-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LULuf6AAU1pMy57rRal33ENnO18iCkHV2qxPA1jnkSIOVPfdmyRHuhmgZGTSnfQh iaRtfKLwHEAw1Pi/m8tk9A== 0000217346-94-000009.txt : 19940331 0000217346-94-000009.hdr.sgml : 19940331 ACCESSION NUMBER: 0000217346-94-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXTRON INC CENTRAL INDEX KEY: 0000217346 STANDARD INDUSTRIAL CLASSIFICATION: 3720 IRS NUMBER: 050315468 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-05480 FILM NUMBER: 94518952 BUSINESS ADDRESS: STREET 1: 40 WESTMINSTER ST CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014212800 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TEXTRON INC DATE OF NAME CHANGE: 19710510 10-K 1 ANNUAL REPORT ON FORM 10-K ___________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 1994 Commission File Number 1-5480 Textron Inc. (Exact name of registrant as specified in charter) ______________ Delaware 05-0315468 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 Westminster Street, Providence, R.I. 02903 (401) 421-2800 Address and telephone number of principal executive offices) ______________ Securities registered pursuant to Section 12(b) of the Act: Each Exchange on Title of Class Registered Common Stock - par value $.125; (88,605,596 shares New York Stock Exchange outstanding at March 4, 1994) Pacific Stock Exchange Preferred Stock Purchase Rights Chicago Stock Exchange $2.08 Cumulative Convertible Preferred Stock, New York Stock Exchange Series A - no par value $1.40 Convertible Preferred Dividend Stock, Series B New York Stock Exchange (preferred only as to dividends) - no par value 9.25% Debentures due March 15, 2016 9.25% Subordinated Debentures due April 1, 2017 New York Stock Exchange 8 % Debentures due July 1, 2022 Securities registered pursuant to Section 12(g) of the Act: None 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 X . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant is $5,140,665,797 as of March 4, 1994. Portions of Textron's Annual Report to Shareholders for the fiscal year ended January 1, 1994 are incorporated by reference in Parts I and II of this Report. Portions of Textron's Proxy Statement for its Annual Meeting of Shareholders on April 27, 1994 are incorporated by reference in Part III of this Report. __________________________________________________ 2 PART I ITEM 1. BUSINESS OF TEXTRON* Textron is a multi-industry company which at the end of 1993 re- aligned its operations into six segments in two business sectors - Manufactur- ing and Financial Services. The Manufacturing sector consists of four busi- ness segments - Aircraft, Automotive, Industrial, and Systems and Components. The business segments of the Financial Services sector are Finance and Paul Revere. Information concerning each sector and the Divisions within each sec- tor is set forth or referred to below. Textron's focus on selected businesses and markets is intended to achieve balanced diversification in order to afford protection against economic cycles and to provide a means to concentrate on growth opportunities and tech- nologies in these businesses. Each Textron Division conducts its business under its own name with its own organization. Each Division's management has direct responsibility for its own operations, and for achieving its business plan as accepted after re- view with Textron's management. Centralized coordination and control to assure overall standards and performance are provided by Textron's executive staff from its corporate office at 40 Westminster Street, Providence, Rhode Island 02903; its telephone number is (401) 421-2800. ____________________ * Reference herein to "Textron" includes Textron Inc., its divisions and subsid- iaries. A Textron "Division" is a management-designated operating unit which may be comprised of an unincorporated division of Textron, a subsidiary of Textron, or an unincorporated division of a subsidiary. 3 Financial information by business segment and geographic area is incorporated herein by reference to pages 33, 59 and 60 of Textron's 1993 Annual Report to Shareholders. MANUFACTURING Information regarding the Manufacturing sector is contained on pages 2, 3, 7 through 19, 24, 25, 34 through 36, 45, 46 and 67 through 69 of Textron's 1993 Annual Report to Shareholders, which pages are incorporated herein by reference. The Aircraft segment consists of Bell Helicopter and Cessna. Bell Helicopter is among the largest domestic manufacturers of light and medium helicopters for military and civil uses, although certain of its competitors are substantially larger and more diversified aircraft manufacturers. In the light and medium helicopter market, Bell Helicopter has two major U.S. competitors and one major European competitor. Bell Helicopter markets its products worldwide through its own sales force as well as through independent representatives. Price, financing terms, aircraft performance and product support are significant factors in the sale of helicopters. Revenues of Bell Helicopter accounted for approximately 13%, 11% and 16% of Textron's total revenues in 1993, 1992 and 1991, respectively. Cessna is the world's largest designer and manufacturer of light and mid-sized business jets and single-engined utility turboprop aircraft. Cessna markets its products worldwide primarily through its own sales force as well as through independent representatives. Cessna has five major competitors, two of which are located in the U.S. and three overseas. Cessna's fanjets and turboprops compete with other aircraft that are comparable in size, speed, range, capacity, handling characteristics and price. The Divisions of the Automotive segment supply products primarily to automotive original equipment manufacturers. Products are marketed through the sales force of each Division. In general, these Divisions operate in markets 4 that are very competitive. These Divisions compete in their markets on the basis of price, product quality and delivery. The Divisions of the Industrial segment sell products to the industrial and consumer markets. Products are marketed through the sales force of each Division, and, where applicable, independent distributors, sales representatives and retailers. In general, these Divisions operate in markets that are very competitive. In varying degrees, these Divisions compete in their markets on the basis of price, product quality and performance, brand image, service and delivery. In 1993, Textron's Townsend Division was merged into the Camcar Division. Textron Lycoming Turbine Engine, the major line of business in the Systems and Components segment, is a supplier of propulsion systems and related products, with six major competitors in the gas turbine engine market. These competitors are based in the United States, Canada and Europe. Several of its competitors are substantially larger than Textron Lycoming Turbine Engine. All Divisions of the Systems and Components segment are subject to keen competition. Each Division markets its products through its own sales force and, where applicable, independent representatives. The principal competitive factors are price, reliability, product performance and, where applicable, product support. The Cadillac Gage Combat Vehicle Operations and the Cadillac Gage Control Systems Operations are being transferred to the Textron Marine and Land Systems Division and the HR Textron Division, respectively. FINANCIAL SERVICES Information regarding the Financial Services sector is contained on pages 3, 7, 20 through 22, 31, 32, 36, 37, 46, 63, 64 and 70 of Textron's 1993 Annual Report to Shareholders, which pages are incorporated herein by reference. Products of the Financial Services sector are marketed through company-owned sales offices and, where applicable, independent brokers. The insurance and consumer and commercial finance businesses are highly competitive and subject to regulation by various government authorities. 5 The Finance segment consists of Avco Financial Services and Textron Financial Corporation. Avco Financial Services competes with other consumer finance companies as well as companies which finance the sale of their own merchandise or the merchandise of others, industrial banks, and the personal loan departments of commercial banks and credit unions. Revenues of Avco Financial Services accounted for approximately 15%, 16% and 17% of Textron's total revenues in 1993, 1992 and 1991, respectively. Textron Financial Corporation competes with other commercial finance companies as well as institutional lenders, primarily banks. Price and service are the principal competitive factors in the Finance segment. Paul Revere is the leading provider of individual non-cancellable disability insurance in North America. Paul Revere competes with many other insurance companies offering similar products. Insurance companies compete on the basis of many factors including financial strength, pricing and other terms and conditions of products, commission structure, perceived stability of the insurer, claims paying ratings, service, name recognition and reputation. BACKLOG Information regarding Textron's backlog of government and commercial orders by business segment at the end of the past two fiscal years is contained on page 33 of Textron's 1993 Annual Report to Shareholders, which page is incorporated herein by reference. Approximately 47% of Textron's total backlog at January 1, 1994 represents orders which are not expected to be filled within the 1994 fiscal year. Approx- imately 76% of the total backlog is funded. GOVERNMENT CONTRACTS In 1993, 23% and 43% of the revenues of the Aircraft and Systems and Compo- nents segments, respectively, were generated by or resulted from contracts 6 with the United States Government. U.S. Government business is subject to competition, changes in procurement policies and regulations, the continuing availability of Congressional appropriations, world events, and the size and timing of programs in which Textron may participate. A substantial portion of Textron's government contracts are fixed-price or fixed-price incentive con- tracts, including some which are fixed-price incentive development contracts. Contracts which contain incentive pricing terms provide for upward or downward adjustments in the prices paid by the U.S. Government thereunder upon comple- tion of the contract or any agreed portion thereof, based on cost or other performance factors. U.S. Government contracts generally may be terminated in whole or in part at the convenience of the U.S. Government or if the contractor is in default. Upon termination of a contract for the convenience of the U.S. Government, the contractor is normally entitled to reimbursement for allowable costs incurred and an allowance for profit (up to a maximum equal to the con- tract price) or adjustment for loss if the contractor would have incurred a loss had the entire contract been completed. If, however, a contract is termi- nated for default: (i) the contractor is paid such amount as may be agreed upon for manufacturing materials and partially completed products accepted by the U.S. Government; (ii) the U.S. Government is not liable for the contrac- tor's costs with respect to unaccepted items and is entitled to repayment of advance payments and progress payments, if any, related to the terminated por- tions of the contract; and (iii) the contractor may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. Additional information regarding defense expenditures is contained on pages 34 through 36 of Textron's 1993 Annual Report to Shareholders, which pages are incorporated herein by reference. RESEARCH AND DEVELOPMENT Information regarding Textron's research and development expenditures is contained on pages 45 and 53 of Textron's 1993 Annual Report to Shareholders, which pages are incorporated herein by reference. 7 PATENTS AND TRADEMARKS Textron owns, or is licensed under, a number of patents and trademarks throughout the world relating to methods of manufacturing and products. Pat- ents and trademarks have been of value in the past and are expected to be of value in the future; however, the loss of any single patent or group of patents would not, in the opinion of Textron, materially affect the conduct of its business. ENVIRONMENTAL CONSIDERATIONS Textron's operations, like those of other companies engaged in similar businesses, are subject to numerous laws and regulations designed to protect the environment. Compliance with such laws has not had, and is not expected to have, a material effect on capital expenditures, earnings or the competitive position of Textron. Expenditures for environmental control facilities have not had, and are not expected to have, a material effect on capital expendi- tures, earnings or the competitive position of Textron. Additional information regarding environmental matters is contained on pages 30, 45 and 59 of Textron's 1993 Annual Report to Shareholders, which pages are incorporated herein by reference. EMPLOYEES At January 1, 1994, Textron had approximately 56,000 employees. ITEM 2. PROPERTIES At January 1, 1994, Textron operated a total of 146 plants located through- out the United States and 6 plants outside the United States. Of the total of 152 plants, Textron owned 112 and the balance was leased. In the aggregate, the total manufacturing space was approximately 27 million square feet. 8 In addition, Textron owns or leases offices, warehouse and other space at various locations throughout the United States and outside the United States. Textron also owns or leases such machinery and equipment as is necessary in the operation of its Divisions. Textron considers the productive capacity of the plants operated by each of its business segments to be adequate. In general, the plants and machinery are in good condition, are considered to be adequate for the uses to which they are being put, and are substantially in regular use. A material portion of the plant, machinery and equipment used by Textron Lycoming Turbine Engine at Stratford, Connecticut, is owned by the U.S. Govern- ment and is provided pursuant to facilities contracts which authorize the Divi- sion to use it without charge in the performance of government contracts. In addition, use is permitted under certain limited circumstances in the perfor- mance of commercial work if governmental approval is obtained and appropriate rentals are paid to the government. These facilities contracts are terminable by the U.S. Government at any time, but Textron does not anticipate that any such termination will occur so long as the facilities are required in the per- formance of material U.S. Government contracts, or that it will be prevented from using the facilities for commercial work so long as all governmental re- quirements are met. ITEM 3. LEGAL PROCEEDINGS In early 1989, Textron acquired Avdel plc, a fastening systems manufactur- ing business based in England, the total cost of which approximated $250 mil- lion. In February 1989, the U.S. Federal Trade Commission ("FTC") challenged the acquisition under antitrust law. On October 28, 1993, the FTC conditional- ly approved Textron's offer to settle the matter by licensing a new competitor for Avdel's MONOBOLT non-aerospace blind rivet and selling the licensee cer- tain manufacturing equipment of Avdel's U.S. operation. The settlement and approval of the license/divestiture are expected to become effective in 1994. Until the settlement becomes effective, Textron is precluded from consolidating in its financial statements the results of operations of Avdel and is therefore carrying its investment in Avdel at cost. 9 Since 1979, Textron has been engaged in arbitration in Switzerland with the Government of Iran concerning conflicting claims and counterclaims arising out of a 1975 helicopter coproduction agreement between its Bell Helicopter Division and the Government of Iran. The contract was terminated in 1978 and the arbitration started in 1979. Bell Helicopter and the Government of Iran are currently engaged in settlement discussions. In the opinion of management any costs incurred by Bell associated with the arbitration in excess of amounts previously reserved will not be material to Textron's net income or financial condition. On October 5, 1993, the Ohio Environmental Protection Agency ("Ohio EPA") issued a proposed consent order concerning compliance issues related to air emissions from Textron's Randall Division plant in Wilmington, Ohio. The Ohio EPA is seeking a civil penalty of $579,000. Textron is negotiating with the Ohio EPA to resolve the matter. In addition, there are pending or threatened against Textron and its sub- sidiaries lawsuits and other proceedings, some of which allege violations of federal government procurement regulations, involve environmental matters, or are or purport to be class actions. Among these suits and proceedings are some which seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; the cleanup of allegedly hazardous wastes; or, under federal government procurement regulations, could result in suspension or debarment of Textron or its subsidiaries from U.S. Government contracting for a period of time. These suits and proceedings are being defended or contested on behalf of Textron and its subsidiaries. On the basis of information presently available, Textron believes that any liability for the suits and proceedings mentioned above, or the impact of the application of relevant government regulations, would not have a material ef- fect on Textron's net income or financial condition. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of Textron's security holders during the last quarter of the period covered by this Report. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of Textron as of March 15, 1994. Unless otherwise indicated, the employer is Textron. Name Age Position James F. Hardymon 59 Chairman since 1993, and Chief Execu- tive Officer since 1992; formerly President, 1989 through 1993, and Chief Operating Officer, 1989 through 1991; Director since 1989. CORPORATE OPERATING MANAGEMENT Lewis B. Campbell 47 President and Chief Operating Officer since January 1994; formerly Execu- tive Vice President and Chief Operat- ing Officer, 1992 to 1993; Vice Presi- dent of General Motors (1988 to 1992) and General Manager of its GMC Truck Division (1991 to 1992), and General Manager of the Flint Automo- tive Division Buick - Oldsmobile - Cadillac Group (1988 to 1991); Director since January 1994. 11 Gary E. Atwell 50 Group Vice President since 1986. Richard H. Campbell 58 Group Vice President since 1992; formerly Group Vice President and President - Hardware Home Improvement Group of Black & Decker Corporation, 1989 to 1992. Herbert L. Henkel 45 Group Vice President since October 1993; formerly President of the Greenlee Textron Division, 1987 to October 1993. Fred L. Hubacker 49 Group Vice President and President Textron Acustar Plastics Inc. since May 1993; formerly Group Controller, Procurement and Supply Operations (1991 to April 1993) and Vice Presi- dent Finance, Acustar Inc. unit (1989 to 1991) of Chrysler Corporation. Derek Plummer 60 Group Vice President since 1986. Terry D. Stinson 52 Group Vice President since 1991; formerly President of the Hamilton Standard Division of United Technolo- gies Corporation, 1986 to 1991. Richard A. Watson 49 Group Vice President since 1990; formerly Vice President Textron and President Textron Investment Manage- ment Company Inc., 1986 to 1990. 