro–Dollar Borrowing, specifying:

(a)   the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro–Dollar Business Day in the case of a Euro–Dollar Borrowing,

(b)   the aggregate amount of such Borrowing,

(c)   whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro–Dollar Rate, and

(d)   in the case of a Euro–Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Section 2.03. Competitive Bid Borrowings.  (a) The Competitive Bid Option.  In addition to Committed Borrowings pursuant to Section 2.01, the Company may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Competitive Bid Loans to the Company.  The Banks may, but shall have no obligation to, make such offers and the Company may, but shall have no obligation to, accept any such offers in the manner set forth in this Section.

(b)   Competitive Bid Quote Request.  When the Company wishes to request offers to make Competitive Bid Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Competitive Bid Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro–Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying:

(i)    the proposed date of Borrowing, which shall be a Euro–Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction,

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(ii)   the aggregate amount of such Borrowing, which shall be $25,000,000 or a larger multiple of $1,000,000,

(iii)  the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and

(iv)  whether the Competitive Bid Quotes requested are to set forth a Competitive Bid Margin or a Competitive Bid Absolute Rate.

The Company may request offers to make Competitive Bid Loans for more than one Interest Period in a single Competitive Bid Quote Request.  No Competitive Bid Quote Request shall be given within five Euro–Dollar Business Days (or such other number of days as the Company and the Agent may agree) of any other Competitive Bid Quote Request.

(c)   Invitation for Competitive Bid Quotes.  Promptly upon receipt of a Competitive Bid Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Competitive Bid Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Company to each Bank to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this Section.

(d)   Submission and Contents of Competitive Bid Quotes.  (i) Each Bank may submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes.  Each Competitive Bid Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro–Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Competitive Bid Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Company of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction.  Subject to Articles 3 and 6, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Company.

(i)    Each Competitive Bid Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify:

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(A)  the proposed date of Borrowing,

(B)   the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Competitive Bid Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Competitive Bid Loans for which offers being made by such quoting Bank may be accepted,

(C)   in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the “Competitive Bid Margin”) offered for each such Competitive Bid Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate,

(D)  in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the “Competitive Bid Absolute Rate”) offered for each such Competitive Bid Loan, and

(E)   the identity of the quoting Bank.

A Competitive Bid Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Competitive Bid Quotes.

(ii)   Any Competitive Bid Quote shall be disregarded if it:

(A)  is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii);

(B)   contains qualifying, conditional or similar language;

(C)   proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or

(D)  arrives after the time set forth in subsection (d)(i).

(e)   Notice to Company.  The Agent shall promptly notify the Company of the terms (x) of any Competitive Bid Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote

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submitted by such Bank with respect to the same Competitive Bid Quote Request.  Any such subsequent Competitive Bid Quote shall be disregarded by the Agent unless such subsequent Competitive Bid Quote is submitted solely to correct a manifest error in such former Competitive Bid Quote.  The Agent’s notice to the Company shall specify (A) the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request, (B) the respective principal amounts and Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Competitive Bid Loans for which offers in any single Competitive Bid Quote may be accepted.

(f)    Acceptance and Notice by Company.  Not later than 10:30 A.M. (New York City time) on (x) the third Euro–Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Company shall notify the Agent of its acceptance or non–acceptance of the offers so notified to it pursuant to subsection  (e).  In the case of acceptance, such notice (a “Notice of Competitive Bid Borrowing”) shall specify the aggregate principal amount of offers for each Interest Period that are accepted.  A failure by the Company to notify the Agent as aforesaid shall constitute non-acceptance of the offers so notified to it.  The Company may accept any Competitive Bid Quote in whole or in part; provided that:

(i)    the aggregate principal amount of each Competitive Bid Borrowing may not exceed the applicable amount set forth in the related Competitive Bid Quote Request,

(ii)   the principal amount of each Competitive Bid Borrowing must be $25,000,000 or a larger multiple of $1,000,000,

(iii)  acceptance of offers may only be made on the basis of ascending Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be,

(iv)  the Company may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement, and

(v)   immediately after such Competitive Bid Borrowing is made the Total Outstanding Amount shall not exceed the aggregate amount of the Commitments.

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(g)   Allocation by Agent.  If offers are made by two or more Banks with the same Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers.  Determinations by the Agent of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error.

Section 2.04. Notice to Banks; Funding of Loans.  (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Company.

(b)   Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection  (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in .  Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Agent will make the funds so received from the Banks available to the Company at the Agent’s aforesaid address.

(c)   If any Bank makes a Term Loan hereunder on a day on which the Company is to repay all or any part of an outstanding Revolving Credit Loan from such Bank, such Bank shall apply the proceeds of its Term Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b), or remitted by the Company to the Agent as provided in Section 2.12, as the case may be.

(d)   Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing (or, in the case of a Base Rate Borrowing, prior to 12:00 Noon (New York City time) on the date of such Borrowing) that such Bank will not make available to the Agent such Bank’s share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount.  If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Company severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Agent, at (i) in the case of the Company, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto

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pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate.  If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan included in such Borrowing for purposes of this Agreement.

Section 2.05. Notes.  (a) Each Bank may, by notice to the Company and the Agent, request that (i) its Loans be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank’s Loans or (ii) its Loans of a particular type or types be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans.  Each reference in this Agreement to the “Note” of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require.

(b)   Upon receipt of each Bank’s Note pursuant to Section 3.01(b), the Agent shall forward such Note to such Bank.  Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Company with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make, or any error in making, any such recordation or endorsement shall not affect the obligations of the Company hereunder or under the Notes.  Each Bank is hereby irrevocably authorized by the Company so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.  The Agent shall also record the date, amount, type and maturity of each Loan made by any Bank hereunder and the date and amount of each payment of principal made by the Company to the Agent with respect thereto.

Section 2.06. Maturity of Loans.  (a) Each Revolving Credit Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon) on the Termination Date.

(b)   Each Term Loan shall mature, and the principal amount thereof shall be due and payable (together with accrued interest thereon) on the Final Maturity Date.

(c)   Each Competitive Bid Loan shall mature, and the principal amount thereof shall be due and payable (together with accrued interest thereon) on the last day of the Interest Period applicable thereto.

Section 2.07. Interest Rates.  (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day.  Such interest shall be payable at maturity, quarterly in arrears on each Quarterly Payment Date and, with respect to the principal amount of any Base

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Rate Loan that is prepaid or converted to a Euro-Dollar Loan, on the date of such prepayment or conversion.  Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day.

(b)   Each Euro–Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro–Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period.  Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.

“Euro–Dollar Margin” means a rate per annum determined in accordance with the Pricing Schedule.

The “London Interbank Offered Rate” applicable to any Interest Period means the rate per annum appearing on the Screen at approximately 11:00 a.m. (London time) two Euro–Dollar Business Days before the first day of such Interest Period as the rate per annum for deposits in dollars with a maturity comparable to such Interest Period.  If no rate appears on the Screen for the necessary period, then the “London Interbank Offered Rate” with respect to such Interest Period shall be the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered by each of the Euro–Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro–Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro–Dollar Loan of such Euro–Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period.

The “Screen” means Telerate Page 3750; provided that the Agent may nominate an alternative source of screen rates if such page is replaced by another which displays rates for inter-bank deposits offered by leading banks in London.

(c)   Any overdue principal of or interest on any Euro–Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro–Dollar Margin for such day plus the London Interbank Offered Rate applicable to the Interest Period for such Loan and (ii) the sum of 2% plus the Euro–Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro–Dollar Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of

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the Euro–Dollar Reference Banks are offered by such Euro–Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro–Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day).

(d)   Subject to Section 8.01(a), each Competitive Bid LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(b) as if the related Competitive Bid LIBOR Borrowing were a Committed Euro–Dollar Borrowing) plus (or minus) the Competitive Bid Margin quoted by the Bank making such Loan in accordance with ..  Each Competitive Bid Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Competitive Bid Absolute Rate quoted by the Bank making such Loan in accordance with .  Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.  Any overdue principal of or interest on any Competitive Bid Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day.

(e)   The Agent shall determine each interest rate applicable to the Loans hereunder.  The Agent shall give prompt notice to the Company and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error.

(f)    Each Euro-Dollar Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section.  If any Euro-Dollar Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Euro-Dollar Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply.

Section 2.08. Method of Electing Interest Rates.  (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Company in the applicable Notice of Committed Borrowing.  Thereafter, the Company may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to Section 2.08(d) and the provisions of Article 8), as follows:

(i)    if such Loans are Base Rate Loans, the Company may elect to convert such Loans to Euro–Dollar Loans as of any Euro–Dollar Business Day; and

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(ii)   if such Loans are Euro–Dollar Loans, the Company may elect to convert such Loans to Base Rate Loans or continue such Loans as Euro–Dollar Loans for an additional Interest Period, in each case as of the last day of the then current Interest Period applicable thereto.

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Agent not later than 12:00 noon (New York City time) on the third Euro–Dollar Business Day before the conversion or continuation selected in such notice is to be effective.  A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $25,000,000 (unless such portion is comprised of Base Rate Loans).  If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Company shall be deemed to have elected that, at the end of such Interest Period, such Group of Loans be continued as Euro-Dollar Loans for an additional Interest Period of one month (subject to the provisions of the definition of Interest Period).

(b)   Each Notice of Interest Rate Election shall specify:

(i)    the Group of Loans (or portion thereof) to which such notice applies;

(ii)   the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of Section 2.08(a);

(iii)  if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans resulting from such conversion are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and

(iv)  if such Loans are to be continued as Euro–Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period.

(c)   Promptly after receiving a Notice of Interest Rate Election from the Company pursuant to Section 2.08(a), the Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Company.

(d)   The Company shall not be entitled to elect to convert any Committed Loans to, or continue any Committed Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group

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of Euro-Dollar Loans created or continued as a result of such election would be less than $25,000,000 or (ii) a Default shall have occurred and be continuing when the Company delivers notice of such election to the Agent.

(e)   If any Committed Loan is converted to a different type of Loan, the Company shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted.

Section 2.09. Facility Fee.  (a) The Company shall pay to the Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule).  Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily Total Outstanding Amount.

(b)   The Company shall pay (i) to the Agent for the account of the Banks ratably a letter of credit fee accruing daily on the aggregate undrawn amount of all outstanding Letters of Credit at a rate per annum equal to the Fully-Drawn Margin for such day and (ii) to each Issuing Bank for its own account, a letter of credit fronting fee accruing daily on the aggregate amount then available for drawing under all Letters of Credit issued by such Issuing Bank at such rate as may be mutually agreed between the Company and such Issuing Bank from time to time.

(c)   Accrued fees under this Section shall be payable quarterly in arrears on each Quarterly Payment Date and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety).

Section 2.10. Optional Termination or Reduction of Commitments.  During the Revolving Credit Period, the Company may, upon at least three Domestic Business Days’ notice to the Agent, (i) terminate the Commitments at any time, if no Loans or Letter of Credit Liabilities are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple thereof, the aggregate amount of the Commitments in excess of the Total Outstanding Amount.

Section 2.11. Scheduled Termination of Commitments.  The Commitments shall terminate on the Termination Date.

Section 2.12. Optional Prepayments.  (a) Subject in the case of any Euro-Dollar Loans to Section 2.14, the Company may (i)upon at least one Domestic Business Day’s notice to the Agent, prepay any Group of Base Rate Loans (or any Competitive Bid Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) or (ii) upon at least three Euro-Dollar Business Days’ notice to the Agent,

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prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $25,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment.  Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group (or Borrowing).

(b)   Except as provided in Section 2.12(a), the Company may not prepay all or any portion of the principal amount of any Competitive Bid Loan prior to the maturity thereof.

(c)   Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank’s ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Company.

Section 2.13. General Provisions as to Payments.  (a) The Company shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in .  The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks.  Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day.  Whenever any payment of principal of, or interest on, the Euro–Dollar Loans shall be due on a day which is not a Euro–Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro–Dollar Business Day unless such Euro–Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro–Dollar Business Day.  Whenever any payment of principal of, or interest on, the Competitive Bid Loans shall be due on a day which is not a Euro–Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro–Dollar Business Day.  If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b)   Unless the Agent shall have received notice from the Company prior to the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full, the Agent may assume that the Company has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank.  If and to the extent that the Company shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such

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Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate.

Section 2.14. Funding Losses.  If the Company makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a different type of Loan (whether such payment or conversion is pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(c), or if the Company fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.08(c) or 2.12(c), the Company shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to the Company a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.15. Computation of Interest and Fees.  Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day).  All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.16. Regulation D Compensation.  Each Bank may require the Company to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate.  Any Bank wishing to require payment of such additional interest (x) shall so notify the Company and the Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall notify the Company at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section.