12 CORPORATE STAFF MANAGEMENT Thomas P. Hollowell 50 Executive Vice President Corporate Development since 1992; formerly Managing Director of Bowles Hollowell Conner & Co., an investment banking firm, 1975 to 1992. Richard A. McWhirter 59 Executive Vice President and Chief Financial Officer since 1993; former- ly Senior Vice President and Secre- tary, 1991 to 1993; Senior Vice Presi- dent - Insurance and Environmental Affairs, 1988 to 1991. Thomas D. Soutter 59 Executive Vice President and General Counsel since 1985. William F. Wayland 58 Executive Vice President Administra- tion and Chief Human Resources Offi- cer since 1993; formerly Executive Vice President - Human Resources, 1989 to 1993. Frank Gulden 57 Senior Vice President - Human Resourc- es, since December 1993; formerly Group Vice President, 1990 to Decem- ber 1993; Vice President North and South America, Fastening Systems Group of Emhart Corporation, 1989 to 1990. Mary L. Howell 41 Senior Vice President Government and International Relations since 1993; 13 formerly Vice President - Government Affairs, 1985 to 1993. Edward C. Arditte 38 Vice President - Investor Relations and Risk Management since 1993; for- merly Vice President - Investor Rela- tions, 1991 to 1993; Director - Inves- tor Relations, 1990 to 1991; Assis- tant Treasurer, 1986 to 1990. Raymond W. Caine, Jr. 61 Vice President - Corporate Communica- tions since 1980. Robert B. Clendenen 51 Vice President - Audit and Business Ethics since 1988. Brian T. Downing 46 Vice President and Treasurer since 1986. Arnold M. Friedman 51 Vice President and Deputy General Counsel since 1984. Gregory E. Hudson 47 Vice President - Taxes since 1987. William P. Janovitz 51 Vice President and Controller since 1983. Cecil W. Labhart 61 Vice President - Information Systems Services since 1986. Karen A. Quinn-Quintin 36 Vice President and Secretary since 1993; formerly Director, Corporate Office Human Resources, 1992 to 1993; Manager, Corporate Office Personnel, 14 1991 to 1992; Manager, Group Insur- ance, 1989 to 1991. No family relationship exists between any of the individuals named above. PART II ITEM 5. MARKETS FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Textron's common stock is traded on the New York, Chicago and Pacific Stock Exchanges. Additional information regarding "Markets for the Regis- trant's Common Equity and Related Stockholder Matters" is contained on pages 65, 66 and on the inside back cover of Textron's 1993 Annual Report to Share- holders, which pages are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Information regarding "Selected Financial Data" is contained in the Five Year Summary on page 66 of Textron's 1993 Annual Report to Shareholders, which page is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" is contained in the Financial Review on pages 29 through 37 of Textron's 1993 Annual Report to Shareholders, which pages are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and the supplementary information listed in the accompanying index to financial statements and financial state- ment schedules are filed as part of this Report. 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding Textron's directors is contained on pages 2 through 6 of Textron's Proxy Statement for the 1994 Annual Meeting of Shareholders on April 27, 1994, which pages are incorporated herein by reference. Information regarding Textron's executive officers is included on pages 10 through 14 of Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION Information regarding "Executive Compensation" is contained on pages 15 through 20 of Textron's Proxy Statement for the 1994 Annual Meeting of Share- holders on April 27, 1994, which pages are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding "Security Ownership of Certain Beneficial Holders" is contained on page 9, and information regarding "Security Ownership of Manage- ment" is contained on pages 9 through 11, of Textron's Proxy Statement for the 1994 Annual Meeting of Shareholders on April 27, 1994, which pages are incorpo- rated herein by reference. 16 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is contained on page 20 of Textron's Proxy Statement for the 1994 Annual Meeting of Shareholders on April 27, 1994, which page is incorporated herein by refer- ence. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) Financial Statements and Schedules The consolidated financial statements, supplementary information and finan- cial statement schedules listed in the accompanying index to financial state- ments and financial statement schedules are filed as part of this Report. Exhibits 3.1 Restated Certificate of Incorporation of Textron as filed March 24, 1988. Incorporated by reference to Exhibit 3.1 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 3.2 By-Laws of Textron, restated December 10, 1992. Incorporated by reference to Exhibit 3.2 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. NOTE: Exhibits 10.1 through 10.19 below are management contracts or compensatory plans, contracts or agreements. 10.1A Supplemental Benefits Plan for Textron Key Executives effec- tive from and after December 16, 1987 ("Supplemental Plan"). 17 Incorporated by reference to Exhibit 10.1 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 10.1B Market Square Profit Sharing Plan Schedule to Supplemental Plan effective as of January 1, 1989, amended and restated as of December 10, 1991. Incorporated by reference to Exhibit 10.1(b) to Textron's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.1C Amendment to Market Square Profit Sharing Plan Schedule to Supplemental Plan effective December 30, 1992. Incorporated by reference to Exhibit 10.1(f) to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.1D Ex-Cell-O Salaried Retirement Plan Schedule to Supplemental Plan effective as of July 1, 1989, amended and restated as of July 1, 1991. Incorporated by reference to Exhibit 10.1(c) to Textron's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.1E First Amendment to Supplemental Plan effective as of April 25, 1990. Incorporated by reference to Exhibit 10.1(d) to Textron's Annual Report on Form 10-K for the fiscal year ended December 29, 1990. 10.1F Second Amendment to Supplemental Plan effective as of Septem- ber 25, 1991. Incorporated by reference to Exhibit 10.1(e) to Textron's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.2 Survivor Benefit Plan for Textron Key Executives effective from and after December 16, 1987. Incorporated by reference to Exhibit 10.2 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 18 10.3A Deferred Income Plan for Textron Key Executives effective from and after December 16, 1987. Incorporated by reference to Exhibit 10.3 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 10.3B First Amendment to Deferred Income Plan for Textron Key Execu- tives effective as of October 27, 1992. Incorporated by refer- ence to Exhibit 10.3(b) to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.4A Corporate Office Annual Incentive Compensation Plan executed on December 23, 1987. Incorporated by reference to Exhibit 10.4 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 10.4B First Amendment to Corporate Office Annual Incentive Compensa- tion Plan effective as of December 10, 1992. Incorporated by reference to Exhibit 10.4(b) to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.5A Textron 1982 Long-Term Incentive Plan ("1982 Plan"). Incorpo- rated by reference to Exhibit 10.5(a) to Textron's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. 10.5B First Amendment to 1982 Plan effective as of February 25, 1987. Incorporated by reference to Exhibit 10.5(b) to Textron's Annual Report on Form 10-K for the fiscal year ended January 3, 1987. 10.5C Second Amendment to 1982 Plan effective as of December 16, 1987. Incorporated by reference to Exhibit 10.5(c) to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 19 10.6A Textron 1987 Long-Term Incentive Plan ("1987 Plan") effective as of February 25, 1987, amended and restated as of April 27, 1988. Incorporated by reference to Exhibit 10.6 to Textron's Annual Report on Form 10-K for the fiscal year ended December 30, 1989. 10.6B First Amendment to 1987 Plan effective as of September 25, 1991. Incorporated by reference to Exhibit 10.6(b) to Textron's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.7A Textron 1990 Long-Term Incentive Plan ("1990 Plan") effective as of April 25, 1990. Incorporated by reference to Exhibit 10.7 to Textron's Annual Report on Form 10-K for the fiscal year ended December 30, 1989. 10.7B First Amendment to 1990 Plan effective as of September 25, 1991. Incorporated by reference to Exhibit 10.7(b) to Textron's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.7C Second Amendment to 1990 Plan effective as of December 10, 1992. Incorporated by reference to Exhibit 10.7(c) to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.8 Employment Agreement between Textron and James F. Hardymon dated November 24, 1989 ("Employment Agreement"). Incorporat- ed by reference to Exhibit 10.9 to Textron's Annual Report on Form 10-K for the fiscal year ended December 30, 1989. 10.9 Employment Agreement between Textron and Lewis B. Campbell dated as of September 22, 1992. Incorporated by reference to 20 Exhibit 10.9 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.10 Employment Agreement between Textron and Thomas P. Hollowell dated as of January 1, 1993. Incorporated by reference to Exhibit 10.10 to Textron's Annual Report Form 10-K for the fiscal year ended January 2, 1993. 10.11 Employment Agreement between Textron and Mary L. Howell dated as of May 4, 1993. 10.12 Employment Agreement between Textron and Richard A. McWhirter dated as of February 16, 1993. Incorporated by reference to Exhibit 10.11 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.13 Employment Agreement between Textron and Thomas D. Soutter dated as of March 1, 1985, as amended by Amendment to Employ- ment Agreement dated as of February 1, 1987 and Amendment to Employment Agreement dated as of February 1, 1988. Incorporat- ed by reference to Exhibit 10.11 to Textron's Annual Report on Form 10-K for the fiscal year ended December 30, 1989. 10.14 Employment Agreement between Textron and William F. Wayland dated January 1, 1989. Incorporated by reference to Exhibit 10.12 to Textron's Annual Report on Form 10-K for the fiscal year ended December 30, 1989. 10.15 Form of Indemnity Agreement between Textron and its directors and executive officers. Incorporated by reference to Exhibit A to Textron's Proxy Statement for its Annual Meeting of Shareholders on April 29, 1987. 21 10.16 Textron Executive Severance Plan effective December 16, 1987. Incorporated by reference to Exhibit 10.13 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 10.17A Pension Plan for Directors originally effective as of March 8, 1986, as amended by a First Amendment effective as of August 26, 1987. Incorporated by reference to Exhibit 10.14 to Textron's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. 10.17B Second Amendment to Pension Plan for Directors effective as of October 1, 1990. Incorporated by reference to Exhibit 10.16(b) to Textron's Annual Report on Form 10-K for the fis- cal year ended December 29, 1990. 10.18 Deferred Income Plan for Textron Directors effective May 26, 1993. 10.19 Additional Benefits for certain executive officers. Incorpo- rated by reference to Exhibit 10.16 to Textron's Annual Report on Form 10-K for the fiscal year ended January 2, 1988. 10.20A Credit Agreement dated as of November 1, 1993 among Textron, the Lenders listed therein and Bankers Trust Company as Admin- istrative Agent. 10.20B Line of Credit dated as of November 1, 1993 among Textron, the Lenders listed therein and Bankers Trust Company as Administra- tive Agent. 12.1 Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group. 22 12.2 Computation of ratio of income to fixed charges of Textron Inc. including all majority-owned subsidiaries. 13 Textron's 1993 Annual Report to Shareholders. Except for pages or items specifically incorporated by reference herein, Textron's 1993 Annual Report to Shareholders is furnished for the information of the Commission and is not filed as part of this Report. 21 Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such list. 23 Consent of Independent Auditors. 24.1 Power of attorney. 24.2 Certified copy of a resolution of the Board of Directors of Textron. (B) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this Report. SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 28th day of March, 1994. 23 TEXTRON INC. Registrant By: S/Arnold M. Friedman Arnold M. Friedman Attorney-in-fact Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on this 28th day of March, 1994, by the following persons on behalf of the registrant and in the capacities indicated: NAME TITLE * Chairman and Chief Executive Officer, James F. Hardymon Director (principal executive officer) * President and Chief Operating Lewis B. Campbell Officer, Director * Director H. Jesse Arnelle * Director Joseph R. Carter * Director R. Stuart Dickson * Director B.F. Dolan * Director William M. Ellinghaus * Director Webb C. Hayes, III 24 * Director John D. Macomber * Director Barbara Scott Preiskel * Director Sam F. Segnar * Director Jean Head Sisco * Director John W. Snow * Director J. Paul Sticht * Director Martin D. Walker * Director Thomas B. Wheeler * Executive Vice President and Richard A. McWhirter Chief Financial Officer (principal) financial officer) * Vice President and Controller William P. Janovitz (principal accounting officer) *By: S/Arnold M. Friedman Arnold M. Friedman Attorney-in-fact 25 TEXTRON INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Item 14(a) Form Annual Report Textron Inc. 10-K to Shareholders Report of Independent Auditors 38 Consolidated Statement of Income for each of the three years in the period ended January 1, 39 1994 Consolidated Balance Sheet at January 1, 1994 and January 2, 1993 40 Consolidated Statement of Cash Flows for each of the three years in the period ended January 1, 41 1994 Consolidated Statement of Changes in Shareholders' Equity for each of the three years in the period ended January 1, 1994 42 Summary of Significant Accounting Policies 43 - 45 Notes to Consolidated Financial Statements 45 - 64 Revenues and Income by Business Segment 33 Supplementary Information (Unaudited): Quarterly Financial Information 1993 and 1992 65 Financial Statement Schedules for each of the three years in the period ended January 1, 1994 III Condensed financial information of 26 registrant VIII Valuation and qualifying accounts 27 IX Short-term borrowings 28 X Supplementary income statement 29 information All other schedules are omitted because the conditions requiring the filing thereof do not exist or because the information required is included in the financial statements and notes thereto. 26 TEXTRON INC. SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For each of the three years in the period ended January 1, 1994 Financial information of the Registrant is omitted because condensed financial information of the Textron Parent Company Borrowing Group, which includes the Registrant and all of its majority-owned subsidiaries other than its finance and insurance subsidiaries, is shown on pages 61-62 of Textron's Annual Report to Shareholders. Management believes that the disclosure of financial information on the basis of the Textron Parent Company Borrowing Group results in a more meaningful presentation, since this group constitutes the Registrant's basic borrowing entity and the only restrictions on net assets of Textron's subsidiaries relate to its finance and insurance subsidiaries. The Registrant's investment in its finance and insurance subsidiaries is reflected under the caption "Investments in finance and insurance subsidiaries." The Textron Parent Company Borrowing Group received dividends of $93.5 million, $78.4 million and $78.2 million from its finance and insurance subsidiaries in 1993, 1992 and 1991, respectively. The portion of the net assets of Textron's finance and insurance subsidiaries available for cash dividends and other payments to the Textron Parent Company Borrowing Group is restricted by the terms of lending agreements and insurance statutory requirements. As of January 1, 1994, approximately $311 million of their net assets of $2.2 billion was available to be transferred to the Textron Parent Company Borrowing Group pursuant to these restrictions. For information concerning the Textron Parent Company Borrowing Group's long-term debt and restrictions contained in its debt agreements, see Note 8 to the consolidated financial statements appearing on pages 50-51 of Textron's 1993 Annual Report to Shareholders. 27 TEXTRON INC. SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For each of the three years in the period ended January 1, 1994 (In millions)
Allowance for credit losses on finance receivables 1993 1992 1991 Balance at beginning of year $ 212.4 $ 183.3 $ 176.0 Additions charged to income (a) 171.2 188.6 160.2 Deductions from reserves (b) (158.8) (176.1) (152.9) Acquisitions and other items (.2) 16.6 - Balance at end of year $ 224.6 $ 212.4 $ 183.3
(a) Exclude the effect of recoveries on accounts previously written off of $28.9 million, $28.2 million and $25.4 million in 1993, 1992 and 1991, respectively, which have been credited directly to income. (b) Consist primarily of receivables written off. 28 TEXTRON INC. SCHEDULE IX - SHORT-TERM BORROWINGS For each of the three years in the period ended January 1, 1994 (In millions)
End of year Maximum Average Weighted Weighted amount amount average average outstanding outstanding interest interest during the during the rate during Balance rate year year* the year* Year ended January 1, 1994 Commercial paper $ 2,778.0 3.7% $ 2,778.1 $ 2,557.1 3.7% Debt to banks 82.1 4.4% $ 203.2 133.0 3.8% TOTAL $ 2,860.1 3.7% $ 2,860.1 $ 2,690.1 3.7% Year ended January 2, 1993: Commercial paper $ 2,145.3 4.5% $ 2,510.3 $ 2,242.1 4.4% Debt to banks 269.6 4.4% $ 582.8 427.1 4.5% TOTAL $ 2,414.9 4.5% $ 3,043.4 $ 2,669.2 4.4% Year ended December 28, 1991: Commercial paper $ 1,948.2 5.6% $ 1,954.5 $ 1,841.5 6.8% Debt to banks 133.5 5.6% $ 170.3 120.3 8.5% TOTAL $ 2,081.7 5.6% $ 2,081.7 $ 1,961.8 6.9%
* The average amount outstanding during each year was computed by averaging the daily ending balances during the year. The weighted average interest rate during each year was determined based on daily outstanding principal amounts and excludes the cost of maintaining the lines of credit. NOTE: This schedule excludes borrowings under or supported by long-term credit facilities of the Textron Parent Company Borrowing Group. 29 TEXTRON INC. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION For each of the three years in the period ended January 1, 1994 (In millions)