“Euro–Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in

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respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro–Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non–United States office of any Bank to United States residents).

Section 2.17. Commitment Increase; Additional Banks.  (a) The Company may, upon at least 30 days’ notice to the Agent (which shall promptly provide a copy of such notice to the Banks), propose to increase the aggregate amount of the Commitments to an amount not to exceed $625,000,000 (the amount of any such increase, the “Commitment Increase”).Each Bank party to this Agreement at such time shall have the right (but no obligation), for a period of 15 days following its receipt of such notice from the Agent, to elect by notice to the Company and the Agent to increase its Commitment by a principal amount up to that amount which bears the same ratio to the Commitment Increase as its then existing Commitment bears to the aggregate Commitments then existing.

(b)  If any Bank party to this Agreement shall not elect to increase its Commitment by the full amount permitted by subsection (a) of this Section, the Company with the consent of the Agent may designate one or more other banks or other financial institutions (which may be, but need not be, one or more of the existing Banks) which at the time agree in the case of any such bank that is an existing Bank to increase its Commitment and, in the case of any other such bank (an “Additional Bank”), to become a party to this Agreement.  The sum of the increases in the Commitments of the existing Banks pursuant to this subsection (b) plus the Commitments of the Additional Banks shall not in the aggregate exceed the unsubscribed amount of the Commitment Increase.

(c)   An increase in the aggregate amount of the Commitments pursuant to this Section 2.17 shall become effective upon the receipt by the Agent of an agreement in form and substance satisfactory to the Agent signed by the Company, by each Additional Bank and by each other Bank whose Commitment is to be increased, setting forth the new Commitments of such Banks and setting forth the agreement of each Additional Bank to become a party to this Agreement and to be bound by all the terms and provisions hereof, together with such evidence of appropriate corporate authorization on the part of the Company with respect to the Commitment Increase and such opinions of counsel for the Company with respect to the Commitment Increase as the Agent may reasonably request.

(d)   Upon any increase in the aggregate amount of the Commitments pursuant to this Section 2.17, within five Domestic Business Days, in the case of Base Rate Loans then outstanding, and at the end of the then current Interest Period with respect thereto, in the case of Euro-Dollar Loans then outstanding, the Company shall prepay or repay such Loans in their entirety and, to the extent the Company elects to do so and subject to the conditions specified in Article 3 of this Agreement, the Company shall reborrow Committed Loans from the Banks in proportion to their respective Commitments after giving effect to such increase,

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until such time as all outstanding Committed Loans are held by the Banks in such proportion.

Section 2.18. Letters of Credit.

(a)   Commitment to Issue Letters of Credit.  Subject to the terms and conditions hereof, each Issuing Bank agrees to issue Letters of Credit from time to time before the Termination Date upon the request of the Company; provided that, immediately after each Letter of Credit is issued (i) the Total Outstanding Amount shall not exceed the aggregate amount of the Commitments and (ii) the aggregate amount of the Letter of Credit Liabilities shall not exceed $100,000,000.  Upon the date of issuance by an Issuing Bank of a Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its respective Commitment bears to the aggregate Commitments.  If the terms and conditions of any form of letter of credit application or other agreement submitted by the Company to, or entered into by the Bank relating to any Letters of Credit are not consistent with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control.

(b)   Method for Issuance; Terms; Extensions.

(i)    The Company shall give the Issuing Bank notice at least three Domestic Business Days (or such shorter notice as may be acceptable to the Issuing Bank in its discretion) prior to the requested issuance of a Letter of Credit (or, in the case of renewal or extension, prior to the Issuing Bank’s deadline for notice of nonextension) specifying the date such Letter of Credit is to be issued, and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby (such notice, including any such notice given in connection with the extension of a Letter of Credit, a “Notice of Issuance”).  Upon receipt of a Notice of Issuance, the Issuing Bank shall promptly notify the Agent, and the Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank’s participation in such Letter of Credit.

(ii)   The obligation of the Issuing Bank to issue each Letter of Credit shall, in addition to the conditions precedent set forth in Section 3.02 be subject to the conditions precedent that such Letter of Credit shall be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank and that the Company shall have executed and delivered such other customary instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested.  The Company shall also pay to the Issuing Bank for its own account issuance, drawing, amendment, settlement and extension charges, if any,

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in the amounts and at the times as agreed between the Company and the Issuing Bank.

(iii)  The extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Bank, the Issuing Bank shall timely give such notice of termination unless it has theretofore timely received a Notice of Issuance and the other conditions to issuance of a Letter of Credit have also theretofore been met with respect to such extension.  Each Letter of Credit shall expire at or before the close of business on the date that is one year after such Letter of Credit is issued (or, in the case of any renewal or extension thereof, one year after such renewal or extension); provided that a Letter of Credit may contain a provision pursuant to which it is deemed to be extended on an annual basis unless notice of termination is given by the Issuing Bank.

(c)   Payments; Reimbursement Obligations.

(i)    Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Agent and the Agent shall promptly notify the Company and each other Bank as to the amount to be paid as a result of such demand or drawing and the date such payment is to be made by the Issuing Bank (the “Payment Date”).  The Company shall be irrevocably and unconditionally obligated to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind.  Such reimbursement shall be due on the Payment Date; provided that no such payment shall be due from the Company any earlier than the date of receipt by it of notice of its obligation to make such payment (or, if such notice is received by the Company after 10:00 A.M. (New York City time) on any date, on the next succeeding Domestic Business Day); and provided further that if and to the extent any such reimbursement is not made by the Company in accordance with this clause (i) or clause (ii) below on the Payment Date, then (irrespective of when notice thereof is received by the Company), such reimbursement obligation shall bear interest, payable on demand, for each day from and including the Payment Date to but not including the date such reimbursement obligation is paid in full at a rate per annum equal to the rate applicable to Base Rate Loans for such day.

(ii)   If the Commitments remain in effect on the Payment Date, all such amounts paid by the Issuing Bank and remaining unpaid by the Company after the date and time required by Section 2.18(c)(i) (a “Reimbursement Obligation”) shall, if and to the extent that the amount of such Reimbursement Obligation would be permitted as a Borrowing of

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Revolving Credit Loan pursuant to Section 3.02, and unless the Company otherwise instructs the Agent by not less than one Domestic Business Day’s prior notice, convert automatically to Base Rate Loans on the date such Reimbursement Obligation arises.  The Agent shall, on behalf of the Company (which hereby irrevocably directs the Agent so to act on its behalf), give notice no later than 10:30 A.M. (New York City time) on such date requesting each Bank to make, and each Bank hereby agrees to make, a Base Rate Loan, in an amount equal to such Bank’s  Percentage of the Reimbursement Obligation with respect to which such notice relates.  Each Bank shall make such Loan available to the Agent at its address specified in or pursuant to Section 2.08(b)(i) in immediately available funds, not later than 12:00 Noon (New York City time), on the date specified in such notice.  The Agent shall pay the proceeds of such Loans to the Issuing Bank, which shall immediately apply such proceeds to repay the Reimbursement Obligation.

(iii)  To the extent the Reimbursement Obligation is not refunded by a Bank pursuant to clause (ii) above, such Bank will pay to the Agent, for the account of the Issuing Bank, immediately upon the Issuing Bank’s demand at any time during the period commencing after such Reimbursement Obligation arises until reimbursement therefor in full by the Company, an amount equal to such  Bank’s Percentage of such Reimbursement Obligation, together with interest on such amount for each day from the date of the Issuing Bank’s demand for such payment (or, if such demand is made after 1:00 P.M. (New York City time) on such date, from the next succeeding Domestic Business Day) to the date of payment by such Bank of such amount at a rate of interest per annum equal to the Federal Funds Rate for the first three Domestic Business Days after the date of such demand and thereafter at a rate per annum equal to the Base Rate for each additional day.  The Issuing Bank will pay to each Bank ratably all amounts received from the Company for application in payment of its Reimbursement Obligations in respect of any Letter of Credit, but only to the extent such Bank has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto; provided that in the event such payment received by the Issuing Bank is required to be returned, such Bank will return to the Issuing Bank any portion thereof previously distributed to it by the Issuing Bank.

(d)   Obligations Absolute.  The obligations of the Company and each Bank under subsection (c) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances:

(i)    any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto;

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(ii)   any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto, provided by any party affected thereby;

(iii)  the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting);

(iv)  the existence of any claim, set-off, defense or other rights that the Company may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), any Bank (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(v)   any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(vi)  payment under a Letter of Credit against presentation to the Issuing Bank of documents that do not comply with the terms of such Letter of Credit;

(vii) any termination of the Commitments prior to, on or after the Payment Date for any Letter of Credit, whether at the scheduled termination thereof, by operation of Section 6.01 or otherwise; or

(viii) any other act or omission to act or delay of any kind by any Bank (including the Issuing Bank), the Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (viii), constitute a legal or equitable discharge of or defense to the Company’s or the Bank’s obligations hereunder;

provided, that this Section 2.18(d) shall not limit the rights of the Company under Section 2.18(e)(ii)

(e)   Indemnification; Expenses.

(i)    The Company hereby indemnifies and holds harmless each Bank (including each Issuing Bank) and the Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which it may reasonably incur in connection with a Letter of Credit issued pursuant to this Section 2.18;  provided that the Company shall not be required to indemnify any Bank, or the Agent, for any claims, damages, losses, liabilities, costs or expenses, to the extent found by a court of competent jurisdiction to have been caused by the gross negligence or willful

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misconduct of such Person and shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses caused by any matter referred to in clause (x) or (y) of Section 2.18(e)(ii).

(ii)   None of the Banks (including an Issuing Bank) nor the Agent nor any of their officers or directors or employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection (d) above; provided that, notwithstanding Sections 2.18(c) and 2.18(d) , the Company shall have a claim for direct and incidental (but not consequential) damage suffered by it, to the extent finally determined by a court of competent jurisdiction to have been caused by (x) subject to the following sentence, the Issuing Bank’s failure to exercise reasonable care in determining whether documents presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank’s failure (i) to pay under any Letter of Credit after the presentation to it of documents strictly complying with the terms and conditions of the Letter of Credit or (ii) otherwise perform their express obligations under any Letter of Credit.  The parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(iii)  Nothing in this subsection (e) is intended to limit the obligations of the Company under any other provision of this Agreement.  To the extent the Company does not indemnify an Issuing Bank as required by this subsection, the Banks agree to do so ratably in accordance with their Commitments.

(f)    Stop Issuance Notice. If the Required Banks reasonably determine at any time that the conditions set forth in Section 3.02 would not be satisfied in respect of a Borrowing at such time, then the Required Banks may request that the Agent issue a “Stop Issuance Notice”, and the Agent shall issue such notice to each Issuing Bank.  Such Stop Issuance Notice shall be withdrawn upon a determination by the Required Banks that the circumstances giving rise thereto no longer exist.  No Letter of Credit shall be issued while a Stop Issuance Notice is in effect. The Required Banks may request issuance of a Stop Issuance Notice only if there is a reasonable basis therefor, and shall consider reasonably and in good faith a request from the Company for withdrawal of the same on the basis that the conditions in Section 3.02 are satisfied, provided that the Agent and the Issuing Banks may and shall conclusively rely upon any Stop Issuance Notice while it remains in effect.

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ARTICLE 3
Conditions

Section 3.01. Effectiveness.  This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05):

(a)   receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party);

(b)   receipt by the Agent of an opinion of the General Counsel of the Company, substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(c)   receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(d)   receipt by the Agent of all documents the Agent may reasonably request relating to the existence of the Company, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; and

provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than June 17, 2002.  The Agent shall promptly notify the Company and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto.

Section 3.02. Borrowings and Issuances of Letters of Credit.  The obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of an Issuing Bank to issue (or renew or extend the term of) any Letter of Credit, is subject to the satisfaction of the following conditions:

(a)   receipt by the Agent of (i) a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be or (ii) a Notice of Issuance as required by Section 2.18(b);

(b)   the fact that, immediately after such Borrowing or issuance (or renewal or extension), the Total Outstanding Amount will not exceed the aggregate amount of the Commitments and the aggregate amount of the Letter of Credit Liabilities shall not exceed $100,000,000 ;

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(c)   the fact that, immediately before and after such Borrowing or issuance, no Default shall have occurred and be continuing; and

(d)   the fact that the representations and warranties of the Company contained in this Agreement (other than the representations and warranties set forth in Sections 4.04, 4.05 and 4.06, which are made only as of the date hereof) shall be true on and as of the date of such Borrowing or issuance.

Each Borrowing or issuance of any Letter of Credit hereunder shall be deemed to be a representation and warranty by the Company on the date of such Borrowing or issuance as to the facts specified in clause (d) of this Section.

ARTICLE 4
Representations and Warranties

The Company represents and warrants that:

Section 4.01. Corporate Existence and Power.  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and will have on and as of the Effective Date all material governmental licenses, authorizations, consents and approvals required to carry on its business.

Section 4.02. Corporate and Governmental Authorization; No Contravention.  The execution, delivery and performance by the Company of this Agreement and the Notes are within the Company’s corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official, do not contravene any provision of applicable law or regulation or of the certificate of incorporation or by–laws of the Company and do not contravene, or constitute a material default under, any debt instrument known to the Company to be binding upon it.

Section 4.03. Binding Effect.  This Agreement constitutes a valid and binding agreement of the Company and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Company, in each case enforceable in accordance with its terms.

Section 4.04. Financial Information.  (a) The Company has furnished to each of the Banks the consolidated balance sheet of the Company as of September 30, 2001 and the related consolidated statement of income, stockholder’s equity and cash flows for the fiscal year then ended, reported on by independent public accountants.  Such financial statements fairly present, in all material respects, in conformity with GAAP, the financial position of the Company as of such dates and its results of operations and cash flows for such fiscal year.

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(b)   The unaudited consolidated balance sheet of the Company as of March 31, 2002 and the related unaudited consolidated statements of income and cash flows for the six months then ended set forth in the Company’s quarterly report on Form10-Q fairly present, in all material respects, in conformity with GAAP applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the financial position of the Company as of such date and its results of operations and cash flows for such six month period (subject to normal year-end adjustments).

(c)   As of  the Effective Date, there will have been no material adverse change in the financial condition, business or operations of  the Company since March 31, 2002.

Section 4.05. Litigation.  Except as disclosed in the Company’s annual report for 2001 on Form 10-K and any subsequent quarterly report on Form 10-Q filed by the Company with the SEC prior to the date hereof, there is no action, suit or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable probability of an adverse decision which could materially adversely affect the business or consolidated financial position of the Company and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or the Notes.

Section 4.06. Environmental Matters.  Expenditures by the Company and its Consolidated Subsidiaries for environmental capital investment and remediation necessary to comply with present Environmental Laws and other expenditures for the resolution of existing environmental claims known to the Company are not expected by management of the Company to have a material adverse effect on the business or financial condition of the Company and its Consolidated Subsidiaries, taken as a whole.

ARTICLE 5
Covenants

The Company agrees that, so long as any Bank has any Commitment hereunder or any Loan or Letter of Credit remains outstanding or any amount payable hereunder remains unpaid:

Section 5.01. Information.  The Company will deliver to each of the Banks:

(a)   within 120 days after the end of each fiscal year of the Company, the Company’s Annual Report to Shareowners and annual report on Form 10-K for such fiscal year, as filed with the Commission;

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(b)   within 60 days after the end of each of the first three quarters of each fiscal year of the Company, the Company’s quarterly report on Form 10-Q for such fiscal quarter, as filed with the Commission;

(c)   simultaneously with the delivery of each set of financial statements referred to in clause (a), a certificate of the chief financial officer, the treasurer or the controller of the Company stating whether any Default exists on the date of such financial statements;

(d)   within 10 days after the chief financial officer, the treasurer or the controller of the Company obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer, the treasurer or the controller of the Company setting forth the details thereof;

(e)   promptly upon the filing thereof, copies of all reports on Form 8–K (or its equivalent) which the Company shall have filed with the Commission; and

(f)    from time to time such additional information regarding the financial position or business of the Company and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request.

Section 5.02. Maintenance of Existence.  The Company will preserve, renew and keep in full force and effect its corporate existence and its rights, privileges and franchises necessary or desirable in the normal conduct of business in all material respects; provided that nothing in this Section 5.02 shall prohibit a merger or consolidation permitted by Section 5.06.

Section 5.03. Compliance with Laws.  The Company will comply in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, environmental laws and ERISA and the rules and regulations thereunder) except where (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) non-compliance would not, in the reasonable judgment of the Company, have a material adverse effect on the financial condition, business or operation of the Company and its Consolidated Subsidiaries, considered as a whole.

Section 5.04. Use of Proceeds.  The proceeds of the Loans made or the Letters of Credit issued under this Agreement will be used by the Company for its general corporate purposes, including but not limited to commercial paper backstop, acquisitions and stock repurchases.  None of such proceeds will be used in violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

Section 5.05. Debt to Capitalization.  Consolidated Debt will at no time exceed 60% of Total Capitalization.

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Section 5.06. Mergers, Consolidations and Sales of Assets.  (a) The Company shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless

(1)           the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States or any State or the District of Columbia, and shall expressly assume, in form satisfactory to the Agent, the due and punctual payment of the principal of (and premium, if any) and interest, if any, on all the Loans and the performance of every covenant of this Agreement on the part of the Company to be performed or observed;

(2)           immediately after giving effect to such transaction, no Default shall have occurred and be continuing; and

(3)           the Company shall have delivered to the Agent a certificate of a duly authorized officer of the Company and an opinion of legal counsel to the Company (which shall be reasonably acceptable to the Agent), each stating that such consolidation, merger, conveyance or transfer comply with this Section 5.06(a) and that all conditions precedent herein provided for relating to such transaction have been complied with.

(b)   Upon any consolidation or merger, or any conveyance or transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 5.06(a), the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement with the same effect as if such successor corporation had been named as the Company herein, and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Agreement and the Notes and may be liquidated and dissolved.

(c)   If, upon any consolidation or merger of the Company with or into any corporation, or upon the conveyance or transfer by the Company of its properties and assets substantially as an entirety in accordance with Section 5.06(a) to any Person, any Principal Property owned by the Company or a Restricted Subsidiary immediately prior thereto would thereupon become subject to any Lien not permitted by Section 5.07, the Company will, prior to such consolidation, merger, conveyance or transfer, secure the due and punctual payment of the principal of (and premium, if any) and interest, if any, on the Loans then outstanding (equally and ratably with any other Debt of the Company then entitled to be so secured) by a direct Lien on such Principal Property, together with any other properties and assets of the Company or of any such Restricted

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Subsidiary, whichever shall be the owner of any such Principal Property, which would thereupon become subject to any such Lien, prior to all Liens other than any theretofore existing thereon.

Section 5.07. Limitations on Liens.  The Company shall not at any time create, incur, assume or suffer to exist, and shall not cause, suffer or permit a Restricted Subsidiary to create, incur, assume or suffer to exist, any Secured Debt without making effective provision (and the Company covenants that in such case it will make or cause to be made effective provision) whereby the Loans then outstanding shall be secured equally and ratably with such Secured Debt, so long as such Secured Debt shall exist; provided, however, that this Section 5.07 shall not prevent any of the following:

(a)   (i) any Lien on any property hereafter acquired (including acquisition through merger or consolidation) or constructed by the Company or a Restricted Subsidiary and created contemporaneously with, or within twelve months after, such acquisition or the completion of construction to secure or provide for the payment of all or any part of the purchase price of such property or the cost of construction thereof, as the case may be; or (ii) any mortgage on property (including any unimproved portion of partially improved property) of the Company or a Restricted Subsidiary created within twelve months of completion of construction of a new plant or plants on such property to secure all or part of the cost of such construction; or (iii) the acquisition of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Company or such Restricted Subsidiary;

(b)   Liens on capital stock hereafter acquired by the Company or any Restricted Subsidiary, provided that the aggregate cost to the Company and its Restricted Subsidiaries of all capital stock subject to such Liens does not exceed 10% of Shareowners’ Equity;

(c)   any Lien securing Debt of a corporation which is a successor to the Company to the extent permitted by Section 5.06; or securing Debt of a Restricted Subsidiary outstanding at the time it became a Restricted Subsidiary; or securing Debt of any Person outstanding at the time it is merged with, or all or substantially all of its properties are acquired by, the Company or any Restricted Subsidiary, provided that such Lien does not extend to any other properties of the Company or any Restricted Subsidiary; or existing on the property or on the outstanding shares or Debt of a corporation at the time it becomes a Restricted Subsidiary; or created, incurred or assumed in connection with any industrial revenue bond, pollution control bond or similar financing arrangement between the Company or any Restricted Subsidiary and any Federal, State or municipal government or other governmental body or agency;

(d)   any Lien created in connection with any extension, renewal or refunding (or successive extensions, renewals or refundings), in whole or in part, of any Debt secured by a Lien permitted by the foregoing provisions of this

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Section 5.07 upon the same property theretofore subject thereto (plus improvements on such property), provided that the amount of such Debt outstanding at that time shall not be increased;

(e)   Liens or deposits made in connection with contracts (which term includes subcontracts under such contracts) with or made at the request of the United States or any department or agency thereof, insofar as such Liens or deposits relate to property manufactured, installed or constructed by or to be supplied by, or property furnished to, the Company or a Restricted Subsidiary pursuant to, or to enable the performance of, such contracts, or property the manufacture, installation, construction or acquisition of which is financed pursuant to, or to enable the performance of, such contracts; or deposits or Liens, made pursuant to such contracts, of or upon moneys advanced or paid pursuant to, or in accordance with the provisions of, such contracts, or of or upon any materials or supplies acquired for the purpose of the performance of such contracts; or the assignment or pledge, to the extent permitted by law, of the right, title and interest of the Company or a Restricted Subsidiary in and to any such contract, or in and to any payments due or to become due thereunder, to secure Debt incurred for funds or other property supplied, constructed or installed for or in connection with the performance by the Company or such Restricted Subsidiary of its obligations under such contracts;

(f)    mechanics’, materialmen’s, carriers’ or other like Liens, and pledges or deposits made in the ordinary course of business to obtain the release of any such Liens or the release of property in the possession of a common carrier; good faith deposits in connection with tenders, leases of real estate or bids or contracts (other than contracts involving the borrowing of money); pledges or deposits to secure public or statutory obligations; deposits to secure (or in lieu of) surety, stay, appeal or customs bonds; and deposits to secure the payment of taxes, assessments, customs duties or other similar charges;

(g)   any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation, which is required by law or governmental regulation as a condition to the transaction of any business, or the exercise of any privilege or license, or to enable the Company or a Restricted Subsidiary to maintain self-insurance or to participate in any arrangements established by law to cover any insurance risks or in connection with workmen’s compensation, unemployment insurance, old age pensions, social security or similar matters;

(h)   the Liens of taxes, assessments or other governmental charges or levies not at the time due, or the validity of which is being contested in good faith;

(i)    judgment Liens, so long as the finality of such judgment is being contested in good faith and execution thereon is stayed;

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(j)    easements or similar encumbrances, the existence of which does not impair the use of the property subject thereto for the purposes for which it is held or was acquired;

(k)   the landlord’s interest under any lease of property;

(l)    leases granted to others in the ordinary course of business;

(m)  Sale and Lease-Back Transactions to the extent permitted by Section 5.08; and

(n)   contracts for the manufacture, construction, installation or supply of property, products or services providing for a Lien upon advance, progress or partial payments made pursuant to such contracts and upon any material or supplies acquired, manufactured, constructed, installed or supplied in connection with the performance of such contracts to secure such advance, progress or partial payments.

Notwithstanding the foregoing provisions of this Section 5.07, the Company and any one or more Restricted Subsidiaries may create, incur, assume or suffer to exist Secured Debt which would otherwise be subject to the foregoing restrictions in an aggregate amount which, together with all other Secured Debt of the Company and its Restricted Subsidiaries which would otherwise be subject to the foregoing restrictions (not including Secured Debt permitted under clauses (a) through (o) above) and the aggregate value of the Sale and Lease–Back Transactions (as defined in Section 5.08) in existence at such time (not including Sale and Lease-Back Transactions the proceeds of which have been or will be applied in accordance with clause (b) of Section 5.08), does not at the time exceed 10% of Shareowners’ Equity.