Charged to costs and expenses 1993 1992 1991 Maintenance and repairs $ 104.2 $ 100.2 $ 113.8
TEXTRON INC. Index of Exhibits Annual Report on Form 10-K for the Fiscal Year Ended January 1, 1994 Exhibit Description 10.11 Employment Agreement between Textron and Mary L. Howell dated as of May 4, 1993. 10.17 Deferred Income Plan for Textron Directors effective May 26, 1993. 10.20A Credit Agreement dated as of November 1, 1993 among Textron, the Lenders listed therein and Bankers Trust Company as Administrative Agent. 10.20B Line of Credit dated as of November 1, 1993 among Textron, the Lenders listed therein and Bankers Trust Company as Administrative Agent. 12.1 Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group. 12.2 Computation of ratio of income to fixed charges of Textron Inc. including all majority-owned subsidiaries. 13 Textron's 1993 Annual Report to Shareholders. Except for pages or items specifically incorporated by reference herein, Textron's Annual Report to Shareholders is furnished for the information of the Commission and is not filed as part of this Report. 21 Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such list. 23 Consent of Independent Auditors. 24.1 Power of Attorney. 24.2 Certified copy of a resolution of the Board of Directors of Textron. EX-10.11 2 EXHIBIT EXHIBIT 10.11 EMPLOYMENT AGREEMENT AGREEMENT, dated as of May 4, 1993 between Textron Inc., a Delaware corporation (the "Corporation"), and Mary L. Howell (the "Executive"). WHEREAS, the Corporation currently employs the Executive in the position of Senior Vice President Government and International Relations and desires to continue such employment during the term of this Agreement, and the Executive is willing to continue such employment upon the terms and conditions set forth below; NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the parties hereto hereby agree as follows: 1. Employment. The Corporation hereby employs and engages the services of the Executive as one of its key principal executive officers with the position of Senior Vice President Government and International Relations of the Corporation for the "term of employment" set forth in Section 2 of this Agreement. The Executive agrees to serve the Corporation in such position as set forth in Section 3 of this Agreement for the term of employment. 2. Term of Employment. The Executive's "term of employment" (as that phrase is used herein) shall continue in effect through and including December 31, 1995, provided, however, that on January 1 of each year during the term of employment, commencing January 1, 1994, the term of employment shall automatically be extended for an additional year unless prior to such January 1 the Corporation gives written notice to the Executive of the Corporation's intention not to so extend the term of employment, and provided, further, that in the event the Executive's status is converted to that of an employee-consultant pursuant to Section 6(b) of this Agreement, the Executive's term of employment shall expire no earlier than the second anniversary of the effective date of such conversion. 3. Position and Duties. (a) During the term of employment the Executive's position, authority and responsibilities, the type of work she is asked to perform, and the status and stature of the people with whom she is asked to work, shall not be diminished during the term of employment, and the Executive's services shall be performed at the Corporation's Washington, D.C. office or at such other location as may be mutually agreed between the Corporation and the Executive. (b) The Executive agrees to devote her full business time during normal business hours to the business and affairs of the Corporation (except as otherwise provided herein) and to use her best efforts to promote the interests of the Corporation and to perform faithfully and efficiently the responsibilities assigned to her in accordance with the terms of this Agreement, to the extent necessary to discharge such responsibilities, except for (i) services on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities and (ii) periods of vacation and sick leave to which she is entitled. It is expressly understood and agreed that the Executive's continuing service on any boards and committees with which she shall be connected, as a member or otherwise, as of the date hereof, or any such service approved by the Corporation during the term of employment, shall not be deemed to interfere with the performance of the Executive's services to the Corporation pursuant to this paragraph (b). 4. Compensation and Other Terms of Employment. (a) Base Salary. During the term of employment, the Executive shall receive an annual base salary ("Base Salary"), payable in equal monthly installments, at an annual rate at least equal to the aggregate annual base salary payable to the Executive by the Corporation at the commencement of the term of employment. The Base Salary shall be reviewed and may be increased at any time and from time to time in accordance with the Corporation's regular practices. Any increase in the Base Salary shall not serve to limit or reduce any other obligation of the Corporation hereunder, and after any such increase the Base Salary shall not be reduced from such increased level. (b) Incentive Plans. As further compensation, the Executive will be eligible during the term of employment for participation in the Corporation's short-term incentive compensation plan in a participation level commensurate with her level of employment. The Executive shall also be eligible during the term of employment for awards of stock options and performance units under the Corporation's long-term incentive plan. In the event such plans are amended or superseded, the Executive shall be entitled to participate in the amended or successor plan at a level substantially equivalent to her participation in the plans immediately prior to such amendment or ^L succession. Any agreements existing as of the date hereof between the Corporation and the Executive providing for special incentive or similar benefits are continued by this Agreement. (c) Retirement, Savings and Other Executive Plans. In addition to the Base Salary and incentive plans as hereinabove provided, during the term of employment the Executive shall be entitled to participate in all savings, retirement, employee benefit and key executive plans generally available to executive officers of the Corporation. Nothing herein shall be construed to prevent the Corporation from amending or terminating any such plans to the extent currently permitted by the terms of such plans. Any agreements existing as of the date hereof between the Corporation and the Executive providing for special pension, retirement or similar benefits are continued by this Agreement. (d) Expenses. During the term of employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Corporation in effect as of the date hereof. (e) Office and Support Staff. During the term of employment, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, commensurate with her level of employment. (f) Vacation and Fringe Benefits. During the term of employment, the Executive shall be entitled to paid vacation and fringe benefits (including, but not limited to, travel facilities) in accordance with the policies of the Corporation in effect as of the date hereof. 5. Termination. (a) Death. Except for the obligations of the Corporation set forth in this paragraph (a), this Agreement shall terminate automatically upon the Executive's death. In the event of such termination, the Corporation shall pay to the Executive's estate all benefits and compensation accrued hereunder through the end of the month in which the Executive died. (b) Cause. The Corporation may terminate the Executive's employment for Cause. For purposes of the Agrement, "Cause" shall mean (i) an act or acts of dishonesty on the Executive's part which are intended to result in her substantial personal enrichment at the expense of the Corporation or (ii) any material violation by the Executive of her responsibilities set forth in Section 3 or Section 6(c) hereof which are demonstrably willful and deliberate on the Executive's part and which result in material injury to the Corporation or (iii) any material violation by the Executive of Textron's Business Conduct Guidelines. If the Executive's employment is terminated for Cause, the Corporation shall pay the Executive her full accrued Base Salary through the date of such termination at the rate in effect at the time of such termination, and the Corporation shall have no further obligations to the Executive under this Agreement. 6. Consulting Services. (a) In the event of the Executive's Disability (as hereinafter defined), the Executive's status shall automatically become that of an employee-consultant for the remainder of the term of employment. During such period, the Executive shall be required to provide services to the Corporation in accordance with paragraph (c) of this Section 6, but only to the extent the Executive has the ability to provide such services. Upon the completion of the term of employment, the Executive shall be entitled to receive (in addition to any other payments and benefits accrued as of such time) such disability benefits and other benefits as may be payable to the Executive under the terms of the employee benefit plans referred to in Section 4(c) hereof. "Disability' shall mean a disability which prevents the Executive from performing the services contemplated by Section 3 hereof for the entire remainder of the term of employment. (b) Notwithstanding any other provisions contained in this Agreement, the Corporation, at its option for any reason, or the Executive, for Good Reason (as hereinafter defined), may convert the Executive's status into that of an employee-consultant for the remainder of the term of employment in accordance with the procedures set forth in this paragraph (b). In the event the Corporation determines that the Executive shall no longer hold her present position or the Corporation intends to effect any change in the Executive's employment status that would constitute Good Reason, the Corporation shall give notice to the Executive of such determination or intention. In the event that the Executive claims that the Corporation has taken any action constituting Good Reason, the Executive shall give notice to the Corporation of such claim. In either event, the parties shall meet and attempt to reach a mutually satisfactory adjustment of the terms of the Executive's employment; provided, however, that the Executive shall not be obligated to accept any change in the terms of her employment proposed by the Corporation. If the Corporation and the Executive cannot reach a mutually satisfactory adjustment, either the Corporation or the Executive may then convert the Executive's status to that of an employee-consultant "Good Reason" shall mean: (i) without the express written consent of the Executive, (A) the assignment of the Executive to any duties or location inconsistent in any significant respect with the provisions of Section 3(a) hereof, or (B) any other significant change in the position, authority or responsibilities of the Executive (except as permitted by this Section 6); (ii) any failure by the Corporation to comply with any of the provisions of Section 4 hereof, other than an insubstantial and inadvertent failure remedied by the Corporation promptly after receipt of notice thereof given by the Executive; or (iii) any purported termination by the Corporation of the Executive's employment hereunder other than in accordance with, and as permitted by, this Agreement, it being understood and agreed that any such purported termination shall not be effective for any purpose of this Agreement. (c) In the event the Executive's status is converted to that of an employee-consultant as provided in this Section 6, the Executive shall continue to be a full-time employee of the Corporation and shall, except as limited by paragraph (a) of this Section 6, provide such advisory services concerning the business of the Corporation, of the same type and stature performed by the Executive prior to the conversion of her status to employee-consultant, as may reasonably be requested by the Corporation. The period during which the Executive serves as an employee-consultant pursuant to this Section 6 shall for all purposes of this Agreement be considered part of the term of employment. During such period, the Corporation shall continue to be bound by, and obligated to perform in all respects, all of the provisions of Section 4 hereof (except Section 4(e)), and, to the extent not inconsistent with this Section 6, all of the other provisions of the Agreement shall continue in full force and effect. During such period, the Executive shall not engage in any activities in competition with the Corporation and shall continue to be deemed an employee under all benefit plans and programs of the Corporation. 7. Non-Exclusivity of Rights. (a) Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Corporation or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Corporation or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any of its affiliated companies shall be payable in accordance with the terms of such plan or program. (b) Notwithstanding the foregoing, and in consideration of the premises contained in this Agreement, the ^L Executive specifically waives any rights she may have to receive any severance pay or other severance benefits under the Textron Executive Severance Plan and any other severance plan, program or agreement of the Corporation. 8. No Set-Off; Legal Fees. The Corporation's obligation to make the payments provided for herein and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation any set-off, counter-claim, recoupment, defense or other right which the Corporation may have against the Executive or others. Unless it is finally determined by a court of competent jurisdiction after all available appeals that the Corporation has validly terminated the Executive's employment for Cause, the Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Corporation or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus interest on the total unpaid amount determined to be payable hereunder, such interest to be calculated on the basis of the prime commercial lending rate announced by Morgan Guaranty Trust Company in effect from time to time, for the period commencing on the date of such contest and ending on the date on which the Corporation shall pay such total amount (such interest to be compounded quarterly). 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during her employment by the Corporation or any of its affiliated companies and which shall not be public knowledge. During and after the end of the term of employment, the Executive shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. 10. No Assignment. This Agreement is personal to the Executive and without the prior written consent of the Corporation shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mary L. Howell 4605 Rock Spring Road Arlington, VA 22207 If to the Corporation: Textron Inc. 40 Westminster Street Providence, Rhode Island 02903 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Corporation may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. s/Mary L. Howell Mary L. Howell TEXTRON INC. By s/William F. Wayland William F. Wayland Executive Vice President Administration and Chief Human Resources Officer ATTEST: s/Michael D. Cahn Michael D. Cahn Assistant Secretary (SEAL) EX-10.18 3 EXHIBIT EXHIBIT 10.18 Deferred Income Plan for Textron Directors This Plan is effective May 26, 1993 and replaces the plan previously in effect. Article I - Participation 1.1 Non-employee members of the Board of Directors of Textron may elect to defer receipt of all or any portion of earned Director's fees into either a stock unit account or an interest-bearing account. A Director must, however, defer a minimum of 25% of the annual Board retainer fee into the stock unit account. All other amounts de- ferred are at the election of the Director. 1.2 Each Director must file with Textron by December 1 a Deferral Elec- tion Form (Exhibit 1) indicating deferrals during the following calendar year. 1.3 For any complete calendar quarters remaining in the calendar year in which an individual becomes a non-employee Director, the Direc- tor may elect to defer Director's fees at any time before the start of such quarter(s). Article II - Deferred Income Accounts 2.1 For record-keeping purposes only, Textron shall maintain a stock unit account and an interest-bearing account. 2.2 Stock Unit Account The Stock Unit Account shall consist of Stock Units, which are fictional shares of Textron common stock accumulated and accounted for the sole purpose of determining the cash payout of any distribu- tion under this portion of deferred income. As of the end of each calendar quarter, Textron shall credit to the Stock Unit Account 125% (includes a 25% Premium contributed by Textron) of the amount the Director deferred into this account during the quarter. Textron shall also credit to this account Stock Units equal to the number of shares of Textron common stock that would have been allocated on account of dividends. The number of Stock Units Textron shall credit to the Stock Unit Account will equal the number of shares of Textron common stock that could have been purchased at a price per share equal to the average price per share of Textron common stock contributed to the Textron Savings Plan during that quarter. Half of the 25% Premium contributed by Textron shall vest (become nonforfeitable) on December 31 of the calendar year in which the deferred income otherwise would have been paid and the remaining half on the next December 31. The Premium will continue to vest after the termination of the Directorship. The Premium will vest only if the related deferred compensation is unpaid at the time of vesting. Unvested Premiums shall vest immediately upon the death or total disability as determined by the Textron Benefits Committee. Interest Account 2.3 As of the end of each calendar quarter Textron shall credit to the Interest Account an amount equal to interest on the average balance in the Interest Account during such quarter. The average balance will be computed by adding the opening and closing balances for the quarter and dividing by two. Interest will be credited at a rate determined from time to time by the Textron Benefits Committee. Article III - Payments 3.1 Payments or withdrawals from either the Stock Unit Account of the Interest Account or transfers between the two accounts shall not be allowed while the individual remains a Director of Textron. Prior to or at the time of the Director's resignation, removal, or retire- ment from the Board of Directors, the Director must elect a payment schedule. 3.2 Upon the Director's resignation, removal, or retirement from the Board of Directors, all amounts in the Stock Unit Account will be transferred to the Interest Account. The cash amount transferred will be determined by multiplying the current value of Textron common stock by the number of whole or fractional Stock Units in the Stock Unit Account. The current value shall be the average of the composite closing prices, as reported in the Wall Street Jour- nal for the ten trading days after the date of the Director's resignation, removal or retirement. 