Section 5.08. Limitations on Sale and Lease-Back.  The Company will not, and will not permit any Restricted Subsidiary to, sell or transfer (except to the Company or one or more Restricted Subsidiaries, or both) any Principal Property owned by it and which has been in full operation for more than 180 days prior to such sale or transfer with the intention (i) of taking back a lease on such property, except a lease for a temporary period (not exceeding 36 months), and (ii) that the use by the Company or such Restricted Subsidiary of such property will be discontinued on or before the expiration of the term of such lease (any such transaction being herein referred to as a “Sale and Lease-Back Transaction”), unless

(a)   the Company or such Restricted Subsidiary would be entitled, pursuant to the provisions of Section 5.07 hereof, to incur Secured Debt equal in amount to the amount realized or to be realized upon such sale or transfer secured by a mortgage on the property to be leased without equally and ratably securing the Loans; or

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(b)   the Company or a Restricted Subsidiary shall, within 180 days of the effective date of any such transaction, apply an amount equal to the value of the property so leased (i) to the retirement (other than any mandatory retirement) of Consolidated Funded Debt or Debt then outstanding of the Company or any Restricted Subsidiary that was Funded Debt at the time it was created (other than Consolidated Funded Debt or such other Debt owned by the Company or any Restricted Subsidiary), or (ii) to the purchase of Principal Property having a value at least equal to the value of such property; provided, however, that the amount to be so applied pursuant to the preceding clause (i) or (ii) shall be reduced by (A) the principal amount of any Loans repaid within 180 days of the effective date of any such transaction and (B) the principal amount of Consolidated Funded Debt or Debt that was Funded Debt at the time it was created (other than Loans) retired by the Company or a Restricted Subsidiary within 180 days of the effective date of any such transaction; or

(c)   the Sale and Lease-Back Transaction involved was an industrial revenue bond, pollution control bond or similar financing arrangement between the Company or any Restricted Subsidiary and any Federal, State or municipal government or other governmental body or agency.

The term “value” shall mean, with respect to a Sale and Lease-Back Transaction, as of any particular time, the amount equal to the greater of  (i) the net proceeds of the sale of the property leased pursuant to such Sale and Lease-Back Transaction or (ii) the fair value of such property at the time of entering into such Sale and Lease-Back Transaction, as determined by the board of directors of the Company (or a duly authorized committee thereof), in either case divided first by the number of full years of the term of the lease and then multiplied by the number of full years of such term remaining at the time of determination, without regard to any renewal or extension options contained in the lease.

Section 5.09. Limitations on Change in Subsidiary Status.  The Company may designate any Subsidiary as an Unrestricted Subsidiary or as a Restricted Subsidiary, subject to the provisions set forth below:

(a)   the Company will not permit any Subsidiary to be designated as an Unrestricted Subsidiary unless at the time of such designation the Subsidiary so designated does not own, directly or indirectly, any capital stock of any Restricted Subsidiary or any Funded Debt or Secured Debt of the Company or any Restricted Subsidiary;

(b)   the Company will not permit any Restricted Subsidiary to be designated as, or otherwise to become, an Unrestricted Subsidiary unless immediately after such Restricted Subsidiary becomes an Unrestricted Subsidiary, no Default shall exist;

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(c)   the Company will not permit any Unrestricted Subsidiary to be designated as a Restricted Subsidiary unless immediately after such Unrestricted Subsidiary becomes a Restricted Subsidiary, no Default shall exist; and

(d)   promptly after the designation of any Subsidiary as an Unrestricted Subsidiary or as a Restricted Subsidiary, there shall be filed with the Agent, a certificate of a duly authorized officer of the Company stating that the provisions of this Section have been complied with in connection with such designation.

ARTICLE 6
Defaults

Section 6.01. Events of Default.  If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

(a)   the Company shall fail to pay when due any principal of any Loan, or shall fail to pay within 10 days of the due date thereof any interest on any Loan, any fees or any other amount payable hereunder;

(b)   the Company shall fail to observe or perform any covenant or agreement contained in Article 5 for 90 days after notice thereof has been given to the Company by the Agent at the request of any Bank;

(c)   any representation or warranty made by the Company (i) in Article 4 or (ii) pursuant to Section 3.02 on the date of any Borrowing shall prove to have been incorrect in any material respect when made (or deemed made);

(d)   the Company or any of its Subsidiaries shall fail to pay the principal of or interest on Material Debt when due, or within any applicable grace period, in accordance with the instrument or agreement under which the same was created;

(e)   any event or condition shall occur (including failure to pay principal or interest) which results in the acceleration of the maturity of Material Debt;

(f)    the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Company in an involuntary case under the Federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable Federal or State bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or

(g)   the commencement by the Company of a voluntary case under the Federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable Federal or State bankruptcy, insolvency or other similar law, or the

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consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action;

then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Company terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding more than 50% in aggregate principal amount of the Loans, by notice to the Company declare the Loans (together with accrued interest thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company; provided that in the case of any of the Events of Default specified in clause (f) or (g) above, without any notice to the Company or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company.

Section 6.02. Notice of Default.  The Agent shall give notice to the Company under Section 6.01(b) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

Section 6.03. Cash Cover.  The Company agrees, in addition to the provisions of Section 6.01 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Agent upon the instruction of the Banks having more than 50% of the Letter of Credit Liabilities, pay to the Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements satisfactory to the Agent) equal to the aggregate amount available for drawing under all Letters of Credit outstanding at such time, provided that, upon the occurrence of any Event of Default specified in Section 6.01(f) or 6.01(g) with respect to the Company, the Company shall pay such amount forthwith without any notice or demand or any other act by the Agent or the Banks.

ARTICLE 7
The Agent

Section 7.01. Appointment and Authorization.  Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto.

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Section 7.02. Agent and Affiliates.  JPMorgan Chase Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and JPMorgan Chase Bank and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or affiliate of the Company as if it were not the Agent hereunder.

Section 7.03. Action by Agent.  The obligations of the Agent hereunder are only those expressly set forth herein.  Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6.

Section 7.04. Consultation with Experts.  The Agent may consult with legal counsel (who may be counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 7.05. Liability of Agent.   Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or, when expressly required hereby, all the Banks or (ii) in the absence of its own gross negligence or willful misconduct.  Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing or issuance of a Letter of Credit  hereunder; (ii) the performance or observance of any of the covenants or agreements of the Company; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith.  The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties.

Section 7.06. Indemnification.  Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, and any Issuing Bank, their affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Company) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitee’s gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any Letter of Credit or any action taken or omitted by such indemnitees hereunder or thereunder.

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Section 7.07. Credit Decision.  Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement.

Section 7.08. Successor Agent.  The Agent may resign at any time by giving 30 days’ notice thereof to the Banks and the Company.  Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent.  If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000.  Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder.  After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

Section 7.09. Agent’s Fee.  The Company shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Company and the Agent.

ARTICLE 8
Change in Circumstances

Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair.  If on or prior to the first day of any Interest Period for any Fixed Rate Loans:

(a)   the Agent is advised by the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Banks in the relevant market for such Interest Period, or

(b)   in the case of Euro-Dollar Loans, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro–Dollar Loans for such Interest Period,

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the Agent shall forthwith give notice thereof to the Company and the  Banks, whereupon until the Agent notifies the Company that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro–Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto.  Unless the Company notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Euro-Dollar Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Competitive Bid LIBOR Borrowing, the Competitive Bid LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day.

Section 8.02. Illegality.  (a) If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro–Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro–Dollar Lending Office) to make, maintain or fund its Euro–Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Company, whereupon until such Bank notifies the Company and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro–Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be suspended.  Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro–Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the sole judgment of such Bank, be otherwise disadvantageous to such Bank.

(b)   If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (ii) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day.  Interest and principal on any such Base Rate Loan shall be payable on the same dates as, and on a pro rata basis with, the interest and principal payable on the related Euro-Dollar Loans of the other Banks.

Section 8.03. Increased Cost and Reduced Return.  (a) If on or after (x) the date hereof, in the case of any Committed Loan or Letters of Credit or any

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obligation to make Committed Loans or issue or participate in any Letters of Credit or (y) the date of the related Competitive Bid Quote, in the case of any Competitive Bid Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) or any Issuing Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro–Dollar Loan any such requirement included in an applicable Euro–Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit (including letters of credit and participations therein) extended by, any Bank (or its Applicable Lending Office) or any Issuing Bank or shall impose on any Bank (or its Applicable Lending Office) or any Issuing Bank or on the London interbank market any other condition affecting its Fixed Rate Loans or the Letters of Credit, its Note, its obligation to make Fixed Rate Loans or its obligations hereunder in respect of Letters of Credit and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) or such Issuing Bank of making or maintaining any Fixed Rate Loan or of issuing or participating in any Letters of Credit, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) or such Issuing Bank under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank or Issuing Bank to be material, then, within 15 days after demand by such Bank or Issuing Bank (with a copy to the Agent), the Company shall pay to such Bank or Issuing Bank such additional amount or amounts as will compensate such Bank or Issuing Bank for such increased cost or reduction.

(b)   If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency (including any determination by any such authority, central bank or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less, which shall be deemed a change in the interpretation and administration of such requirements)  has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed

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by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.

(c)   Each Bank will promptly notify the Company and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole judgment of such Bank, be otherwise disadvantageous to such Bank.  A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error.  In determining such amount, such Bank may use any reasonable averaging and attribution methods.  Notwithstanding the foregoing subsections  (a) and (b) of this Section 8.03, the Company shall only be obligated to compensate any Bank for any amount arising or accruing during (i) any time or period commencing not more than 90 days prior to the date on which such Bank notifies the Agent and the Company that it proposes to demand such compensation and identifies to the Agent and the Company the statute, regulation or other basis upon which the claimed compensation is or will be based and (ii) any time or period during which, because of the retroactive application of such statute, regulation or other such basis, such Bank did not know that such amount would arise or accrue.

Section 8.04. Taxes.  (a) For purposes of this Section 8.04, the following terms have the following meanings:

“Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Company pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located or by any State, possession or territory of the United States in which such Bank or the Agent (as the case may be) is doing business and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement.

“Other Taxes” means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note.

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(b)   Any and all payments by the Company to or for the account of any Bank or the Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Company shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions, (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Company shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof.

(c)   The Company agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank, including any Issuing Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto.  This indemnification shall be paid within 15 days after such Bank, including any Issuing Bank, or the Agent (as the case may be) makes demand therefor.

(d)   Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Company (but only so long as such Bank remains lawfully able to do so), shall provide the Company with Internal Revenue Service form W–8BEN or W–8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States.

(e)   For any period with respect to which a Bank has failed to provide the Company with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Company shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes.

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(f)    If the Company is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the sole judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.

Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans.  If (i) the obligation of any Bank to make, or to continue or convert outstanding Loans as or to, Euro–Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Company shall, by at least five Euro–Dollar Business Days’ prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, all Loans which would otherwise be made by such Bank as (or continued as or converted to) Euro–Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks).  If such Bank notifies the Company that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro–Dollar Loans of the other Banks.

ARTICLE 9
Miscellaneous

Section 9.01. Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party:  (x) in the case of the Company or the Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Company.  Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article 2 or Article 8 shall not be effective until received.

Section 9.02. No Waivers.  No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note or under any Letters of Credit shall operate as a waiver thereof nor shall any single or

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partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03. Expenses; Indemnification.  (a) The Company shall pay (i) all reasonable out–of–pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out–of–pocket expenses incurred by the Agent and each Bank (including any Issuing Bank), including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom.

(b)   The Company agrees to indemnify the Agent and each Bank (including any Issuing Bank), their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of any proceeds of any Loans or Letters of Credit hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.  The Company shall not be liable for any compromise or settlement entered into by an indemnified person without its consent, which consent shall not be unreasonably withheld.  Promptly after the receipt by the indemnified person of notice of its involvement in any investigative, administrative or judicial proceeding, such indemnified person shall, if a claim in respect thereof is to be made against the Company under this indemnification, notify the Company in writing of such involvement, unless prohibited by applicable law or regulations or if requested by any governmental agency or other regulatory authority (including any self-regulatory organization having, or claiming to have jurisdiction), but failure so to notify the Company shall not relieve the Company from any liability which it may otherwise have to the indemnified person under this indemnification except to the extent that the Company actually suffers prejudice as a result of such failure.

Section 9.04. Sharing of Set-offs.  Each Bank agrees that if it shall, by exercising any right of set–off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest then due with respect to the Loans and Letter of Credit Liabilities held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of

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principal and interest then due with respect to the Loans and Letter of Credit Liabilities held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans and Letter of Credit Liabilities held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set–off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Company other than its indebtedness hereunder.  The Company agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan or Letter of Credit Liability, if acquired pursuant to the foregoing arrangements or if the Company has otherwise received notice of the granting of such participation, may exercise rights of set–off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Company in the amount of such participation.