3.3 The Director may elect on the Payment Election Form (Exhibit 2) to receive (1) the entire amount in the Interest Account immediately following the end of the current quarter, (2) the entire amount in the following January, or (3) payments annually over a period of up to five years with the initial payment paid in the following Janu- ary. Annual installments shall be calculated each year by dividing the unpaid amount as of January 1 of that year by the remaining number of unpaid installments. 3.4 During the installment period, the unpaid balance in the Interest Account will continue to earn interest at the same rate as if the individual had continued as a Director. 3.5 If the Director or former Director dies before all payments have been made, payment(s) shall be made to the beneficiary designated on the Designation of Beneficiary form (Exhibit 3). In the event of death, the Benefits Committee shall choose in its sole discre- tion the payment schedule after considering the method of payment that may have been requested by the Director or by the beneficia- ries. The designated beneficiary may be changed from time to time by delivering a new Designation of Beneficiary Form to Textron. If no designation is made, or if the named beneficiary predeceases the Director, payment shall be made to the Director's estate. At the discretion of Textron, the payments to be made after the Director's resignation, removal, or retirement from the Board of Directors pursuant to this Article III may be accelerated in such amounts and at such times as the Benefits Committee determines. Article IV - Miscellaneous 4.1 Benefits provided under this Plan are unfunded obligations of Textron. Nothing contained in this Plan shall require Textron to segregate any monies from its general funds with respect to such obligations. 4.2 The Textron Benefits Committee shall be the plan administrator of this Plan and shall be solely responsible for its general adminis- tration and interpretation and for carrying out the provisions hereof, and shall have all such powers as may be necessary to do so. 4.3 Neither the Director nor any beneficiary nor any next-of-kin shall have the right to assign or otherwise alienate the right to receive payments hereunder, in whole or in part, which payments are express- ly agreed to be non-assignable and non-transferable, whether volun- tary or involuntary. Exhibit 1 TEXTRON INC. Deferred Income Plan for Textron Directors Deferral Election Form 1993 In accordance with the provisions of the Deferred Income Plan for Textron Direc- tors, I hereby elect to defer fees payable to me as indicated below. This deferment shall remain in effect until I shall have filed an election supersed- ing this election. Stock Unit Interest Account Account Annual Retainer % * % All Other Fees % % * Must be at least 25%. ______________________ _______________________ Signature Date Exhibit 2 TEXTRON INC. Deferred Income Plan for Textron Directors Payment Election Form Select One: _____ Pay full amount immediately following the end of the current calendar quarter. _____ Pay full amount in the following January. _____ Pay annually over __ (2 to 5) years beginning in the following January. Prior to making your selection you should consider the following: Half of the 25% Premium contributed by Textron shall vest on Decem- ber 31 of the calendar year in which the income was deferred and the remaining half on the next December 31. The Premium will vest only if the related deferred compensation remains unpaid during the vest- ing period noted above. If the related deferred compensation is paid prior to vesting, the unvested portion of the Premium is for- feited. ______________________ _______________________ Signature Date Exhibit 3 TEXTRON INC. Deferred Income Plan for Textron Directors Designation of Beneficiary I hereby designate the following individual(s) to receive from the Deferred Income Plan for Textron Directors any amounts payable in the event of my death. Social Security Percent of Name Number Address Payment ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ This designation is intended to replace all prior designations made by me for such amounts. ______________________ _______________________ Signature Date EX-10.20.A 4 EXHIBIT CREDIT AGREEMENT Dated as of November 1, 1993 Among TEXTRON INC. THE BANKS LISTED HEREIN AND BANKERS TRUST COMPANY, as Administrative Agent TEXTRON INC. CREDIT AGREEMENT dated as of November 1, 1993 TABLE OF CONTENTS Section Heading Page INTRODUCTION..................................... 1 RECITALS......................................... 1 Section 1 DEFINITIONS AND ACCOUNTING TERMS................. 1 1.1 Definitions...................................... 1 1.2 Accounting Terms................................. 14 Section 2 AMOUNTS AND TERMS OF COMMITMENTS AND LOANS; NOTES.................................. 15 2.1 Revolving Loans.................................. 15 2.2 Competitive Bid Loans............................ 17 2.3 Notices of Conversion/Continuation............... 19 2.4 The Revolving Notes and Competitive Bid Notes..................................... 20 2.5 Pro Rata Borrowings.............................. 21 2.6 Procedure for Extending Maturity Dates........... 22 2.7 Interest......................................... 23 2.8 Commissions and Fees............................. 26 2.9 Reductions in Commitments; Repayments and Payments.................................. 27 2.10 Use of Proceeds.................................. 31 2.11 Special Provisions Governing Eurodollar Rate Loans and/or Competitive Bid Loans......................... 31 2.12 Capital Requirements............................. 39 2.13 Special Continuing Competitive Bid Loans Provision............................... 40 Section 3 CONDITIONS TO LOANS.............................. 40 3.1 Conditions to Initial Loans...................... 40 3.2 Conditions to All Loans.......................... 42 3.3 Conditions to All Competitive Bid Loans......................................... 43 -i- 3.4 Conditions to Loans to Subsidiary Borrowers..................................... 43 Section 4 REPRESENTATIONS AND WARRANTIES................... 45 4.1 Organization, Powers and Good Standing........... 45 4.2 Authorization of Borrowing, etc.................. 45 4.3 Financial Condition.............................. 46 4.4 No Adverse Material Change....................... 47 4.5 Litigation....................................... 47 4.6 Payment of Taxes................................. 47 4.7 Governmental Regulation.......................... 47 4.8 Securities Activities............................ 48 4.9 ERISA Compliance................................. 48 4.10 Certain Fees..................................... 49 Section 5 AFFIRMATIVE COVENANTS............................ 49 5.1 Financial Statements and Other Reports........... 49 5.2 Corporate Existence.............................. 52 5.3 Payment of Taxes................................. 52 5.4 Maintenance of Properties; Insurance............. 52 5.5 Inspection....................................... 53 5.6 Compliance with Laws............................. 53 Section 6 NEGATIVE COVENANTS............................... 53 6.1 Merger........................................... 53 6.2 Liens............................................ 54 6.3 Financial Covenants.............................. 55 6.4 Existing Subordinated Debt....................... 56 6.5 Use of Proceeds.................................. 56 Section 7 EVENTS OF DEFAULT................................ 56 7.1 Failure to Make Payments When Due................ 56 7.2 Default in Other Agreements...................... 56 7.3 Breach of Certain Covenants...................... 57 7.4 Breach of Warranty............................... 57 7.5 Other Defaults Under Agreement................... 57 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc................................. 57 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc................................. 58 7.8 Judgments and Attachments........................ 59 7.9 Dissolution...................................... 59 7.10 ERISA Title IV Liabilities....................... 59 -ii- Section 8 AGENT............................................ 60 8.1 Appointment...................................... 60 8.2 Powers; General Immunity......................... 61 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness.............................. 62 8.4 Right to Indemnity............................... 63 8.5 Payee of Note Treated as Owner................... 63 8.6 Resignation by the Agent......................... 64 8.7 Successor Agent.................................. 64 Section 9 GUARANTEE........................................ 64 9.1 Guarantee........................................ 64 9.2 Obligation Not Affected by Certain Events........................................ 65 9.3 Guarantee a Guarantee of Payment................. 66 9.4 Obligation Not Subject to Limitation............. 66 9.5 Order of Payment................................. 67 9.6 Waiver by the Company............................ 68 Section 10 MISCELLANEOUS.................................... 68 10.1 Benefit of Agreement............................. 68 10.2 Expenses......................................... 71 10.3 Indemnity........................................ 71 10.4 Setoff........................................... 72 10.5 Ratable Sharing.................................. 72 10.6 Amendments and Waivers........................... 74 10.7 Independence of Covenants........................ 75 10.8 Notices.......................................... 75 10.9 Survival of Warranties and Certain Agreements.................................... 75 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative........................... 75 10.11 Severability..................................... 76 10.12 Obligations Several; Independent Nature of Banks' Rights....................... 76 10.13 Headings......................................... 76 10.14 APPLICABLE LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS............................ 76 10.15 Successors and Assigns; Subsequent Holders of Notes.............................. 77 10.16 Counterparts; Effectiveness...................... 78 SIGNATURE PAGES................................................. 79 -iii- EXHIBITS Exhibit A-1 - Form of Revolving Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B - Form of Opinion of Thomas D. Soutter, Esq., General Counsel of the Company Exhibit C - Form of Opinion of Cahill Gordon & Reindel Exhibit D-1 - Form of Notice of Syndicated Borrowing Exhibit D-2 - Form of Notice of Competitive Bid Borrowing Exhibit D-3 - Form of Notice of Conversion/Continuation Exhibit E - Form of Compliance Certificate Exhibit F - Form of Transfer Supplement EXHIBIT G - Form of Loan Assumption Agreement -iv- CREDIT AGREEMENT CREDIT AGREEMENT, dated as of November 1, 1993, among TEXTRON INC., a Delaware corporation (the "Company"), the BANKS signatory hereto (each a "Bank" and collectively the "Banks") and BANKERS TRUST COMPANY, a New York banking corporation ("BT Co"), as a Bank and as Administrative Agent for the Banks. W I T N E S S E T H : WHEREAS, the Company owns directly or indirectly all of the outstanding shares of capital stock of each of the Subsidiary Borrowers; WHEREAS, the Company desires that the Banks extend certain credit facilities to the Company and the Subsidiary Borrowers for the purposes set forth in Section 2.10; WHEREAS, each Bank is willing to extend its commitment to make loans to the Company and the Subsidiary Borrowers for such purposes on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the Company, the Banks and the Agent agree as follows: Section 1 DEFINITIONS AND ACCOUNTING TERMS 1.1 Definitions As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Adjusted Eurodollar Rate" means, for any Interest Period for a Eurodollar Rate Loan, the rate (rounded upward to the next highest one hundredth of one percent) obtained by dividing (i) the Eurodollar Rate for the first day of such Interest Period by (ii) a percentage equal to 100% minus the stated maximum rate of all reserves required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (or against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate 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). "Affected Bank" means any Bank affected by any of the events described in Section 2.11B or 2.11C hereof. "Affiliate" means, with respect to any Person, any Person or group of Persons acting in concert in respect of the Person in question that, directly or indirectly, controls or is controlled by or is under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person or group of Persons acting in concert, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" has the meaning assigned to that term in Section 8.1 hereof. "Agreement" means this Credit Agreement, as the same may at any time be amended, amended and restated, supplemented or otherwise modified in accordance with the terms hereof. "Applicable Margin" has the meaning set forth in Section 2.7. "Bank" and "Banks" have the respective meanings assigned to those terms in the introduction to this Agreement and its or their successors and permitted assigns. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy," as from time to time amended and any successor statutes. "Base Rate" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. "Base Rate Loans" are Syndicated Loans whose interest rate is based on Base Rate. "Board" means the Board of Governors of the Federal Reserve System. "Borrower" means each of the Company and each Subsidiary Borrower. "Borrowing" means the incurrence by any Borrower on a given date of Syndicated Loans. "BT Co" has the meaning assigned to that term in the introduction to this Agreement. "Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day on which banking institutions located in the State of New York are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with Eurodollar Rate Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in dollar deposits in the applicable interbank Eurodollar market. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Code" means the Internal Revenue Code of 1986, as from time to time amended. Any reference to the Code shall include a reference to corresponding provisions of any subsequent revenue law. "Commitment" means, at any time any determination thereof is to be made, the commitment (whether or not then utilized) of each Bank then in effect to extend credit hereunder, which initially shall be for each Bank the amount specified on the signature page hereto for such Bank. "Company" has the meaning assigned to that term in the introduction to this Agreement. "Competitive Bid Loan" means a Loan bearing interest at such rate and for such interest period, and on such other terms not inconsistent with the terms of this Agreement, as the applicable Borrower and the Bank making such Loan may mutually agree and which Loan is requested pursuant to a Notice of Competitive Bid Borrowing. "Competitive Bid Notes" means the promissory notes of the Borrowers issued pursuant to Section 2.4B hereto in substantially the form of Exhibit A-2 hereto. "Compliance Certificate" means a certificate substantially in the form annexed hereto as Exhibit E delivered to the Banks by the Company pursuant to Section 5.1B(i)(b). "Consolidated EBITDA" means, without duplication, for any consecutive four fiscal quarter period, the sum of the amounts for such period of (i) the Company's Consolidated Net Income, excluding therefrom any extraordinary items of gain or loss, plus (ii) the aggregate amount of cash dividends actually received by the Company or any of its Subsidiaries in respect of the capital stock of any Finance Company or Insurance Company and payable out of the net income for such period in which paid of any such Finance Company or Insurance Company, plus (iii) the aggregate amounts deducted in determining Consolidated Net Income for such period in respect of (a) the provision for taxes based on income of the Company and its Subsidiaries, (b) Consolidated Interest Expense and (c) depreciation and amortization, all as determined on a consolidated basis for the Company and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, for any consecutive four fiscal quarter period, total interest expense (including that attributable to Capital Leases in accordance with GAAP) of the Company and its Subsidiaries, all as determined on a consolidated basis in conformity with GAAP, with respect to all outstanding Indebtedness of the Company and its Subsidiaries. "Consolidated Net Income" means, for any consecutive four fiscal quarter period, the net income (or loss) of any Person (for purposes of this definition "Parent") and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Parent or is merged into or consolidated with Parent or any of its Subsidiaries or that Person's assets are acquired by Parent or any of its Subsidiaries. "Consolidated Net Worth" means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus/minus marketable equity securities valuation adjustment plus retained earnings (or minus accumulated deficit) plus $679,500,000 less the cost of treasury stock of the Company and its Subsidiaries on a consolidated basis (but excluding the effects of foreign currency translation adjustments under Financial Accounting Standards Board Statement No. 52) calculated in conformity with GAAP. "Contractual Obligation", as applied to any Person, means any provision of any security issued by that Person or of any material indenture, mortgage, deed of trust or other similar instrument of that Person under which Indebtedness is outstanding or secured or by which that Person or any of its properties is bound or to which that Person or any of its properties is subject. "Designation Date" means, with respect to any Subsidiary of the Company, the date on which the Company designates such Subsidiary as a Subsidiary Borrower. "Effective Date" has the meaning assigned to that term in Section 10.16 hereof. "Electing Holder" and "Electing Holders" have the meanings assigned to such terms in Section 2.6. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended, and any successor statute. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code or is a member of a controlled group, as defined in Section 414(b) of the Code, which includes such Person. "Eurodollar Rate" means, for any Interest Rate Determination Date, the arithmetic average (rounded upwards to the nearest 1/16 of 1%) of the offered quotation, if any, to first class banks in the Eurodollar market by each of the Reference Banks for U.S. dollar deposits of amounts in immediately available funds comparable to the principal amount of the Eurodollar Rate Loan of the Reference Bank for which the Eurodollar Rate is being determined with maturities comparable to the Interest Period for which such Eurodollar Rate will apply as of approximately 10:00 A.M. (New York time) two Business Days prior to the commencement of such Interest Period. If any Reference Bank fails to provide its offered quotation to Agent, the Eurodollar Rate shall be determined on the basis of the offered quotation(s) by the other Reference Bank(s). "Eurodollar Rate Loans" means Syndicated Loans or portions thereof during the period in which such Loans bear interest at rates determined in accordance with Section 2.7A hereof. "Event of Default" has the meaning assigned to that term in Section 7 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as from time to time amended, and any successor statutes. "Existing Subordinated Debt" means the indebtedness of the Company outstanding on the date of this Agreement pursuant to the Indenture dated as of May 1, 1985 with The Chase Manhattan Bank, N.A., as Trustee, as the same has been supplemented by the First Supplemental Subordinated Indenture and as in effect on the date of this Agreement. "Extension Notice" has the meaning assigned to that term in Section 2.6. "Facility Extension Date" means, unless such date is extended in accordance with Section 2.6, October 30, 1994 and, if so extended, then the date to which extended. "Federal Funds Rate" means on any one day the weighted average of the rate on overnight Federal funds transactions with members of the Federal Reserve System only arranged by Federal funds brokers as published as of such day by the Federal Reserve Bank of New York, provided that if such day is not a Business Day, the Federal Funds Rate shall be measured as of the immediately preceding Business Day. "Final Maturity Date" means October 30, 1996 unless such date is extended in accordance with Section 2.6 and, if so extended, then the date to which extended. "Finance Company" means any subsidiary of the Company which is primarily engaged in the business of a finance company. "Funding Date" means the date of the funding of a Loan made pursuant to a Notice of Borrowing but does not mean the date of any conversion or continuation of the interest rate applicable to any Loan pursuant to a Notice of Conversion/Continuation. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronounce- ments of the Financial Accounting Standards Board as in effect on October 2, 1993 and applicable to and used by the Company in the preparation of the unaudited financial statements of the Company included in the Company's report on Form 10-Q for the fiscal quarter ended July 3, 1993. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indebtedness", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money of that Person, (ii) that portion of obligations with respect to Capital Leases which is properly classified as a liability on a balance sheet of that Person in conformity with GAAP, (iii) notes payable of that Person and drafts accepted by that Person representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation of that Person owed for all or any part of the deferred purchase price of property or services which purchase price is (a) due more than twelve months from the date of incurrence of the obligation in respect thereof, or (b) evidenced by a note or similar written instrument, (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person and (vi) any guarantee of that Person, direct or indirect, of any indebtedness, note payable, draft accepted, or obligation described in clauses (i)-(v) above of any other Person. "Initial Loans" means the initial Loans made under this Agreement. "Insurance Company" means any subsidiary of the Company which is primarily engaged in the business of an insurance company, including, without limitation, PRHC Inc.; provided, however, that PRHC Inc. shall not thereafter be deemed to be an Insurance Company if, at any time, PRHC Inc. or any of its Subsidiaries ceases to remain a company (i) primarily engaged in the business of an insurance company or (ii) whose principal business is to augment the operation of a Subsidiary of PRHC Inc. which is so engaged. "Interest Payment Date" means, (x) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Eurodollar Rate Loan; provided that in the case of each Interest Period of six, nine or twelve months, "Interest Payment Date" shall also include each Interest Period Anniversary Date (or if such day is not a Business Day, then the next succeeding Business Day) for such Interest Period and (y) in the case of any Base Rate Loan, the last Business Day of each calendar quarter. "Interest Period" means any interest period applicable to a Eurodollar Rate Loan as determined pursuant to Section 2.7B hereof. "Interest Period Anniversary Date" means, for each Interest Period applicable to a Eurodollar Rate Loan which is six, nine or twelve months, each three-month anniversary of the commencement of that Interest Period. "Interest Rate Determination Date" means each date for calculating the Eurodollar Rate for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date shall be the second Business Day prior to the first day of the related Interest Period. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Line of Credit" means the Line of Credit dated as of November 1, 1993 among the Company, the banks listed therein and BT Co, as administrative agent, as such agreement may from time to time be amended, amended and restated, supplemented or otherwise modified in accordance with the terms thereof. "Loans" means one or more of the Syndicated Loans, Competitive Bid Loans or any combination thereof. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board as in effect from time to time. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or financial condition of the Company and its Subsidiaries, taken as a whole. "Maturity Dates" has the meaning assigned to that term in Section 2.6. "Multiemployer Plan" has the meaning assigned to that term in Section 4001(a)(3) of ERISA. "1987 Credit Agreement" has the meaning assigned to that term in Section 3.1E. "Notes" means the Revolving Notes, the Competitive Bid Notes, or any combination thereof. "Notice of Borrowing" means any Notice of Syndicated Borrowing, Notice of Competitive Bid Borrowing or any combination thereof. "Notice of Competitive Bid Borrowing" has the meaning assigned to that term in Section 2.2A hereof and shall be substantially in the form of Exhibit D-2 hereof. "Notice of Conversion/Continuation" means any notice delivered pursuant to Section 2.3A hereof and shall be substantially in the form of Exhibit D-3 hereto. "Notice of Syndicated Borrowing" has the meaning assigned to that term in Section 2.1B hereof and shall be substantially in the form of Exhibit D-1 hereto. "Officer's Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its Chairman of the Board (if an officer), its President, any Vice President of such corporation, its Chief Financial Officer, its Treasurer or any Assistant Treasurer of such corporation. "Payment Office" means the office of the Agent or any Bank, as the case may be, designated as such on the signature pages of this Agreement or such other office as to which the agent or such Bank shall notify the Company, the Agent and the other Banks in writing. "PBGC" means the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA or any successor thereto. "Pension Plan" means any plan (other than a Multi- employer Plan) described in Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof, which may be, is or has been established or maintained, or to which contributions may be, are or have been made by the Company or any of its ERISA Affiliates or as to which the Company would be considered as a "contributing sponsor" for purposes of Title IV of ERISA at any relevant time. "Permitted Encumbrances" means: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not at the time required by subsection 5.3; (ii) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles then in effect, shall have been made therefor; (iii) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) Any attachment or judgment Lien individually or in the aggregate not in excess of $50,000,000 unless the judgment it secures shall, within 30 days after the entry thereof, not have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (v) Leases or subleases granted to others not interfering in any material respect with the business of the Company or any of its Subsidiaries; (vi) Easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Subsidiaries; (vii) Any interest or title of a lessor under any lease; (viii) Liens arising from UCC financing statements regarding leases; and (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods incurred in the ordinary course of business. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and any Governmental Authority. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "Prime Rate" shall mean the rate which BT Co announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BT Co may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Pro Rata Share" means, when used with reference to any Bank and any described aggregate or total amount, the percentage designated as such Bank's Pro Rata Share set forth under the name of such Bank on the applicable signature page of this Agreement. "Reference Banks" means BT Co, Morgan Guaranty Trust Company of New York and The Chase Manhattan Bank, N.A. "Regulation D" means Regulation D of the Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Reportable Event" means a "reportable event" described in Section 4043(b) of ERISA or in the regulations thereunder notice of which to PBGC is required within 30 days after the occurrence thereof, or receipt of a notice of withdrawal liability with respect to a Multi- employer Plan pursuant to Section 4204 of ERISA. "Required Banks" means, as at any time any determination thereof is to be made, the Banks holding at least 66-2/3% of the aggregate Commitments of all the Banks or, if no Commitments are in effect, 66-2/3% of Loans outstanding. "Restricted Subsidiary" means each Subsidiary (or a group of Subsidiaries that would constitute a Restricted Subsidiary if consolidated and which are engaged in the same or related lines of business) of the Company now existing or hereafter acquired or formed by the Company which (x) for the most recent fiscal year of the Company, accounted for more than 5% of the consolidated revenues of the Company and its Subsidiaries, or (y) as at the end of such fiscal year, was the owner of more than 5% of the consolidated assets of the Company and its Subsidiaries. For purposes of this definition, the proviso to the definition of Subsidiary shall not be applicable. "Revolving Notes" means the promissory notes of the Borrowers issued pursuant to Section 2.4A hereof in substantially the form of Exhibit A-1 hereto. "Securities Act" means the Securities Act of 1933, as from time to time amended, and any successor statutes. "Subsidiary" means, in respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof; provided, however, that no Finance Company or Insurance Company or any Subsidiary of any Finance Company or Insurance Company shall be treated as a Subsidiary of the Company. "Subsidiary Borrower" means any Subsidiary of the Company designated as such in writing by the Company; provided that such Subsidiary shall enter into a Loan Assumption Agreement in the form annexed hereto as Exhibit G appropriately completed and that no Loan shall be made to such Subsidiary until Section 3.4 has been complied with as to such Subsidiary. "Syndicated Loan" means a Loan which is made as part of a Borrowing, is made collectively by the Banks based on each Bank's Pro Rata Share of such Loan, is made as either a Base Rate Loan or a Eurodollar Rate Loan and is requested pursuant to a Notice of Syndicated Borrowing. "Termination Event" means (i) a Reportable Event with respect to any Pension Plan, or (ii) the withdrawal of the Company or any of its ERISA Affiliates from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Pension Plan (including any such notice with respect to a Pension Plan amendment referred to in Section 4041(e) of ERISA), or (iv) the institution of proceedings to terminate a Pension Plan by the PBGC, or (v) any other event or condition which, to the best knowledge of the Company, would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. "Textron Affiliate," as applied to the Company, means any Person or Persons directly or indirectly controlling the Company. For purposes of this definition, controlling, as applied to the Company, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Company, whether through the ownership of voting securities or by contract or otherwise. Neither any Bank nor any parent of any Bank nor any Subsidiary of any such Bank or parent shall be treated as a Textron Affiliate. "Textron Affiliate Amount" means, as at any date of determination, the then aggregate outstanding amount of all loans and/or advances to any Textron Affiliate from the Company or any Subsidiary of the Company (without giving effect to the proviso to the definition of Subsidiary). "Total Commitment" means, as at any date of determination, the aggregate Commitments of all Banks then in effect (as such Commitments may be reduced from time to time pursuant to Section 2.9A hereof). The original amount of the Total Commitment is $1,250,000,000. "Type" means, in respect of any Syndicated Loan, any type of Syndicated Loan, i.e., either a Base Rate Loan or a Eurodollar Rate Loan. "United States Dollars" or "U.S. Dollars" or "$" means such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. 1.2 Accounting Terms For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Section 2 AMOUNTS AND TERMS OF COMMITMENTS AND LOANS; NOTES 2.1 Revolving Loans A. Commitments. (i) Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of each Borrower herein set forth, each Bank hereby severally agrees to lend to the Borrowers from time to time during the period from and including the Effective Date to and including the Final Maturity Date its Pro Rata Share of the Total Commitment. Each Bank's Commitment and the Total Commitment shall expire in full on the Final Maturity Date. Amounts borrowed under this Section 2.1A may, subject to the limitations set forth in this Agreement, be repaid and, up to but excluding the Final Maturity Date, be reborrowed. The Syndicated Loans and all other amounts owed hereunder with respect to the Syndicated Loans shall be paid in full no later than the Final Maturity Date. Borrowings on any Funding Date with respect to a Syndicated Loan under this Section 2.1A(i) shall be in an aggregate minimum amount of $10,000,000 and integral multiples of $5,000,000 in excess of that amount or, if less, the unutilized amount of the Total Commitment. Notwithstanding the foregoing, (i) Syndicated Loans made by a Bank on any Funding Date shall not exceed such Bank's Commitment then in effect and (ii) no Syndicated Loan may be borrowed by the Borrower if the aggregate principal amount of all Loans outstanding hereunder, after giving effect to the Loan so requested and all other Loans then requested which have not yet been funded shall exceed the Total Commitment then in effect. (ii) Subject to and upon the terms and conditions herein set forth, each Bank severally agrees that any Borrower may incur a Competitive Bid Loan pursuant to a Notice of Competitive Bid Borrowing from time to time on and after the Effective Date and prior to the date which is the Business Day preceding the date which is 30 days prior to the Final Maturity Date, provided that after giving effect to any Competitive Bid Loan and the concurrent use of the proceeds thereof the aggregate principal amount of all Loans outstanding hereunder, after giving effect to the Loan so requested and all other Loans then requested which have not yet been funded will not exceed the Total Commitment then in effect. Within the foregoing limits and subject to the conditions set forth in this Agreement, Competitive Bid Loans may be repaid and reborrowed in accordance with the provisions hereof. Competitive Bid Loans made on any Funding Date shall be in an aggregate minimum amount of $10,000,000 and in integral multiples of $5,000,000 in excess of such amount. B. Notice of Syndicated Borrowing. Subject to Section 2.1A, whenever any Borrower desires to borrow under this Section 2.1, it shall deliver to the Agent a Notice of Syndicated Borrowing (which may be telephonic, confirmed promptly in writing) no later than 10:30 A.M. (New York time), in the case of a Base Rate Loan, on the proposed Funding Date, and, in the case of a Eurodollar Rate Loan, three Business Days in advance of the proposed Funding Date. The Notice of Syndicated Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Loans, (iii) whether such Loans are to consist of Base Rate Loans or Eurodollar Rate Loans or a combination thereof and the amounts thereof, (iv) the Interest Period(s) therefor and (v) the aggregate principal amount of Loans outstanding, after giving effect to the proposed Loan and all other Loans then requested which have not yet been funded, and that such aggregate principal amount does not exceed the Total Commitment then in effect. Neither the Agent nor any Bank shall incur any liability to any Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of such Borrower or for otherwise acting in good faith under this Section 2.1B and, upon funding of Syndicated Loans by the Banks in accordance with this Agreement pursuant to any telephonic notice, such Borrower shall have borrowed such Loans hereunder. Except as provided in Section 2.11D, a Notice of Syndicated Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the applicable Borrower shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. Promptly after receipt of a Notice of Syndicated Borrowing pursuant to Section 2.1B (or telephonic notice in lieu thereof) with respect to a Syndicated Loan, the Agent shall notify each Bank of the proposed borrowing. Each Bank shall make its Pro Rata Share of the amount of such Loans available to the Agent, in same day funds, at the office of the Agent located at One Bankers Trust Plaza, New York, New York not later than 12:00 Noon (New York City time) on the Funding Date. Such Loans of a Bank shall be equal to such Bank's Pro Rata Share of the aggregate amount of all such Loans requested by the applicable Borrower pursuant to the applicable Notice of Syndicated Borrowing. Upon satisfaction or waiver of the conditions precedent specified in Section 3.1 (in the case of the Initial Loans) and Sections 3.2 and, if applicable, 3.4 (in the case of all Loans) the Agent shall make the proceeds of such Loans available to the applicable Borrower on such Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Agent to be credited to the account of such Borrower at such office of the Agent. Unless the Agent shall have been notified by any Bank (which notice may be telephonic, confirmed promptly in writing) prior to any Funding Date in respect of any Syndicated Loan that such Bank does not intend to make available to the Agent such Pro Rata Share of such Loan on such Funding Date, the Agent may assume that such Bank has made such amount available to the Agent on such Funding Date and the Agent in its sole discretion may, but shall not be obligated to, make available to the applicable Borrower a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such corresponding amount on prompt demand from such Bank together with interest thereon, for each day from such Funding Date until the date such amount is paid to the Agent at the customary rate set by the Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the applicable Borrower and such Borrower shall immediately pay such corresponding amount to the Agent. Nothing in this Section 2.1C shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which such Borrower may have against any Bank as a result of any default by such Bank hereunder. 