Section 9.05. Amendments and Waivers.  Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Banks (and, if the rights or duties of any Issuing Bank or the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon, or any fees hereunder (other than any fees referred to in Section 2.09(b)(ii) or Section 2.18(b)(ii) which may be mutually agreed between the Company and the Issuing Bank from time to time), (iii) postpone the date fixed for any payment of principal of or interest on any Loan or for reimbursement in respect of any Letter of Credit or any fees hereunder or for the termination of any Commitment (except for an extension of the Commitments issued by each Bank whose Commitment is extended), or (except as expressly provided in Section 2.18) the expiry date of any Letter of Credit, or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement.

Section 9.06. Successors and Assigns.  (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks.

(b)   Any Bank may at any time grant to one or more banks or other institutions (each a “Participant”) participating interests in its Commitment, including all or a portion of its Loans and/or Letter of Credit Liabilities at the time

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owing to it.  In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Company and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Company and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement.  Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Company hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant.  The Company agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest.  An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c)   Any Bank may at any time assign to one or more banks or other institutions (each an “Assignee”) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000) of its rights and obligations under this Agreement and its Note, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent (which may not be unreasonably withheld) of the Company (so long as no Event of Default exists) and the Agent; provided that, if an Assignee is an Approved Fund, an affiliate of such transferor Bank or was a Bank immediately before such assignment, no such consent shall be required, and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Competitive Bid Loans.  Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required.  Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Company shall make appropriate arrangements so that, if required and requested, a new Note is issued to the Assignee.  In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500.  If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Company and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04.

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(d)   Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank.  No such assignment shall release the transferor Bank from its obligations hereunder.

(e)   No Assignee, Participant or other transferee of any Bank’s rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company’s prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

(f)    The Agent, acting solely for this purpose as an agent of the Company, shall maintain at one of its offices in the State of Delaware or New York a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitments of, and principal amount of the Loans owing to and Letter of Credit Liabilities of, each Bank pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and the Company, the Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Company and any Bank, at any reasonable time and from time to time upon reasonable prior notice.

Section 9.07. Designated Banks.  (a) Subject to the provisions of this subsection (a), any Bank may at any time designate an Eligible Designee to provide all or a portion of the Loans to be made by such Bank pursuant to this Agreement; provided that such designation shall not be effective unless the Company and the Agent consent thereto (which consents shall not be unreasonably withheld).  When a Bank and its Eligible Designee shall have signed an agreement substantially in the form of Exhibit H hereto (a “Designation Agreement”) and the Company and the Agent shall have signed their respective consents thereto, such Eligible Designee shall become a Designated Bank for purposes of this Agreement.  The Designating Bank shall thereafter have the right to permit such Designated Bank to provide all or a portion of the Loans to be made by such Designating Bank pursuant to Section 2.01 or 2.03, and the making of such Loans or portion thereof shall satisfy the obligation of the Designating Bank to the same extent, and as if, such Loans or portion thereof were made by the Designating Bank.  As to any Loans or portion thereof made by it, each Designated Bank shall have all the rights that a Bank making such Loans or portion thereof would have had under this Agreement and otherwise; provided that (x) its voting rights under this Agreement shall be exercised solely by its Designating Bank and (y) its Designating Bank shall remain solely responsible to the other parties hereto for the performance of such Designated Bank’s obligations under this Agreement, including its obligations in respect of the Loans or portion thereof made by it.  No additional Note shall be required to evidence

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the Loans or portion thereof made by a Designated Bank; and the Designating Bank shall be deemed to hold its Note as agent for its Designated Bank to the extent of the Loans or portion thereof funded by such Designated Bank.  Each Designating Bank shall act as administrative agent for its Designated Bank and give and receive notices and other communications on its behalf.  Any payments for the account of any Designated Bank shall be paid to its Designating Bank as administrative agent for such Designated Bank and neither the Company nor the Agent shall be responsible for any Designating Bank’s application of such payments.  In addition, any Designated Bank may, with notice to (but without the prior written consent of) the Company and the Agent, (i) assign all or portions of its interest in any Loans to its Designating Bank or to any financial institutions consented to by the Company and the Agent that provide liquidity and/or credit facilities to or for the account of such Designated Bank to support the funding of Loans or portions thereof made by it and (ii) disclose on a confidential basis pursuant to a confidentiality agreement satisfactory in form and substance to the Company any non-public information relating to its Loans or portions thereof to any rating agency, commercial paper dealer or provider of any guarantee, surety, credit or liquidity enhancement to such Designated Bank.

(b)   Each party to this Agreement agrees that it will not institute against, or join any other person in instituting against, any Designated Bank any bankruptcy, insolvency, reorganization or other similar proceeding under any federal or state bankruptcy or similar law, for one year and a day after all outstanding senior indebtedness of such Designated Bank is paid in full.  The Designating Bank for each Designated Bank agrees to indemnify, save, and hold harmless each other party hereto for any loss, cost, damage and expense arising out of its inability to institute any such proceeding against such Designated Bank.  This subsection (b) shall survive the termination of this Agreement.

Section 9.08. Collateral.  Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

Section 9.09. Governing Law; Submission to Jurisdiction.  This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York.  The Company hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby.  The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

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Section 9.10. Counterparts; Integration.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.11. Waiver of Jury Trial.  EACH OF THE COMPANY, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12. Confidentiality.  Each of the Agent, the Issuing Bank and the Banks agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to them and their affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section (in the case of the following clauses (i) and (ii)), (i) to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (ii) to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty’s professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section 9.12) or (iii) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Bank’s investment portfolio in connection with ratings issues with respect to such Bank, (g) with the consent of the Company or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Agent, the Issuing Bank or any Bank on a non-confidential basis from a source other than the Company.  For the purposes of this Section, “Information” means all information received directly or indirectly from the Company relating to the Company or its business, other than any such information that is available to the Agent, the Issuing Bank or any Bank on a non-confidential basis prior to disclosure by the Company.

54

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

	ROCKWELL COLLINS, INC.
	By:
	Title:
	Address:
	Attention:
	Telecopy:
Commitments
$49,000,000	JPMORGAN CHASE BANK
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$49,000,000	BANK OF AMERICA, N.A.
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$25,000,000	MIZUHO CORPORATE BANK, LTD.
	By:
	Title:
	Address:
	Attention:
	Telecopy:

$49,000,000	UBS AG, STAMFORD BRANCH
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$49,000,000	BANK ONE, NA (MAIN OFFICE CHICAGO)
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$40,000,000	CITICORP USA, INC. (CUSA)
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$49,000,000	WACHOVIA BANK, NATIONAL ASSOCIATION
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$40,000,000	MELLON BANK, N.A.
	By:
	Title:
	Address:
	Attention:
	Telecopy:

$40,000,000	WELLS FARGO BANK, NATIONAL ASSOCIATION
	By:
	Title:
	Address:
	Attention:
	Telecopy:
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$25,000,000	THE BANK OF NEW YORK
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$30,000,000	CREDIT LYONNAIS NEW YORK BRANCH
	By:
	Title:
	Address:
	Attention:
	Telecopy:
$25,000,000	U.S. BANK NATIONAL ASSOCIATION
	By:
	Title:
	Address:
	Attention:
	Telecopy:

$30,000,000	KEY BANK NATIONAL ASSOCIATION
	By:
	Title:
	Address:
	Attention:
	Telecopy:
Total Commitments
$500,000,000
	JPMORGAN CHASE BANK as Agent
	By:
	Title:
	Address:
	Attention:
	Telecopy:

EX-10.-Q-1

Exhibit 10-q-1

For Persons With a Change of Control Agreement

ROCKWELL COLLINS, INC.

PERFORMANCE UNIT AGREEMENT

             , 2002

Target Payment:	$
As Revised after September 11th events:
Cash Payout at Minimum Level:	$
Cash Payout at Goal Level:	$
Cash Payout at Maximum Level:	$

(PERSONAL AND CONFIDENTIAL)

(Name and Address)

Dear (Salutation):

We are pleased to confirm that, as a key employee of Rockwell Collins, Inc. and its subsidiaries (“Rockwell Collins” or the “Company”), you have been granted a performance unit award payable in a lump sum cash amount under the Rockwell Collins 2001 Long-Term Incentives Plan (the “Plan”).  Any payout of your performance unit is based on the achievement by Rockwell Collins of the goals for “Cumulative Free Cash Flow” for its fiscal years of 2002 and 2003 (the “Performance Period”) as set forth in the attached matrix (the “Matrix”).  The terms and conditions of your award are as set forth in more detail below.  Note that the cash payouts shown above for the minimum, goal and maximum levels are 75% of the amounts contemplated prior to September 11, 2001 and such amounts now reflect the 50% reduction in incentive opportunities relating to FY 2002 and no reduction for FY 2003.

1.             Confirmation of Award.  This performance unit agreement (this “Agreement”) confirms your award in accordance with the terms as set forth herein.  There is no need on your part to sign or return any documentation to confirm your acceptance of this award.  If you send any correspondence to the Company in connection with this Agreement, please direct it to Rockwell Collins, 400 Collins Road, N.E., M/S 124-323, Cedar Rapids, Iowa 52498, Attention:  Corporate Secretary.

2.             Amount of Cash Payable Pursuant to Award.  Subject to the provisions of paragraphs 5 through 11, the amount of cash payable to you pursuant to your award shall be determined as follows:

(a)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period equals the minimum level for the Performance Period as set forth in the attached Matrix, the amount of

cash payable to you will be your “Cash Payout at Minimum Level” set forth on the first page of this letter.

(b)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period equals or exceeds the maximum level for the Performance Period as set forth in the attached Matrix, the amount of cash payable to you will be your “Cash Payout at Maximum Level” set forth on the first page of this letter.

(c)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period equals the goal level for the Performance Period as set forth in the attached Matrix, the amount of cash payable to you will be your “Cash Payout at Goal Level”  set forth on the first page of this letter.

(d)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period exceeds the minimum level for the Performance Period, but is less than the goal level for the Performance Period, the amount of cash payable to you will be interpolated between your “Cash Payout at Minimum Level” and “Cash Payout at Goal Level” consistent with the range in which the Cumulative Free Cash Flow falls, as conclusively determined by the Committee (as defined below).

(e)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period exceeds the goal level for the Performance Period, but is less than the maximum level for the Performance Period, the amount of cash payable to you will be interpolated your “Cash Payout at Goal Level” and “Cash Payout at Maximum Level” consistent with the range in which the Cumulative Free Cash Flow falls, as conclusively determined by the Committee (as defined below).

(f)            No cash shall be payable for any Performance Period if the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) for the Performance Period is less than the minimum level for the Performance Period.

Subject to the provisions of paragraphs 5 through 11, the cash payable to you pursuant to this performance award with respect to the Performance Period shall be paid in a lump sum, less applicable taxes, by Rockwell Collins as soon as practicable after the end of the Performance Period and after receipt of the accountants’ letter for the Performance Period pursuant to paragraph 12.

3.             Determination of Cumulative Free Cash Flow.  “Cumulative Free Cash Flow” means, for the Performance Period, the total cash provided by operating activities of Rockwell Collins, less capital expenditures and plus proceeds from the sale of property; provided, however, that the total cash provided by operating activities shall be increased by the one-time pension contribution of $37.9 million related to the spin-off

2

(net of related tax benefits).  Cumulative Free Cash Flow also excludes divestitures, acquisitions, dividends, debt activity and stock issuances/repurchases.  In connection with the receipt of the accountants’ letter for the Performance Period pursuant to paragraph 12, the committee of the Board of Directors of Rockwell Collins administering the Plan (which committee is herein called the “Committee” and which, on the date hereof, is the Compensation Committee) shall determine the Cumulative Free Cash Flow amount for the Performance Period after taking into account any adjustment as contemplated in paragraph 9.

4.             Transferability of Award.  This performance award shall not be transferable by you except by will or by the laws of descent and distribution.

5.             Termination of Employment for Death, Disability, Retirement or Elimination of Position.  If your employment by the Company terminates during the Performance Period by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will be entitled to receive as soon as practicable after the end of the Performance Period and after receipt of the accountants’ letter for the Performance Period pursuant to paragraph 12 a payment of cash, if any, that would otherwise be payable pursuant to paragraph 2, but such amount shall be pro rated for the portion of the Performance Period that elapsed prior to this termination of employment.  For the avoidance of doubt, it is understood that in determining the proration for these purposes the Company will take into account the 50% reduction in incentive opportunities relating to FY 2002.