2.2 Competitive Bid Loans A. Whenever the Company or a Subsidiary Borrower desires to incur a Competitive Bid Loan, it shall (i) in the case of the Company, deliver to the Agent and each Bank, and (ii) in the case of a Subsidiary Borrower, deliver to the Company (which shall deliver to the Agent and each Bank), not later than 11:00 a.m. (New York time) at least one Business Day prior to the funding date of such proposed Competitive Bid Loan, a Notice of Competitive Bid Borrowing, such notice to specify in each case the date of the proposed Competitive Bid Loan, the aggregate amount of the proposed Competitive Bid Loan(s), the maturity date for repayment of each Competitive Bid Loan to be made as part of such Competitive Bid Loans (each of which maturity dates may not be later than the Business Day prior to the Final Maturity Date), the interest payment date or dates relating thereto, and any other terms to be applicable to such Competitive Bid Loans (including, without limitation, the basis to be used by the Banks in determining the rate or rates of interest to be offered by them as provided in Section 2.2B). No Notice of Competitive Bid Borrowing shall be given earlier than three Business Days subsequent to the making of the last Competitive Bid Loan. B. Each Bank shall, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Loans to the applicable Borrower as part of such proposed Competitive Bid Loan at a rate or rates of interest specified by such Bank in its sole discretion, by notifying the Company, before 10:00 a.m. (New York City time) on the date (the "Reply Date") of such proposed Competitive Bid Loan specified in the Notice of Competitive Bid Borrowing delivered with respect thereto pursuant to Section 2.2A, of the minimum amount and maximum amount of each Competitive Bid Loan which such Bank would be willing to make as part of such proposed Competitive Bid Loan (which amounts may, subject to the provisions of Section 2.1A(ii), exceed such Bank's Commitment); provided that the minimum amount of any Bank's bid shall be at least $5,000,000. If any Bank shall not notify the Company, before 10:00 a.m. (New York City time) on the Reply Date of its offer of a Competitive Bid Loan, such Bank shall be deemed not to be making an offer with respect to such Competitive Bid Loan. C. The Company shall, in turn, before 11:00 a.m. (New York City time) on the Reply Date, either (1) cancel such Competitive Bid Loan by giving the Agent and each Bank notice to that effect (whereupon such Competitive Bid Loan will not be made), or (2) accept one or more of the offers made by any Bank or Banks pursuant to Section 2.2B, in its sole discretion, by giving notice to the Agent and such Bank of the amount of each Competitive Bid Loan (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Company by such Bank or Banks for such Competitive Bid Loan pursuant to Section 2.2B) to be made by such Bank as part of such Competitive Bid Loan, and reject any remaining offers made by Banks pursuant to Section 2.2B above by giving the Agent and such Bank notice to that effect. D. No later than Noon (New York City time) on the Funding Date of each Competitive Bid Loan, each Bank required to participate therein will make available its share of such Competitive Bid Loan (as specified in Section 2.2C) in same day funds at the office of The Chase Manhattan Bank, N.A. located at One Chase Manhattan Plaza, New York, New York, ABA No. 021000021, for the account of Textron Inc., ACCOUNT NO. 910-1-013655. E. Each Competitive Bid Loan shall be payable on the maturity date specified in the Notice of Competitive Bid Borrowing relating to such Competitive Bid Loan. 2.3 Notices of Conversion/Continuation A. Subject to the provisions of Section 2.11 hereof, the applicable Borrower shall have the option (i) to convert at any time all or any part of its outstanding Base Rate Loans equal to $10,000,000 and integral multiples of $5,000,000 in excess of that amount to Eurodollar Rate Loans and (ii) upon the expiration of any Interest Period applicable to outstanding Eurodollar Rate Loans, to continue all or any portion of such Eurodollar Rate Loans equal to $10,000,000 and integral multiples of $5,000,000 in excess of that amount as Eurodollar Rate Loans. The succeeding Interest Period(s) of such converted or continued Eurodollar Rate Loan shall commence on the date of conversion in the case of clause (i) above and on the last day of the Interest Period of the Eurodollar Rate Loans to be continued in the case of clause (ii) above. The applicable Borrower shall deliver a Notice of Conversion/Continuation to the Agent no later than 11:00 a.m. (New York City time) at least three Business Days, in the case of a conversion into or continuation of Eurodollar Rate Loans, in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount of the Syndicated Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation and (iv) the requested Interest Period. Except as provided in Section 2.11D hereof, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan shall be irrevocable on or after the related Interest Rate Determination Date, and the applicable Borrower shall be bound to convert or continue in accordance therewith. B. Unless the applicable Borrower shall have given the Agent (x) a timely Notice of Conversion/Continuation in accordance with the provisions of Section 2.3A hereof with respect to Eurodollar Rate Loans outstanding or (y) written notice of such Borrower's intent to repay Eurodollar Rate Loans, furnished not later than 11:00 a.m. (New York City time) on the last day of the Interest Period with respect to such Eurodollar Rate Loans, the applicable Borrower shall be deemed to have requested that such Eurodollar Rate Loans be converted into Base Rate Loans on such day. Such Base Rate Loans shall be in an aggregate principal amount equal to (i) the aggregate principal amount of such Eurodollar Rate Loans not intended to be repaid less (ii) any repayment required to be made on such date pursuant to Section 2.9 hereof. 2.4 The Revolving Notes and Competitive Bid Notes A. Each Borrower's obligations to pay the principal of, and interest on, all the Syndicated Loans made by each Bank shall be evidenced by a Revolving Note duly executed and delivered by such Borrower with blanks appropriately completed in conformity herewith. The Revolving Note issued to each Bank shall (i) be payable to the order of such Bank, (ii) be dated the Effective Date, (iii) be in a stated principal amount equal to the initial Commitment of such Bank and be payable in the principal amount of the outstanding Syndicated Loans evidenced thereby, (iv) provide that all Syndicated Loans then outstanding shall be repaid on the Final Maturity Date as provided herein, (v) bear interest as provided in the appropriate clause of Section 2.7 hereof in respect of the Base Rate Loans, or the Eurodollar Rate Loans, as the case may be, evidenced thereby, (vi) be entitled to the benefits of this Agreement, and (vii) have attached thereto a schedule (a "Syndicated Loans and Principal Payments Schedule") substantially in the form of the Schedule to Exhibit A-1 hereto. At the time of the making of each Syndicated Loan or principal payment in respect thereof, each Bank shall, and is hereby authorized to, make a notation on the Syndicated Loans and Principal Payments Schedule of the date and the amount of such Syndicated Loan or payment, as the case may be. Notwithstanding the foregoing, the failure to make a notation with respect to the making of any Syndicated Loan, shall not limit or otherwise affect the obligation of the Borrower hereunder or under the applicable Note with respect to such Syndicated Loan and payments of principal by the Borrower shall not be affected by the failure to make a notation thereof on the appropriate Syndicated Loans and Principal Payments Schedule. B. Each Borrower's obligations to pay the principal of, and interest on, all the Competitive Bid Loans made by each Bank shall be evidenced by a Competitive Bid Note duly executed and delivered by such Borrower with blanks appropriately completed in conformity herewith. The Competitive Bid Note issued to each Bank shall (i) be payable to the order of such Bank, (ii) be dated the Effective Date, (iii) be in a stated principal amount equal to the Total Commitment and be payable in the principal amount of the outstanding Competitive Bid Loans evidenced thereby, (iv) provide that all Competitive Bid Loans then outstanding shall be repaid on the dates agreed to between such Borrower and such Bank and, in any event, not later than the Final Maturity Date, (v) bear interest at the rates and have interest payable on the dates agreed to between such Borrower and such Bank, (vi) be entitled to the benefits of this Agreement, and (vii) have attached thereto a schedule (a "Competitive Bid Loans and Principal Payments Schedule") substantially in the form of the Schedule to Exhibit A-2 hereto. At the time of the making of each Competitive Bid Loan or principal payment in respect thereof, each Bank shall, and is hereby authorized to, make a notation on the Competitive Bid Loans and Principal Payments Schedule of the date and the amount of such Competitive Bid Loan or payment, as the case may be. Notwithstanding the foregoing, the failure to make a notation with respect to the making of any Competitive Bid Loan, shall not limit or otherwise affect the obligation of the Borrower hereunder or under the applicable Note with respect to such Competitive Bid Loan and payments of principal by the Borrower shall not be affected by the failure to make a notation thereof on the appropriate Competitive Bid Loans and Principal Payments Schedule. 2.5 Pro Rata Borrowings The Syndicated Loans comprising each Borrowing under this Agreement shall be made by the Banks simultaneously and each Bank's Syndicated Loan shall be equal to such Bank's Pro Rata Share of such Borrowing. It is understood that no Bank shall be responsible for any default by any other Bank in its obligation to make a Loan hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder subject to the terms hereof, regardless of the failure of any other Bank to fulfill its commitment to make Loans hereunder. If, as a result of an error in the determination of any Bank's Pro Rata Share of a Borrowing with respect to a Syndicated Loan, a Bank makes a Syndicated Loan in excess of its Pro Rata Share (an "Erroneous Loan") the applicable Borrower shall, upon the request of the Agent, repay a portion of such Syndicated Loan equal to such excess or, within two days of receiving written notice of such error, correct such error by effecting a Borrowing of Syndicated Loans having a comparable maturity to the then remaining maturity of the Erroneous Loan (a "Correcting Loan") and allocating the Correcting Loan among the Banks such that, after such allocation, the sum of the principal amounts of the Erroneous Loan and the Correcting Loan held by each Bank shall represent such Bank's Pro Rata Share of the sum of the aggregate principal amounts of the Erroneous Loans and the Correcting Loans held by all Banks; provided, however, that the Borrower may not incur Correcting Loans if, after giving effect to such Correcting Loans, the outstanding Syndicated Loans of any Bank shall exceed such Bank's Commitment or if the aggregate principal amount of all Loans outstanding would exceed the Total Commitment then in effect. Borrowings of Correcting Loans shall be subject to all of the terms and conditions of Borrowings hereunder. 2.6 Procedure for Extending Maturity Dates Subject to the conditions set forth in this Section 2.6, the Company, with the consent of the holders of 100% of the Commitments (the "Holders"), shall have the option to extend the Final Maturity Date and, if any such Date is so extended, the Facility Extension Date (collectively, the "Maturity Dates") for a period of 364 days from the then date thereof. The Company may exercise such option at any time and from time to time as follows: (i) Not more than 60 and not less than 45 days prior to the Facility Extension Date then in effect, the Company shall notify the Agent and each Holder in writing (an "Extension Notice") of its desire to extend the Maturity Dates to a date which is exactly 364 days after the Maturity Dates then in effect. (ii) If on or prior to the 15th day prior to the Facility Extension Date all Persons then Holders consent to such extension in a writing delivered to the Agent and the Company, the Maturity Dates then in effect which are requested in the applicable Extension Notice to be extended shall be extended automatically to a date which is 364 days after such Maturity Dates then in effect. (iii) If any Holder shall have objected to the extension of any Maturity Date in a writing delivered to the Agent and the Company on or prior to the 30th day prior to the applicable Facility Extension Date or any Holder has not delivered the notice described in Section 2.6(ii) by such 30th day (each such Holder, an "Electing Holder"; collectively, the "Electing Holders"), then the Company may, on or prior to the 15th day prior to the Facility Extension Date, replace such Electing Holder in accordance with the second to last sentence of Section 10.15. 2.7 Interest A. Rate of Interest on Loans (i) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Syndicated Loan made to it from and including the date made to but not including the date repaid. (a) Each Eurodollar Rate Loan shall bear interest on the unpaid principal amount thereof for the applicable Interest Period at an interest rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted Eurodollar Rate. The "Applicable Margin" for any Interest Period means the applicable percentage amount set forth in the table below based upon the rating issued by Standard & Poor's Corporation and Moody's Investors Service, Inc. for the Company's long-term unsecured indebtedness at the Interest Rate Determination Date for such Interest Period: Rating Category* Applicable Margin A/A2 or higher .225% A-/A3 .250% BBB+/Baa1 .375% BBB/Baa2 .400% BBB-/Baa3 or lower or no rating .500% ______________ * In the case of "split" ratings (i.e., if the ratings of each such rating agency differ by one or more categories, including numerical modifiers and (+) and (-) as categories), the Applicable Margin will be based upon the higher of the two ratings. (b) Each Base Rate Loan shall bear interest on the unpaid principal thereof for the applicable Interest Period at an interest rate per annum equal to the applicable Base Rate. The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the applicable Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (ii) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Competitive Bid Loan made to it from and including the date made up to but not including the date repaid at the rate or rates per annum as may be mutually agreed upon by such Borrower and the Bank making the Competitive Bid Loan. B. Interest Periods In connection with each Eurodollar Rate Loan, the applicable Borrower shall elect an interest period (each an "Interest Period") to be applicable to such Eurodollar Rate Loan which Interest Period shall be either a one, two, three or six month period or, if permitted under clause (v) of this Section 2.7B, a nine or twelve month period; provided that: (i) the Interest Period for each Eurodollar Rate Loan shall commence on the date of such Eurodollar Rate Loan; (ii) if an Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) any Interest Period which begins on the last 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, subject to clause (iv) below, end on the last Business Day of such ending calendar month; (iv) no Interest Period shall extend beyond the Final Maturity Date; (v) no Eurodollar Rate Loan shall have an Interest Period of nine or twelve months unless the Agent, after consultation with the Banks, has determined in good faith based on prevailing conditions in the Eurodollar market on any date of determination that U.S. Dollar deposits are generally offered by the Banks to first class banks in the Eurodollar market for a comparable maturity; and (vi) there shall be no more than 30 Interest Periods outstanding at any time. C. Interest Payments. Interest shall be payable on each (i) Syndicated Loan in arrears on each Interest Payment Date applicable to that Loan, and (ii) Competitive Bid Loan, at such times as agreed to by the applicable Borrower and the Bank making such Competitive Bid Loan (which shall be the scheduled maturity date of such Loan if less than 180 days after the making of such Loan), and in each case upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and when due and payable (whether at maturity, by acceleration or otherwise). D. Computation of Interest. Interest on Syndicated Loans shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. Interest on a Competitive Bid Loan shall be computed on the basis set forth in the applicable Notice of Competitive Bid Borrowing. In computing interest on any Loan, the date of the making of the Loan or, in the case of a Eurodollar Rate Loan, the first day of an Interest Period, as the case may be, shall be included and the date of payment or the expiration of an Interest Period, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. E. Post-Maturity Interest. Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payment on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 1% per annum in excess of the rate of interest otherwise payable under this Agreement for Prime Rate Loans. 