6.             Termination of Employment for Other Reasons.  Except as otherwise provided in paragraphs 8 through 11, if your employment by the Company terminates during the Performance Period other than by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will not be entitled to any payment of cash pursuant to paragraph 2 with respect to the Performance Period.

7.             Forfeiture of Award for Detrimental Activity.  If you engage in detrimental activity (as defined in this paragraph 7) at any time (whether before or after termination of your employment), you will not be entitled to any payment of cash hereunder and you will forfeit all rights with respect to the performance award under this Agreement.  For purposes of this paragraph 7, “detrimental activity” shall mean willful, reckless or grossly negligent activity that is determined by the Committee to be detrimental to or destructive of the business or property of the Company.  Any such determination of the Committee shall be final and binding for all purposes.  Notwithstanding the foregoing, no payment hereunder shall be forfeited or become not payable by virtue of this paragraph 7 on or after the date of a Change of Control (as defined in the Plan) unless the “Cause” standard set forth in paragraph 10(b) is satisfied.

8.             Transfer of Employment; Leave of Absence.  For the purposes of this Agreement, (a) a transfer of your employment from Rockwell Collins to a subsidiary or vice versa, or from one subsidiary of Rockwell Collins to another, without an

3

intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employ of Rockwell Collins or a subsidiary of Rockwell Collins during such leave of absence.

9.             Adjustments.  (a)  Adjustments (which may be increases or decreases) may be made by the Committee in the Cumulative Free Cash Flow targets to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances, including, without limitation, acquisitions or divestitures by or other material changes in the Company, provided that no adjustment shall be made which would result in an increase in your compensation if your compensation is subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code, as amended, or any successor provision, for the year with respect to which the adjustment occurs.

(b)           Subject to the provisions of paragraph 10, the determination of the Committee as to the terms of any adjustment made pursuant to this paragraph 9 shall be binding and conclusive upon you and any other person or persons who are at any time entitled to receipt of any payment pursuant to the award.

10.           Change of Control.  (a)     Notwithstanding any other provision, in the event that during the Performance Period your employment is terminated on or after a Change of Control (as defined in the Plan) (i) by the Company other than for Cause (as defined in paragraph 10(b)) or (ii) by you for Good Reason (as defined in paragraph 10(c)), your award shall become nonforfeitable and shall be paid out on the date your employment is so terminated as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Free Cash Flow for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2(c) of the cash that is equal to your “Cash Payout at Maximum Level” set forth on the first page of this letter.

(b)           For purposes of paragraphs 7 and 10(a), termination for “Cause” shall mean:

(i)            your willful and continued failure to perform substantially your duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Company which specifically identifies the manner in which the Company believes that you have not substantially performed your duties, or

(ii)           your willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

4

For purposes of this provision, no act or failure to act, on the part of you, shall be considered “willful” unless it is done, or omitted to be done, by you in bad faith or without reasonable belief that your action or omission was in the best interests of the Company.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company.  The cessation of employment of you shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duluy adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

(c)           For purposes of this Agreement, “Good Reason” shall mean:

(i)            the assignment to you of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities generally in effect prior to any Change of Control, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

(ii)           any failure by the Company to maintain your compensation at a level consistent with that generally in effect prior to any Change of Control, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

(iii)          the Company’s requiring you to be based at any office or location other than as provided on the day preceding the Change of Control hereof or the Company’s requiring you to travel on Company business to a substantially greater extent than required immediately prior to the Change of Control;

(iv)          any purported termination by the Company of your employment otherwise than for Cause; or

(v)           any failure by the Company to comply with and satisfy Section 16(b) of this Agreement.

For purposes of this paragraph 10(c), any good faith determination of “Good Reason” made by you shall be conclusive.  Anything in this Agreement to the contrary notwithstanding, a termination by you for any reason during the 30-day period immediately following the first anniversary of the Change of Control shall be deemed to be a termination for Good Reason for all puposes of this Agreement.

5

(d)           Notwithstanding any other provision, if a Change of Control (as defined in the Plan) occurs during the Performance Period the Cumulative Free Cash Flow for the Company for the Performance Period shall be deemed to be not less than the “goal” level set forth in the attached Matrix.

11.           Divestiture.  In the event that your principal employer is a subsidiary of Rockwell Collins that ceases to be such, then your employment shall be deemed to be terminated for all purposes as of the date on which your principal employer ceases to be a subsidiary of Rockwell Collins (herein called the Divestiture Date) and your award shall become nonforfeitable and shall be paid out on the Divestiture Date (x) as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Free Cash Flow for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2(c) of the cash that is equal to your “Cash Payout at Goal Level” set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee.  For the avoidance of doubt, it is understood that in determining the proration for these purposes the Company will take into account the 50% reduction in incentive opportunities relating to FY 2002.

12.           Accountants’ Letter.  As soon as practicable after the end of the Performance Period, the Committee shall obtain a letter or other communication from the Company’s Senior Vice President and Chief Financial Officer or the Vice President, Finance and Treasurer, or one of their successors or designees, to the effect that such person has reviewed the determination for the Performance Period of the Cumulative Free Cash Flow of the Company and that in such person’s opinion such determination has been made in accordance with paragraph 3.

13.           Employment Rights.  You shall not have any rights of continued employment with the Company as a result of this award, other than the payment rights expressly contemplated herein.

14.           Tax Withholding.  Upon any payment to you of cash hereunder, Federal income and other tax withholding (and state and local income tax withholding, if applicable) may be required by the Company in respect of taxes on income realized by you.  The Company may withhold such required amounts from your payments.

15.           Governing Law.  This Agreement and the award provided for hereunder shall be governed by and construed in accordance with the laws ofthe State ofIowa.

6

16.           Successors.

(a)           This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(b)           The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

17.           Entire Agreement.  This Agreement and the other terms applicable to performance units granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the performance units, and there are no representations, promises, covenants, agreements or understandings with respect to the performance units other than those expressly set forth in this Agreement and the Plan.

Sincerely yours,

ROCKWELL COLLINS, INC.

By:

Gary R. Chadick, Senior Vice President,
General Counsel and Secretary

7

EX-10.-Q-2

Exhibit 10-q-2

For Persons Not With a Change of Control Agreement

ROCKWELL COLLINS, INC.

PERFORMANCE UNIT AGREEMENT

             , 2002

Target Payment:	$
As Revised after September 11th events:
Cash Payout at Minimum Level:	$
Cash Payout at Goal Level:	$
Cash Payout at Maximum Level:	$

(PERSONAL AND CONFIDENTIAL)

(Name and Address)

Dear (Salutation):

We are pleased to confirm that, as a key employee of Rockwell Collins, Inc. and its subsidiaries (“Rockwell Collins” or the “Company”), you have been granted a performance unit award payable in a lump sum cash amount under the Rockwell Collins 2001 Long-Term Incentives Plan (the “Plan”).  Any payout of your performance unit is based on the achievement by Rockwell Collins of the goals for “Cumulative Free Cash Flow” for its fiscal years of 2002 and 2003 (the “Performance Period”) as set forth in the attached matrix (the “Matrix”).  The terms and conditions of your award are as set forth in more detail below.  Note that the cash payouts shown above for the minimum, goal and maximum levels are 75% of the amounts contemplated prior to September 11, 2001 and such amounts now reflect the 50% reduction in incentive opportunities relating to FY 2002 and no reduction for FY 2003.

1.  Confirmation of Award.  This performance unit agreement (this “Agreement”) confirms your award in accordance with the terms as set forth herein.  There is no need on your part to sign or return any documentation to confirm your acceptance of this award.  If you send any correspondence to the Company in connection with this Agreement, please direct it to Rockwell Collins, 400 Collins Road, N.E., M/S 124-323, Cedar Rapids, Iowa 52498, Attention:  Corporate Secretary.

2.  Amount of Cash Payable Pursuant to Award.  Subject to the provisions of paragraphs 5 through 11, the amount of cash payable to you pursuant to your award shall be determined as follows:

(a)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period equals the minimum

level for the Performance Period as set forth in the attached Matrix, the amount of cash payable to you will be your “Cash Payout at Minimum Level” set forth on the first page of this letter.

(b)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period equals or exceeds the maximum level for the Performance Period as set forth in the attached Matrix, the amount of cash payable to you will be your “Cash Payout at Maximum Level” set forth on the first page of this letter.

(c)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period equals the goal level for the Performance Period as set forth in the attached Matrix, the amount of cash payable to you will be your “Cash Payout at Goal Level”  set forth on the first page of this letter.

(d)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period exceeds the minimum level for the Performance Period, but is less than the goal level for the Performance Period, the amount of cash payable to you will be interpolated between your “Cash Payout at Minimum Level” and “Cash Payout at Goal Level” consistent with the range in which the Cumulative Free Cash Flow falls, as conclusively determined by the Committee (as defined below).

(e)           If the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) of the Company for the Performance Period exceeds the goal level for the Performance Period, but is less than the maximum level for the Performance Period, the amount of cash payable to you will be interpolated your “Cash Payout at Goal Level” and “Cash Payout at Maximum Level” consistent with the range in which the Cumulative Free Cash Flow falls, as conclusively determined by the Committee (as defined below).

(f)            No cash shall be payable for any Performance Period if the Cumulative Free Cash Flow (as determined pursuant to paragraph 3) for the Performance Period is less than the minimum level for the Performance Period.

Subject to the provisions of paragraphs 5 through 11, the cash payable to you pursuant to this performance award with respect to the Performance Period shall be paid in a lump sum, less applicable taxes, by Rockwell Collins as soon as practicable after the end of the Performance Period and after receipt of the accountants’ letter for the Performance Period pursuant to paragraph 12.

3.  Determination of Cumulative Free Cash Flow.  “Cumulative Free Cash Flow” means, for the Performance Period, the total cash provided by operating activities of Rockwell Collins, less capital expenditures and plus proceeds from the sale of property; provided, however, that the total cash provided by operating activities shall be

2

increased by the one-time pension contribution of $37.9 million related to the spin-off (net of related tax benefits).  Cumulative Free Cash Flow also excludes divestitures, acquisitions, dividends, debt activity and stock issuances/repurchases.  In connection with the receipt of the accountants’ letter for the Performance Period pursuant to paragraph 12, the committee of the Board of Directors of Rockwell Collins administering the Plan (which committee is herein called the “Committee” and which, on the date hereof, is the Compensation Committee) shall determine the Cumulative Free Cash Flow amount for the Performance Period after taking into account any adjustment as contemplated in paragraph 9.

4.  Transferability of Award.  This performance award shall not be transferable by you except by will or by the laws of descent and distribution.

5.  Termination of Employment for Death, Disability, Retirement or Elimination of Position.  If your employment by the Company terminates during the Performance Period by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will be entitled to receive as soon as practicable after the end of the Performance Period and after receipt of the accountants’ letter for the Performance Period pursuant to paragraph 12 a payment of cash, if any, that would otherwise be payable pursuant to paragraph 2, but such amount shall be pro rated for the portion of the Performance Period that elapsed prior to this termination of employment.  For the avoidance of doubt, it is understood that in determining the proration for these purposes the Company will take into account the 50% reduction in incentive opportunities relating to FY 2002.

6.  Termination of Employment for Other Reasons.  Except as otherwise provided in paragraphs 8 through 11, if your employment by the Company terminates during the Performance Period other than by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will not be entitled to any payment of cash pursuant to paragraph 2 with respect to the Performance Period.

7.  Forfeiture of Award for Detrimental Activity.  If you engage in detrimental activity (as defined in this paragraph 7) at any time (whether before or after termination of your employment), you will not be entitled to any payment of cash hereunder and you will forfeit all rights with respect to the performance award under this Agreement.  For purposes of this paragraph 7, “detrimental activity” shall mean willful, reckless or grossly negligent activity that is determined by the Committee to be detrimental to or destructive of the business or property of the Company.  Any such determination of the Committee shall be final and binding for all purposes.  Notwithstanding the foregoing, no payment hereunder shall be forfeited or become not payable by virtue of this paragraph 7 on or after the date of a Change of Control (as defined in the Plan) unless the “Cause” standard set forth in paragraph 10(b) is satisfied.

8.  Transfer of Employment; Leave of Absence.  For the purposes of this Agreement, (a) a transfer of your employment from Rockwell Collins to a subsidiary or

3

vice versa, or from one subsidiary of Rockwell Collins to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employ of Rockwell Collins or a subsidiary of Rockwell Collins during such leave of absence.

9.  Adjustments.  (a)  Adjustments (which may be increases or decreases) may be made by the Committee in the Cumulative Free Cash Flow targets to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances, including, without limitation, acquisitions or divestitures by or other material changes in the Company, provided that no adjustment shall be made which would result in an increase in your compensation if your compensation is subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code, as amended, or any successor provision, for the year with respect to which the adjustment occurs.

(b)           Subject to the provisions of paragraph 10, the determination of the Committee as to the terms of any adjustment made pursuant to this paragraph 9 shall be binding and conclusive upon you and any other person or persons who are at any time entitled to receipt of any payment pursuant to the award.

10.  Change of Control.  (a)  Notwithstanding any other provision, in the event that during the Performance Period your employment is terminated on or after a Change of Control (as defined in the Plan) (i) by the Company other than for Cause (as defined in paragraph 10(b)) or (ii) by you for Good Reason (as defined in paragraph 10(c)), your award shall become nonforfeitable and shall be paid out on the date your employment is so terminated as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Free Cash Flow for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2(c) of the cash that is equal to your “Cash Payout at Maximum Level” set forth on the first page of this letter.

(b)           For purposes of paragraphs 7 and 10(a), termination for “Cause” shall mean:

(i)            your willful and continued failure to perform substantially your duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Company which specifically identifies the manner in which the Company believes that you have not substantially performed your duties, or

(ii)           your willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

For purposes of this provision, no act or failure to act, on the part of you, shall be considered “willful” unless it is done, or omitted to be done, by you in bad faith or without

4

reasonable belief that your action or omission was in the best interests of the Company.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company.

(c)           For purposes of this Agreement, “Good Reason” shall mean:

(i)            the assignment to you of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities generally in effect prior to any Change of Control, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

(ii)           any failure by the Company to maintain your compensation at a level consistent with that generally in effect prior to any Change of Control, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

(iii)          the Company’s requiring you to be based at any office or location other than as provided on the day preceding the Change of Control hereof or the Company’s requiring you to travel on Company business to a substantially greater extent than required immediately prior to the Change of Control;

(iv)          any purported termination by the Company of your employment otherwise than for Cause; or

(v)           any failure by the Company to comply with and satisfy Section 16(b) of this Agreement.

For purposes of this paragraph 10(c), any good faith determination of “Good Reason” made by you shall be conclusive.

(d)           Notwithstanding any other provision, if a Change of Control (as defined in the Plan) occurs during the Performance Period the Cumulative Free Cash Flow for the Company for the Performance Period shall be deemed to be not less than the “goal” level set forth in the attached Matrix.

11.  Divestiture.  In the event that your principal employer is a subsidiary of Rockwell Collins that ceases to be such, then your employment shall be deemed to be terminated for all purposes as of the date on which your principal employer ceases to be a subsidiary of Rockwell Collins (herein called the Divestiture Date) and your award shall become nonforfeitable and shall be paid out on the Divestiture Date (x) as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Free Cash Flow for the Company for the Performance Period were sufficient to enable a

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payment to you pursuant to paragraph 2(c) of the cash that is equal to your “Cash Payout at Goal Level” set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee.  For the avoidance of doubt, it is understood that in determining the proration for these purposes the Company will take into account the 50% reduction in incentive opportunities relating to FY 2002.

12.  Accountants’ Letter.  As soon as practicable after the end of the Performance Period, the Committee shall obtain a letter or other communication from the Company’s Senior Vice President and Chief Financial Officer or the Vice President, Finance and Treasurer, or one of their successors or designees, to the effect that such person has reviewed the determination for the Performance Period of the Cumulative Free Cash Flow of the Company and that in such person’s opinion such determination has been made in accordance with paragraph 3.

13.  Employment Rights.  You shall not have any rights of continued employment with the Company as a result of this award, other than the payment rights expressly contemplated herein.

14.  Tax Withholding.  Upon any payment to you of cash hereunder, Federal income and other tax withholding (and state and local income tax withholding, if applicable) may be required by the Company in respect of taxes on income realized by you.  The Company may withhold such required amounts from your payments.

15.  Governing Law.  This Agreement and the award provided for hereunder shall be governed by and construed in accordance with the laws ofthe State ofIowa.

16.  Successors.

(a)           This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(b)           The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

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17.  Entire Agreement.  This Agreement and the other terms applicable to performance units granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the performance units, and there are no representations, promises, covenants, agreements or understandings with respect to the performance units other than those expressly set forth in this Agreement and the Plan.

Sincerely yours,

ROCKWELL COLLINS, INC.

By:

Gary R. Chadick, Senior Vice President,
General Counsel and Secretary

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EX-10.-R-1

Exhibit 10-r-1

AGREEMENT AND GENERAL RELEASE

NEAL J. KEATING, on the one hand, and ROCKWELL COLLINS, INC., on the other hand, have reached the following Agreement and General Release (hereinafter the “Agreement”).  In this Agreement, “EMPLOYEE” refers to NEAL J. KEATING, and “COMPANY” refers to Rockwell Collins, Inc. and its subsidiaries and affiliates.

FIRST:Benefits.

a)EMPLOYEE and COMPANY agree to the following:

i)EMPLOYEE will cease actively working for COMPANY as of 4:00 p.m. on May 28, 2002.   Thereafter, EMPLOYEE will remain on COMPANY’s active payroll from May 28, 2002 through the close of business on July 6, 2004 (hereinafter referred to as his “salary continuation period”), at which time EMPLOYEE will be placed on layoff.  EMPLOYEE will receive no additional pay or notice at the time of his layoff.  EMPLOYEE will not be expected to perform any work for the COMPANY during his salary continuation period and will not accrue vacation or receive long term disability insurance coverage.  During his salary continuation period, EMPLOYEE will be paid at his current monthly base salary rate as of May 28, 2002.  Except as provided in the Eighth Paragraph of this Agreement, COMPANY will continue to pay EMPLOYEE salary continuation whether or not he obtains other employment during the salary continuation period.  Except as otherwise provided in this Agreement, EMPLOYEE agrees to return to the COMPANY by no later than June 4, 2002 all property of the COMPANY which has been entrusted to EMPLOYEE for purposes of his employment including but not limited to company proprietary documents, company telephone lists, credit cards, keys, badges and personal digital assistants (such as a Palm Pilot).

ii)EMPLOYEE will receive a pro-rata (8/12ths) share of his Fiscal Year 2002 Incentive Compensation, less all applicable federal, state and local taxes and other applicable deductions, at the time the Fiscal Year 2002 ICP is paid out to the other participants and in accordance with and based upon Rockwell Collins Inc.’s Incentive Compensation Plan (“ICP”) and the enterprise performance criteria approved by the Compensation Committee of the COMPANY.  COMPANY and EMPLOYEE further agree that EMPLOYEE shall not be eligible to receive any incentive compensation or bonus for the COMPANY’s Fiscal Years 2003 and 2004.

iii)EMPLOYEE will receive a pro-rata (8/24ths) share of the Fiscal Years  2002-2003 cash long term incentive plan (“cash LTIP”) payment, less all applicable federal, state and local taxes and other applicable deductions, at the time the cash LTIP is paid out to the other participants and in accordance with and based upon the Rockwell Collins, Inc. 2001 Long-Term Incentives Plan and the enterprise performance criteria approved by the Compensation Committee of the COMPANY.  COMPANY and EMPLOYEE further agree that EMPLOYEE will not be eligible to participate in any future cash LTIP programs, if any, for the COMPANY’s Fiscal Years 2003 and 2004.

iv)EMPLOYEE shall not be eligible for award of any stock option grants after May 28, 2002.  Previously granted stock options may be exercised, will vest, and will be forfeited according to the terms and conditions of the COMPANY’S stock option plans and any written agreements between COMPANY and EMPLOYEE related thereto.

v)Within 15 days of EMPLOYEE signing this Agreement, COMPANY will pay EMPLOYEE for all of his accrued but unused vacation during EMPLOYEE’s employment with COMPANY through May 28, 2002, after taking into account EMPLOYEE’S use of vacation covering the period from May 28, 2002 through July 6, 2002.

b)        In addition, except as noted in subparagraph iii) below, COMPANY and EMPLOYEE agree that the EMPLOYEE will be provided the following benefits until July 6, 2004:

i)COMPANY will continue to provide EMPLOYEE a monthly car allowance of $1,700.

ii)Outplacement services or career transition counseling.

iii)Reimbursement for out of pocket income tax preparation/estate planning expenses in an amount not to exceed $5,000 for each Calendar Years 2002, 2003, and 2004 (EMPLOYEE may seek reimbursement for such expenses related to Calendar Year 2004 until April 15, 2005).

iv)An annual COMPANY paid executive physical in Fiscal Years 2002 and 2003.

v)Continued use of the COMPANY provided cellular telephone and continued use of the Sprint VPN FONCARD (the telephone bills of which are paid for by the COMPANY) for the sole purpose of seeking employment with another company.

vi)Medical, including vision and dental, benefits coverage for amounts and under terms and conditions comparable to that being provided to the active executive vice presidents working at the COMPANY during the salary continuation period.

vii)COMPANY will continue to pay the membership dues and assessments at the Elmcrest Country Club.

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viii)EMPLOYEE will be eligible to contribute to the COMPANY’s retirement savings plan for salaried employees (including the COMPANY matching contributions).

ix)COMPANY will permit EMPLOYEE to continue using the COMPANY-provided lap top computer currently in his possession, provided, however, that EMPLOYEE provides the COMPANY access to that computer by no later than June 4, 2002 so that COMPANY can inspect the hard drive and delete any COMPANY proprietary information or software, as necessary to comply with license agreements with third parties, contained therein and remove any COMPANY Network access.

x)Life insurance and other death benefit coverage for amounts and under terms and conditions comparable to that being provided to the active executive vice presidents working at the COMPANY during the salary continuation period (it being understood, however, that such benefits shall not include any short-term or long-term disability coverages).

c)COMPANY and EMPLOYEE specifically acknowledge and agree that any entitlement by EMPLOYEE to certain benefits provided by this First Paragraph is subject to forfeiture pursuant to the Eighth Paragraph of this Agreement.

d)        In addition, any COMPANY property used by EMPLOYEE during the salary continuation period must be returned to the COMPANY by no later than   July 6, 2004.

e)        EMPLOYEE agrees to inform the COMPANY’s General Counsel within two business days after obtaining full or part time reemployment whether as an employee, consultant, agent, director, or otherwise.

SECOND:No Obligation to Provide These Benefits Under Normal Policies.

EMPLOYEE acknowledges that, under COMPANY’S normal policies and procedures and absent this Agreement, he would receive only 13 weeks rather than 24 months of salary continuation and medical coverage between the date he stops work for the COMPANY and the date of his layoff, he would not receive pro-rata Fiscal Year 2002 incentive compensation, he would not receive a pro-rata Fiscal Years 2002-2003 cash LTIP payment; he would not be eligible to contribute to the COMPANY’s retirement savings plan for salaried employees (including the COMPANY matching contributions); he would not continue using the COMPANY-provided lap top computer currently in his possession; he would not receive a car allowance of $1,700 per month for two years to defray automobile expenses; and he would not be eligible to receive $5,000 in income tax preparation/estate planning benefits for three calendar years, to receive an annual COMPANY paid physical for two years, to receive continued use of his cellular telephone and Sprint VPN FONCARD for two years, to receive the country club membership paid for by the COMPANY for two years and to receive free outplacement services for two years, which benefits are set forth in the First Paragraph of this Agreement.

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THIRD:Complete Mutual Release.

EMPLOYEE and COMPANY agree to release each other and each of their predecessors, successors and assigns, any subsidiaries, any related companies, and the employees, directors, officials, agents, officers, representatives and attorneys of any of them, from all claims or demands EMPLOYEE or COMPANY may have based on EMPLOYEE’S employment with COMPANY or the termination of that employment.  This includes, but is not limited to, a release of any rights or claims EMPLOYEE may have under the Age Discrimination in Employment Act, which prohibits age discrimination in employment; under Title VII of the Civil Rights Act of 1964; or under any other federal, state or local laws or regulations prohibiting employment discrimination.  This also includes, but is not limited to, a release by EMPLOYEE of any claims for breach of contract or wrongful discharge, including but not limited to breach of any obligation contained in COMPANY’S offer of employment to EMPLOYEE, which is superceded by and rendered null and void by this Agreement.  Furthermore, this includes a release by EMPLOYEE of any claims under any and all state workers compensation  or unemployment statutes.  This release covers both claims that EMPLOYEE knows about and those he may not know about.  Notwithstanding the provisions of any state laws or statutes, and for the purpose of implementing a full and complete release, EMPLOYEE and COMPANY expressly acknowledge that this Agreement is intended to include all claims which EMPLOYEE does not know or suspect to exist in EMPLOYEE’S favor at the time of his signature on this Agreement, and that this Agreement will extinguish any such claims.