2.8 Commissions and Fees A. Facility Fees. (i) The Company shall pay to the Agent for the account of the Banks a facility fee accrued from and including the Effective Date to and including the Final Maturity Date on the daily average aggregate amount of the Commitments (whether used or unused) based upon the rating issued by Standard & Poor's Corporation and Moody's Investors Service, Inc. for the Company's long-term unsecured indebtedness at the beginning of each fiscal quarter of the Company: Rating Category* Facility Fee A/A2 or higher .1500% A-/A3 .1875% BBB+/Baa1 .1875% BBB/Baa2 .2250% BBB-/Baa3 or lower .2500% or no rating ______________ * In the case of "split" ratings (i.e., if the ratings of each such rating agency differ by one or more categories, including numerical modifiers and (+) and (-) as categories), the facility fee will be based upon the higher of the two ratings. (ii) Such facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. Such facility fees shall be paid quarterly in arrears on each March 31, June 30, September 30 and December 31 and on the Final Maturity Date. From the effective date of any termination or reduction of Commitments, such facility fees shall cease to accrue or be correspondingly reduced. If the Commitments are terminated in their entirety or reduced, facility fees accrued on the total Commitments, or accrued on the aggregate amount of the reduction of the Commitments (in the case of such a reduction), shall be payable on the effective date of such termination or reduction. (iii) Upon receipt of any amount representing fees paid pursuant to this Section 2.8, the Agent shall pay such amount to the Banks based upon their respective Pro Rata Shares. B. Administrative Fees. The Company agrees to pay to the Agent an annual fee (the "Administrative Fee") in an amount equal to the amount previously agreed to in writing by the Company and the Agent. Such Administrative Fee shall be payable quarterly in advance commencing on the first quarterly anniversary of the date of this Agreement and on each successive quarterly anniversary of such date, so long as any Loan or Commitment is outstanding on such date. C. Time of Payment. The Company shall make payment of each Bank's facility fee and of the Agent's Administrative Fee hereunder, not later than Noon (New York City time) on the date when due in freely transferable U.S. Dollars and in immediately available funds, to the Agent at its Payment Office. 2.9 Reductions in Commitments; Repayments and Payments___ A. Reductions of Total Commitment. After the Effective Date, the Company shall have the right, upon at least three Business Days' prior irrevocable written notice to the Agent, who will promptly notify the Banks thereof, by telephone confirmed in writing, without premium or penalty, to reduce or terminate the Total Commitment, in whole at any time or in part from time to time, in minimum aggregate amounts of $10,000,000 (unless the Total Commitment at such time is less than $10,000,000, in which case, in an amount equal to the Total Commitment at such time) and, if such reduction is greater than $10,000,000, in integral multiples of $5,000,000 in excess of such amount, provided that (a) any such reduction of the Total Commitment shall apply to the Commitment of each Bank in accordance with its Pro Rata Share of the aggregate of such reduction and (b) any such reduction in the Total Commitment shall be permanent. B. Voluntary Repayments. (i) The applicable Borrower shall have the right to repay any Base Rate Loan in whole at any time or in part from time to time, and any Eurodollar Rate Loan on the last day of the Interest Period with respect thereto, without premium or penalty in an aggregate minimum amount of $10,000,000 and integral multiples of $5,000,000 in excess of that amount or, if less, the outstanding principal amount of such Loan; provided that no Loan, either in whole or in part, may be repaid on the Borrowing Date of such Loan. The applicable Borrower shall give notice (by telex or telecopier, or by telephone (confirmed in writing promptly thereafter)) (which shall be irrevocable) to the Agent and each Bank of each proposed repayment hereunder, (x) with respect to Base Rate Loans, not later than 10:30 a.m. on the day of the proposed repayment and (y) with respect to Eurodollar Rate Loans, at least three Business Days prior to the day of the proposed repayment, and in each case shall specify the proposed repayment date (which shall be a Business Day), the aggregate principal amount of the proposed repayment and what Types of Loans are to be repaid and the Borrowing(s) pursuant to which made. (ii) If there exists an Event of Default or a Potential Event of Default and any Syndicated Loans are outstanding, no Borrower may prepay all or any portion of the principal amount of any Competitive Bid Loan prior to the maturity thereof. C. Mandatory Repayments. (i) Upon any partial or total reduction of a Bank's Commitment, each Borrower shall simultaneously therewith repay such Bank's Syndicated Loans in a principal amount equal to the amount, if any, by which the aggregate principal amount of such Bank's Syndicated Loans outstanding exceeds such Bank's Commitment as so reduced. (ii) Each Borrower shall repay to the relevant Bank (which shall promptly furnish notice thereof to the Agent) the unpaid principal amount of each Competitive Bid Loan made by such Bank hereunder on the maturity date with respect thereto and shall repay to the Agent the unpaid principal amount of each Syndicated Loan on the Final Maturity Date, in each case, together with all accrued and unpaid interest thereon. Upon obtaining knowledge of an Event of Default, a Potential Event of Default, or any other default with respect to a Competitive Bid Loan, the Bank which made such Competitive Bid Loan shall notify the Agent thereof. D. Method and Place of Payment. Except as otherwise specifically provided herein, all payments to be made by the applicable Borrower on account of principal and interest on each Loan shall be made without setoff or counterclaim and shall be made, in the case of a Syndicated Loan, to the Agent for the ratable account of each Bank, and, in the case of a Competitive Bid Loan, to the relevant Bank, in each case not later than Noon (New York City time) on the date when due and shall be made in freely transferable U.S. Dollars in immediately available funds at the Agent's or such Bank's Payment Office, respectively. Whenever any payment with respect to any Loan shall be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension; provided, however, that with respect to Eurodollar Rate Loans, if the next succeeding Business Day falls in another calendar month, such payments shall be made on the next preceding Business Day. The Agent shall remit to each Bank its Pro Rata Share of all such payments received in collected funds by the Agent for the account of such Bank in respect of which such payment is made. Such payments shall be made at the Payment Office of the Agent. Upon receipt of any principal payment with respect to a Competitive Bid Loan, the receiving Bank shall promptly (and in any event within one Business Day thereof) notify the Agent with respect thereto. E. Net Payments. (i) All payments by the applicable Borrower or the Company under this Agreement and/or the Notes shall be made without setoff or counterclaim and (unless, in the case of Competitive Bid Loans only, otherwise agreed to between the Borrower and the Bank making any such Competitive Bid Loan), in such amounts as may be necessary in order that all such payments (after deduction or withholding for or on account of any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any Governmental Authority, other than any tax on or measured by the net income of a Bank pursuant to the income tax laws of the United States or of the jurisdictions where such Bank's principal or lending offices are located (collectively, "Taxes")) shall not be less than the amounts otherwise specified to be paid under this Agreement and/or the Notes. If the applicable Borrower or the Company is required by law to make any deduction or withholding from any payment due hereunder, then the amount payable will be increased to such amount which, after deduction from such increased amount of all amounts required to be deducted or withheld therefrom, will not be less than the amount otherwise due and payable. Without prejudice to the foregoing, if any Bank or the Agent is required to make any payment on account of Taxes, the Company will, upon notification by the Bank or the Agent promptly indemnify such person against such Taxes, together with any interest, penalties and expenses payable or incurred in connection therewith. The Company shall also reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income of such Bank pursuant to the laws of the United States of America, any State or political subdivision thereof, or the jurisdiction in which the principal office or lending office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction as such Bank shall determine are payable by such Bank in respect of Taxes paid to or on behalf of such Bank pursuant to Section 2. For purposes of this Section, the term "Taxes" includes interest, penalties and expenses payable or incurred in connection therewith. A certificate as to any additional amounts payable to a Bank under this Section 2.9E submitted to the Company by such Bank shall, absent manifest error, be final, conclusive and binding for all purposes upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the Company shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. (ii) Each Bank shall supply to the Company, within a reasonable period after the date of execution of this Agreement, executed copies of Internal Revenue Service Form 4224 or Form 1001 (which indicates that the respective Bank is entitled to receive interest exempt from United States withholding tax) or any successor Forms, and shall update such Forms as necessary in order to retain their effectiveness, to the extent each such Bank is legally entitled to execute and deliver either of such Forms. (iii) With respect to any Taxes which are paid by any Borrower in accordance with the provisions of this Section 2.9E, each Bank receiving the benefits of such payments of Taxes hereby agrees to pay to such Borrower any amounts refunded to such Bank which such Bank determines in its sole discretion to be a refund in respect of such Taxes. F. Order of Payment. Subject to the last sentence of this Section 2.9F, all payments made by the applicable Borrower to the Agent (other than payments to the Agent in its capacity as a Bank which has made Competitive Bid Loans to such Borrower and or in connection with any fee or indemnification payments not specifically designated under the terms of this Agreement as being for the benefit of the Banks) shall be applied by the Agent, on behalf of each Bank based on its Pro Rata Share, (a) first, to the payment of expenses referred to in Section 10.2 hereof, (b) second, to the payment of the fees referred to in Section 2.8 hereof, (c) third, to the payment of accrued and unpaid interest on such Bank's Base Rate Loans until all such accrued interest has been paid, (d) fourth, to the payment of accrued and unpaid interest on such Bank's Eurodollar Rate Loans until all such accrued interest has been paid, (e) fifth, to the payment of the unpaid principal amount of such Bank's Base Rate Loans, and (f) sixth, to the payment of the unpaid principal amount of such Bank's Eurodollar Rate Loans. Notwithstanding the foregoing, upon the occurrence and during the continuance of a Potential Event of Default or an Event of Default, all payments made by the applicable Borrower with respect to Loans shall be made to the Agent and after being applied in accordance with clauses (a) and (b) of this Section 2.9F, shall be paid to the Banks pro rata based upon the aggregate principal amount of Loans outstanding made by each Bank, and the payments allocable to Syndicated Loans shall then be applied in accordance with clauses (c), (d) and (f) of this Section 2.9F. 2.10 Use of Proceeds The proceeds of the Loans made by the Banks to the Borrowers may be used for acquisitions, repurchases of capital stock of the Company, the funding of dividends payable to shareholders of the Company and for general corporate purposes of the Borrowers. 2.11 Special Provisions Governing Eurodollar Rate Loans and/or Competitive Bid Loans__________ Notwithstanding any other provisions of this Agreement, the following provisions shall govern with respect to Eurodollar Rate Loans and Competitive Bid Loans as to the matters covered, unless, in the case of Competitive Bid Loans, otherwise agreed to between the Borrower and the Bank making any such Competitive Bid Loan: A. Determination of Interest Rate. As soon as practicable after 10:00 a.m. (New York City time) on an Interest Rate Determination Date, the Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower requesting such Eurodollar Loan and to each Bank. B. Substituted Rate of Borrowing. In the event that on any Interest Rate Determination Date any Bank (including the Agent) shall have determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i) and (ii)(b), shall be made only after consultation with the Company and the Agent) that: (i) by reason of any changes arising after the date of this Agreement affecting the Eurodollar market or affecting the position of that Bank in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Eurodollar Rate with respect to the Eurodollar Rate Loans as to which an interest rate determination is then being made; or (ii) by reason of (a) any change (including any changes proposed or published prior to the date hereof) after the date hereof in any applicable law or any governmental rule, regulation or order (or any interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation or order (including any thereof proposed or published, prior to the date hereof)) or (b) other circumstances affecting that Bank or the Eurodollar market or the position of that Bank in such market (such as, for example, but not limited to, official reserve requirements required by Regulation D to the extent not given effect in the Eurodollar Rate), the Adjusted Eurodollar Rate shall not represent the effective pricing to that Bank for Dollar deposits of comparable amounts for the relevant period; then, and in any such event, that Bank shall be an Affected Bank and it shall promptly (and in any event as soon as possible after being notified of a Borrowing) give notice (by telephone confirmed in writing) to the applicable Borrower and the Agent (which notice the Agent shall promptly transmit to each other Bank) of such determination. Thereafter, such Borrower shall pay to the Affected Bank with respect to such Eurodollar Rate Loans, upon written demand therefor, but only if such demand is made within 60 days of the end of the fiscal quarter in which such Interest Rate Determination Date falls, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Affected Bank in its sole discretion shall reasonably determine) as shall be required to cause the Affected Bank to receive interest with respect to such Affected Bank's Eurodollar Rate Loans for the Interest Period following that Interest Rate Determination Date (such Interest Period being an "Affected Interest Period") at a rate per annum equal to the Applicable Margin in excess of the effective pricing to the Affected Bank for Dollar deposits to make or maintain Eurodollar Rate Loans. A certificate as to additional amounts owed the Affected Bank, showing in reasonable detail the basis for the calculation thereof, submitted in good faith to the applicable Borrower and the Agent by the Affected Bank shall, absent manifest error, be final, conclusive and binding for all purposes. C. Required Termination and Prepayment. In the event that on any date any Bank shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Eurodollar Rate Loans (i) has become unlawful by, or would be inconsistent with, compliance by that Bank in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), or (ii) has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the Eurodollar market, then, and in any such event, that Bank shall be an Affected Bank and it shall promptly give notice (by telephone confirmed in writing) to the applicable Borrower and the Agent (which notice the Agent shall promptly transmit to each Bank) of that determination. Subject to the prior withdrawal of a Notice of Syndicated Borrowing or prepayment of the Eurodollar Rate Loans of the Affected Bank as contemplated by the following Section 2.11D hereof, the obligation of the Affected Bank to make Eurodollar Rate Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and the applicable Borrower shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this Section 2.11C is made or earlier, when required by law, repay Eurodollar Rate Loans of the Affected Bank together with all interest accrued thereon. D. Options of the Borrowers. In lieu of paying an Affected Bank such additional moneys as are required by Section 2.11B, 2.11I or 2.12 hereof or the prepayment of an Affected Bank required by Section 2.11C, hereof but in no event in derogation of Section 2.11E hereof, any Borrower may exercise any one of the following options: (i) If the determination by an Affected Bank relates only to Eurodollar Rate Loans then being requested by such Borrower pursuant to a Notice of Syndicated Borrowing or a Notice of Conver- sion/Continuation, the Borrower may by giving notice (by telephone confirmed in writing) to the Agent (who shall promptly give similar notice to each Bank) no later than the date immediately prior to the date on which such Eurodollar Rate Loans are to be made, withdraw as to the Affected Bank that Notice of Syndicated Borrowing or Notice of Conversion/Continuation, as the case may be; or (ii) Upon written notice to the Agent and each Bank, such Borrower may terminate the obligations of the Banks to make Loans as, and to convert Loans into, Eurodollar Rate Loans and in such event, the Borrower shall, prior to the time any payment pursuant to Section 2.11C hereof is required to be made or, if the provisions of Section 2.11B hereof are applicable, at the end of the then current Interest Period, convert all of such Eurodollar Rate Loans into Base Rate Loans; or (iii) Such Borrower may give notice (by telephone confirmed in writing) to the Affected Bank and the Agent (who shall promptly give similar notice to each Bank) and require the Affected Bank to make the Eurodollar Rate Loan then being requested as a Base Rate Loan or to continue to maintain its outstanding Base Rate Loan then the subject of a Notice of Conversion/Continuation as a Base Rate Loan or to convert its Eurodollar Rate Loan then outstanding that is so affected into Base Rate Loans at the end of the then current Interest Period (or at such earlier time as prepayment is otherwise required to be made pursuant to Section 2.11C hereof), that notice to pertain only to the Loans of the Affected Bank and to have no effect on the obligations of the other Banks to make or maintain Eurodollar Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans. E. Compensation. The Company shall compensate each Bank, upon written request by that Bank (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by that Bank to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and Competitive Bid Loans and any loss (other than loss of margins) sustained by that Bank in connection with the re-employment of such funds), which that Bank may sustain with respect to any Borrower's Eurodollar Rate Loans or Competitive Bid Loans if for any reason (other than a default or error by that Bank) (i) a borrowing of any Eurodollar Rate Loan or Competitive Bid Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, (ii) any repayment or conversion of any of such Bank's Eurodollar Rate Loans or Competitive Bid Loans occurs on a date which is not the last day of the