This release does not include, however, a release of EMPLOYEE’s rights, if any, to pension, retiree, health or similar benefits under the COMPANY’s standard retirement programs, to EMPLOYEE’s rights under the COMPANY’s stock option plans, or to any claims arising after EMPLOYEE signs this Agreement.

FOURTH:No Future Lawsuits.

EMPLOYEE promises never to file a lawsuit or request arbitration asserting any claims that are released in the Third Paragraph of this Agreement.  EMPLOYEE also promises never to file any claims for workers compensation, unemployment benefits, or with any administrative agencies or initiate a lawsuit or request arbitration asserting any claims that are released in the Third Paragraph of this Agreement.

FIFTH:Non-Release of Future Claims.

This Agreement does not waive or release any rights or claims that EMPLOYEE may have under the Age Discrimination in Employment Act which arise after the date the EMPLOYEE signs this Agreement.

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SIXTH:Consequences of EMPLOYEE’S Violation of Promises.

If a party breaks its or his promise in the Fourth Paragraph of this Agreement and files a lawsuit, request for arbitration or other claim or action based on legal claims that the party has released, that party will pay for all costs incurred by the other party, any related companies or the directors or employees of any of them, including reasonable attorneys’ fees, in defending against the claim.

SEVENTH:Confidentiality and Cooperation.

EMPLOYEE agrees to maintain strict confidentiality regarding the existence of and the terms and conditions in this Agreement except to show this Agreement to his personal attorney, personal accountant or any other personal adviser as required for the sole purpose of obtaining advice with respect to the terms and conditions hereof, provided that such person to whom disclosure is made agrees to be bound by the confidentiality provisions hereof.

EMPLOYEE agrees to reasonable cooperation with COMPANY in the defense or prosecution of any litigation, arbitration, or claim against or by any person or party.  COMPANY agrees to pay EMPLOYEE’S reasonable, documented, out-of-pocket  expenses in providing any such cooperation pursuant to the terms of this Paragraph.  EMPLOYEE shall not, however, be paid for his time or inconvenience in providing cooperation pursuant to the terms of this Paragraph.

EIGHTH:Non-Competition, Non-Solicitation and Confidential Information.

In consideration for the receipt of salary continuation and all of the other benefits set forth herein, the EMPLOYEE agrees that for a two year period commencing on the date EMPLOYEE signs this Agreement, EMPLOYEE shall not (i) directly or indirectly, except with the advance written approval, which shall not unreasonably be withheld, of the President and Chief Executive Officer of the COMPANY, engage or otherwise participate in any business which is competitive with any significant line of business of the COMPANY (other than through ownership of not more than 5% of the voting securities of any such competitive business) or (ii) solicit or induce any employee of the COMPANY to leave his or her employment with the COMPANY to accept employment or other engagement with any such competitive business.  In the event that EMPLOYEE breaches this undertaking, in addition to any and all other remedies the COMPANY may have, the EMPLOYEE shall reimburse the COMPANY for all monies paid to the EMPLOYEE by the COMPANY under this Agreement, salary continuation payments shall immediately and permanently cease, EMPLOYEE shall be laid off immediately and he forfeits his right to any future payments or benefits set forth in this Agreement.

In addition, EMPLOYEE acknowledges that, by virtue of his senior management position with the COMPANY, EMPLOYEE has detailed and extensive current knowledge of the COMPANY’s highly confidential and proprietary information, including but not limited to competitive operating and strategic plans and objectives, customer lists, cost structures and capabilities and that disclosure of such information to

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the COMPANY’s competitors would cause irreparable harm to the COMPANY.  EMPLOYEE agrees that he shall maintain such information as strictly confidential for a period of two years commencing on the date EMPLOYEE signs this Agreement.   In the event that EMPLOYEE breaches this undertaking, in addition to any and all other remedies the COMPANY may have, the EMPLOYEE shall reimburse the COMPANY for all monies paid to the EMPLOYEE by the COMPANY under this Agreement, salary continuation payments shall immediately and permanently cease, EMPLOYEE shall be laid off immediately and EMPLOYEE forfeits his right to any future payments or benefits set forth in this Agreement.

NINTH:Period for Review and Consideration of Agreement.

EMPLOYEE understands that EMPLOYEE has been given a period of 21 days to review and consider this Agreement before signing it.  EMPLOYEE further understands that EMPLOYEE may use as much of this 21-day period as EMPLOYEE wishes prior to signing.

TENTH:Non-Admission of Liability.

By making this Agreement, the COMPANY does not admit that it has done anything wrong.

ELEVENTH:Representation by Counsel.

EMPLOYEE was encouraged by COMPANY to consult with an attorney before signing this Agreement.

TWELFTH:EMPLOYEE’S Right to Revoke Agreement.

EMPLOYEE may revoke this Agreement within seven (7) days of EMPLOYEE’S signing it.  Revocation can be made by delivering a written notice of revocation to:

Gary R. Chadick

Senior Vice President, General Counsel & Secretary

Rockwell Collins, Inc.

400 Collins Road NE

Cedar Rapids, IA 52498

For this revocation to be effective, written notice must be received by Mr. Chadick no later than the close of business on the seventh day after EMPLOYEE signs this Agreement.  If EMPLOYEE revokes this Agreement, it shall not be effective or enforceable and EMPLOYEE will not receive the benefits described in this Agreement.

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THIRTEENTH:Arbitration.

Any and all disputes regarding this Agreement will be resolved by binding Arbitration pursuant to the “Mutual Agreement to Arbitrate Claims” between EMPLOYEE and COMPANY, and such arbitration to take place at the American Arbitration Association’s offices nearest to COMPANY’S Cedar Rapids, Iowa Headquarters.

FOURTEENTH:In the Event of a Change of Control.

EMPLOYEE agrees and understands that after this Agreement becomes effective, the Change of Control Agreement dated June 29, 2001 between EMPLOYEE and COMPANY becomes null and void and EMPLOYEE will not be entitled to any benefits so described in that Change of Control Agreement.

FIFTEENTH:Parties Affected.

This Agreement shall be binding on the EMPLOYEE and his heirs, successors, and legal representatives.  EMPLOYEE may not assign this Agreement or any of his rights hereunder and may not delegate any obligation hereunder.  This Agreement is intended to benefit EMPLOYEE and COMPANY, including its subsidiaries, affiliates, employees, directors, officers, agents, attorneys, successors, and assigns thereof.

SIXTEENTH:Equitable Relief

It is agreed that remedies for breach of the Eighth Paragraph of this Agreement shall include equitable relief in addition to any other legal remedies available to the COMPANY under the circumstances.

SEVENTEENTH:Governing Law

This Agreement is governed by the laws of the State of Iowa, without reference to its conflict of laws provisions.

EIGHTEENTH:Entire Agreement/Modifications

This is the entire agreement between EMPLOYEE and COMPANY regarding the subject matter hereof.  The “Mutual Agreement to Arbitrate Claims” agreement and EMPLOYEE’s October 15, 2001 stock option agreement are specifically incorporated herein by reference and shall continue to bind both parties.  COMPANY has made no promises of any kind pertaining to the subject matter hereof to EMPLOYEE other than those set forth in this Agreement.  Any amendment, modification or change to this Agreement shall not be binding unless in writing and duly executed by an authorized representative of both parties.  This Agreement may be executed in counterparts.

EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT.

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PLEASE READ THIS AGREEMENT CAREFULLY.  IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.  THIS AGREEMENT WILL NOT TAKE EFFECT FOR SEVEN (7) DAYS AFTER EMPLOYEE SIGNS IT.

IN WITNESS THEREOF, the parties have caused this Agreement to be signed below on the dates shown opposite their signatures.  This Agreement is effective upon the execution of this Agreement by both parties provided that prior to execution of this Agreement EMPLOYEE executes a resignation letter in which EMPLOYEE resigns from all corporate officer positions of the COMPANY.

Dated:	July 16, 2002		AN INDIVIDUAL
		By:	/s/ Neal J. Keating
			NEAL J. KEATING
Dated:	July 16, 2002		ROCKWELL COLLINS, INC.
		By:	/s/ William J. Richter
			WILLIAM J. RICHTER, SENIOR VICE PRESIDENT, HUMAN RESOURCES

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EX-10.-S-1

Exhibit 10-s-1

July 9, 2002

Mr. Donald R. Beall

Retired Non-Executive Chairman of the Board

Rockwell Collins, Inc.

5 Civic Plaza, Suite 320

Newport Beach, CA  92660-5956

Re:  Transition Agreement With Rockwell Collins, Inc. (the “Corporation”)

Dear Don:

This letter confirms the arrangements that have been recommended by the Compensation Committee and agreed upon by the Board of Directors under which you will act as a consultant to the Corporation for a transition period in connection with your stepping down as Chairman of the Board.  In effect, this agreement extends your role as a mentor and senior consultant to the executive management team that the Board of Directors found to be very beneficial during your service as Chairman of the Board.  You will make yourself available to the Corporation, at mutually convenient times and places, for such consulting services as may be requested by the undersigned or the Board of Directors of this Corporation.

It is understood that, separate from your duties as a continuing member of our Board of Directors, your responsibilities as a consultant will require you to devote a reasonable portion of your time to this work.  You will not be otherwise restricted in your business activities so long as they do not interfere with your reasonable availability to the Corporation.  It is agreed, however, that you will not engage in any activity which presents a conflict of interest in light of your relationship with the Corporation.

You will be treated as an independent contractor of the Corporation for purposes of this consulting arrangement.  Without limiting the generality of the foregoing, you shall not by reason of your services to the Corporation under this agreement be eligible for participation in or be entitled to benefits under any employee benefit plans or program sponsored by the Corporation.

The Corporation will pay you a fee for these consulting services at the rate of $150,000 per year for the period July 1, 2002 to June 30, 2003 and at the rate of $50,000 per year for the period July 1, 2003 to June 30, 2004, payable quarterly in advance during the period of this agreement.  The Corporation will also reimburse you for reasonable travel expenses and for out-of-pocket expenditures which you may incur in serving as a consultant to the Corporation.

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If this correctly sets forth our understanding, please sign the duplicate original of this letter and return it to me.

Sincerely,

ROCKWELL COLLINS, INC.

/s/	Clayton M. Jones
Clayton M. Jones
Chairman, President and Chief Executive Officer
ACCEPTED:
/s/	Donald R. Beall
Donald R. Beall

EX-12

Exhibit 12

ROCKWELL COLLINS, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

NINE MONTHS ENDED JUNE 30, 2002

(in millions, except ratio)

EARNINGS AVAILABLE FOR FIXED CHARGES:
Income before income taxes	$	241
Add fixed charges included in earnings:
Interest expense	4
Interest element of rentals	5
Total earnings available for fixed charges	$	250
FIXED CHARGES:
Fixed charges included in earnings	$	9
Capitalized interest	—
Total fixed charges	$	9
RATIO OF EARNINGS TO FIXED CHARGES (1)	27.8

(1)In computing the ratio of earnings to fixed charges, earnings are defined as income before income taxes and accounting change, adjusted for income or loss attributable to minority interests in subsidiaries, undistributed earnings of less than majority owned subsidiaries, and fixed charges excluding capitalized interest. Fixed charges are defined as interest on borrowings (whether expensed or capitalized) and that portion of rental expense applicable to interest. Our ratio of earnings to combined fixed charges and preferred stock dividends for the period above are the same as our ratio of earnings to fixed charges because we had no shares of preferred stock outstanding for the period presented and currently have no shares of preferred stock outstanding.

EX-99.1

Exhibit 99.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Rockwell Collins, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2002 (the “Report”) filed with the Securities and Exchange Commission, I, Clayton M. Jones, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Company’s Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 5, 2002	/s/ Clayton M. Jones
	Clayton M. Jones
	Chairman, President and
	Chief Executive Officer

EX-99.2

Exhibit 99.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Rockwell Collins, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2002 (the “Report”) filed with the Securities and Exchange Commission, I, Lawrence A. Erickson, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Company’s Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 5, 2002	/s/ Lawrence A. Erickson
	Lawrence A. Erickson
	Senior Vice President and
	Chief Financial Officer