Interest Period applicable to that Eurodollar Rate Loan or Competitive Bid Loan (if applicable), (iii) any repayment of any such Bank's Eurodollar Rate Loans or Competitive Bid Loans is not made on any date specified in a notice of repayment given by the Borrower, or (iv) as a consequence of any other failure by the Borrower to repay such Bank's Eurodollar Rate Loans or Competitive Bid Loans when required by the terms of this Agreement. F. Quotation of Eurodollar Rate. Anything herein to the contrary notwithstanding, if on any Interest Rate Determination Date no Eurodollar Rate is available by reason of the failure or inability of all Reference Banks to provide offered quotations to the Agent in accordance with the definition of "Eurodollar Rate", the Agent shall give the applicable Borrowers and each Bank prompt notice thereof and the Syndicated Loans requested shall be made as Base Rate Loans. G. Affected Bank's Obligation to Mitigate. Each Bank agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be an Affected Bank under Section 2.11B or 2.11C hereof, it will, to the extent not inconsistent with such Bank's internal policies, use reasonable efforts to make, fund or maintain the affected Eurodollar Rate Loans of such Bank through another lending office of such Bank if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Loans pursuant to Section 2.11B hereof would be materially reduced or the illegality or other adverse circumstances which would otherwise require prepayment of such Loans pursuant to Section 2.11C hereof would cease to exist and if, as determined by such Bank, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise materially adversely affect such Loans or such Bank. The Company hereby agrees to pay all reasonable expenses incurred by any Bank in utilizing another lending office of such Bank pursuant to this Section 2.11G. H. Booking of Eurodollar Rate Loans. Any Bank may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch offices or the office of an Affiliate of that Bank. I. Increased Costs. Except as provided in Section 2.11B, if, by reason of (x) after the date hereof, the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation (whether or not proposed or published prior to the date hereof), or (y) the compliance with any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) any Bank (or its applicable lending office) shall be subject to any tax, duty or other charge with respect to its Eurodollar Rate Loans or Competitive Bid Loans or its obligation to make Eurodollar Rate Loans or Competitive Bid Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Eurodollar Rate Loans or Competitive Bid Loans or its obligation to make Eurodollar Rate Loans or Competitive Bid Loans (except for changes in the rate of tax on the overall net income of such Bank or its applicable lending office imposed by the jurisdiction in which such Bank's principal executive office or applicable lending office is located); or (ii) any reserve (including, without limitation, any imposed by the Board), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank's applicable lending office shall be imposed or deemed applicable or any other condition affecting its Eurodollar Rate Loans or Competitive Bid Loans or its obligation to make Eurodollar Rate Loans or Competitive Bid Loans shall be imposed on any Bank or its applicable lending office or the interbank Eurodollar market; and as a result thereof there shall be any increase in the cost to that Bank of agreeing to make or making, funding or maintaining Eurodollar Rate Loans or Competitive Bid Loans (except to the extent already included in the determination of the applicable Adjusted Eurodollar Rate or the rate on a Competitive Bid Loan), or there shall be a reduction in the amount received or receivable by that Bank or its applicable lending office, then the Borrower shall from time to time, upon written notice from and demand by that Bank (which shall be promptly furnished upon the Banks being made subject thereto) (with a copy of such notice and demand to the Agent), pay to the Agent for the account of that Bank, within five Business Days after the date specified in such notice and demand, additional amounts sufficient to indemnify that Bank against such increased cost. A certificate as to the basis for and calculation of the amount of such increased cost, submitted to the Borrower and the Agent by that Bank, shall, absent manifest error, be final, conclusive and binding for all purposes. J. Assumption Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Bank under this Section 2.11 in respect of a Eurodollar Rate Loan shall be made as though that Bank had actually funded its Eurodollar Rate Loan through the purchase of a Eurodollar deposit, bearing interest at the Eurodollar Rate applicable to such Eurodollar Rate Loan in an amount equal to the amount of the Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit, from an offshore office of that Bank to a domestic office of that Bank in the United States of America; provided, however, that each Bank may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculations of amounts payable under this Section 2.11. K. Eurodollar Rate Loans and Competitive Bid Loans After Default. Unless the Required Banks shall otherwise agree, after the occurrence of and during the continuance of a Potential Event of Default or an Event of Default, the Borrowers may not elect to have a Eurodollar Rate Loan or Competitive Bid Loan be made or have any Eurodollar Rate Loan continued or have any Base Rate Loan converted into a Eurodollar Rate Loan. L. Eurodollar Rate Taxes. The Company agrees that: (i) Promptly upon notice from any Bank to the Company, the Company will pay, prior to the date on which penalties attach thereto, all present and future income, stamp and other taxes, levies, or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of any Borrower's Eurodollar Rate Loans solely as a result of the interest rate being determined by reference to the Eurodollar Rate, as the case may be, and/or the provisions of this Agreement relating to the Eurodollar Rate and/or the recording, registration, notarization or other formalization of any thereof (all such taxes, levies, costs and charges being herein collectively called "Eurodollar Rate Taxes"); provided that Eurodollar Rate Taxes shall not include taxes imposed on or measured by the overall net income of that Bank by the country under the laws of which such Bank is organized or any political subdivision or taxing authority thereof or therein, or taxes imposed on or measured by the overall income of any branch or subsidiary of that Bank (whether gross or net income) by any jurisdiction or subdivision thereof in which that branch or subsidiary is doing business. The Company shall also pay such additional amounts equal to increases in taxes payable by that Bank which increases are attributable to payments made by the Company described in the immediately preceding sentence or this sentence. Promptly after the date on which payment of any such Eurodollar Rate Tax is due pursuant to applicable law, the Company will, at the request of that Bank, furnish to that Bank evidence, in form and substance satisfactory to that Bank, that the Company has met its obligation under this Section 2.11L; and (ii) The Company will indemnify each Bank against, and reimburse each Bank on demand for, any Eurodollar Rate Taxes payable under clause (i) above, as the case may be, as determined by that Bank in its good faith discretion. That Bank shall provide the Company with appropriate receipts for any payments or reimbursements made by the Borrower pursuant to this clause (ii) of Section 2.11L. 2.12 Capital Requirements If while any portion of the Total Commitment is in effect or any Loans are outstanding, any Bank determines that the adoption of any law, treaty, rule, regulation, guideline or order regarding capital adequacy or capital maintenance or any change therein, 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 such Bank, with any request or directive regarding capital adequacy or capital maintenance (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of increasing the amount of capital required to be maintained by such Bank (including, without limitation, with respect to any Bank's Commitment or Competitive Bid Loans outstanding), then the Company shall from time to time, within 15 days of written notice and demand from such Bank (with a copy to the Agent), pay to the Agent, for the account of such Bank, additional amounts sufficient to compensate such Bank for the cost of such additional required capital. A certificate showing in reasonable detail the computations made in arriving at such cost, submitted to the Company and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding for all purposes. 2.13 Special Continuing Competitive Bid Loans Provision Upon the Effective Date, all outstanding competitive bid loans under the 1987 Credit Agreement shall automatically be deemed to be outstanding hereunder as if incurred hereunder on the Effective Date. Such competitive bid loans shall be continued under this Agreement on the same terms as presently in effect with respect thereto (except that such loans will no longer be evidenced by the notes issued in respect thereof under the 1987 Credit Agreement) and, for all purposes of this Agreement, shall thereafter be deemed to be Competitive Bid Loans hereunder. Section 3 CONDITIONS TO LOANS 3.1 Conditions to Initial Loans The obligation of each Bank to make the Initial Loans is, in addition to the conditions precedent specified in Section 3.2, subject to satisfaction of each of the following conditions: A. On or before the Effective Date, the Company shall have delivered to the Banks (or to the Agent with sufficient copies, originally executed where appropriate, for each Bank) each, unless otherwise noted, dated the Effective Date: 1. Certified copies of its Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation, each to be dated a recent date prior to the Effective Date; 2. Copies of its Bylaws, certified as of the Effective Date by its corporate secretary or an assistant secretary; 3. Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and any other documents, instruments and certificates required to be executed by the Company in connection herewith and approving and authorizing the execution, delivery and payment of the Notes to be issued by the Company and the incurrence of the Loans, each certified as of the Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 4. Signature and incumbency certificates with respect to the Persons executing this Agreement and the Notes; 5. Executed copies of this Agreement and the Line of Credit; 6. Revolving Notes executed by the Company, substantially in the form of Exhibit A-1 annexed hereto and in accordance with Section 2.4A hereof, drawn to the order of each Bank and with appropriate insertions; and 7. Such other documents as the Agent may reasonably request. B. The Agent shall have received an originally executed copy of the favorable written opinion of Thomas D. Soutter, Esq., General Counsel of the Company, dated as of the Effective Date, substantially in the form of Exhibit B annexed hereto; the Company hereby expressly instructs such counsel to prepare such opinion and deliver it to the Banks for their benefit and such opinion shall contain a statement to that effect. C. The Agent shall have received an originally executed copy of the favorable written opinion of Cahill Gordon & Reindel, counsel to the Banks, dated as of the Effective Date, substantially in the form of Exhibit C annexed hereto. D. The Credit Agreement, dated as of October 30, 1987, as amended (the "1987 Credit Agreement"), among the Borrower, the Lenders listed therein and BT Co, as administrative agent, and all commitments to lend thereunder shall have been terminated and discharged in full (other than as contemplated by Section 2.13 hereof) and the notes issued by the Borrower thereunder shall have been returned by such lenders to the Borrower, marked "Cancelled". 3.2 Conditions to All Loans The obligation of each Bank to make any Loans pursuant to a Notice of Borrowing is subject to prior or concurrent satisfaction or waiver by the Required Banks in the case of Syndicated Loans, and the Bank making the relevant Loan in the case of Competitive Bid Loans, of the following further conditions precedent: A. With respect to any such Loan, the Agent shall have received, (i) before the Funding Date thereof, an originally executed Notice of Borrowing signed by any of the chief executive officer, the chief financial officer, the treasurer or any assistant treasurer of the Company (the furnishing by the Company of each such Notice of Borrowing shall be deemed to constitute a representation and warranty of the Company that each of the conditions set forth in Section 3.2B hereof (and, in the case of a Notice of Competitive Bid Borrowing, Section 3.3 hereof) will be satisfied on the related Funding Date). B. As of the Funding Date of such Loan: 1. With respect to such Loan the representations and warranties contained herein shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under this Agreement, and except that the representations and warranties set forth in Sections 4.4 and 4.5 shall not apply to Competitive Bid Loans which do not increase the aggregate principal amount of such Competitive Bid Loans then outstanding with Banks making the same; 2. No event shall have occurred and be continuing or would result from the consummation of the Loans on such Funding Date and the use of the proceeds thereof which would constitute (a) an Event of Default or (b) a Potential Event of Default; 3. Each Borrower shall have performed in all material respects all agreements and satisfied in all material respects all conditions which this Agreement provides shall be performed by it on or before such Funding Date; 4. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain that Bank from making that Loan; and 5. The making of the Loans requested on such Funding Date shall not violate Regulation G, Regulation T, Regulation U or Regulation X of the Board or any other regulation of the Board or the Exchange Act. 3.3 Conditions to All Competitive Bid Loans A. Each Borrower shall, upon the request of the applicable Bank pursuant to Section 2.4B hereof, on or before the Funding Date of any Competitive Bid Loan, deliver to the Bank making such Competitive Bid Loan, the Competitive Bid Note executed by such Borrower in accordance with Section 2.4B, substantially in the form of Exhibit A-2 annexed hereto, drawn to the order of such Bank with appropriate insertions. B. The obligation of each Bank to make any Competitive Bid Loan is subject to concurrent satisfaction of the further condition precedent that on the date any Competitive Bid Loan is made there shall be outstanding a publicly held issue of unsecured Indebtedness of the Company described in clause (i) of the definition of Indebtedness which ranks pari passu with the Indebtedness represented by the Notes and which is classified as long-term indebtedness in accordance with generally accepted accounting principles then applied by the Company and rated greater than or equal to BBB- by Standard & Poor's Corporation or any successor equivalent rating and greater than or equal to Baa3 by Moody's Investors Service, Inc. or any successor equivalent rating. 3.4 Conditions to Loans to Subsidiary Borrowers A. Concurrently with or before the designation by the Company of any of its Subsidiaries as a Subsidiary Borrower, the Company shall deliver, or cause to be delivered, to the Banks (or to the Agent for the Banks with sufficient originally executed copies, where appropriate, for each Bank) with respect to such Subsidiary Borrower, each, unless otherwise noted, dated the Designation Date: 1. Certified copies of such Subsidiary Borrower's Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the State of incorporation of such Subsidiary Borrower, each to be dated a recent date prior to the Designation Date; 2. Copies of such Subsidiary Borrower's Bylaws, certified as of the Designation Date by its corporate secretary or an assistant secretary; 3. Resolutions of such Subsidiary Borrower's Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and any other documents, instruments and certificates to be executed by such Subsidiary Borrower in connection herewith or therewith and approving and authorizing the execution, delivery and payment of the Notes to be issued by such Subsidiary Borrower and the incurrence of Loans by such Subsidiary Borrower, each certified as of the Designation Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 4. Signature and incumbency certificates of such Subsidiary Borrower's officers executing a Loan Assumption Agreement substantially in the form of Exhibit G hereto and the Notes issued by it; 5. Revolving Notes executed by such Subsidiary Borrower substantially in the form of Exhibit A-1 annexed hereto and in accordance with Section 2.4, drawn to the order of each Bank and with appropriate insertions, with such changes as are acceptable to the Agent to reflect that such Revolving Notes are obligations of such Subsidiary Borrower, rather than of the Company; and 6. Such other documents as the Agent may reasonably request. B. The Agent shall have received an originally executed copy of the favorable written opinion of Thomas D. Soutter, Esq., General Counsel of the Company, dated as of the Designation Date, relating to such Subsidiary Borrower, substantially in the form of Exhibit B annexed hereto, with such changes as are acceptable to the Agent to reflect that such opinion relates to such Subsidiary Borrower, rather than to the Company; the Company hereby expressly instructs such counsel to prepare such opinion and deliver it to the Banks for their benefit and such opinion shall contain a statement to that effect. Section 4 REPRESENTATIONS AND WARRANTIES In order to induce the Banks to enter into this Agreement and to make the Loans, the Company and each Borrower (as to itself only) represents and warrants to each Bank that the following statements are true, correct and complete: 4.1 Organization, Powers and Good Standing A. Organization and Powers. Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Borrower has all requisite corporate power and authority (i) to own and operate its properties and to carry on its business as now conducted and proposed to be conducted, except where the lack of corporate power and authority would not have a Material Adverse Effect and (ii) to enter into this Agreement and to carry out the transactions contemplated hereby, and to issue the Notes. B. Good Standing. Each Borrower is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing would not have a Material Adverse Effect. 4.2 Authorization of Borrowing, etc. A. Authorization of Borrowing. The execution, delivery and performance of this Agreement, and the issuance, delivery and payment of the Notes and the borrowing of the Loans have been duly authorized by all necessary corporate action by each Borrower. B. No Conflict. The execution, delivery and performance by each Borrower of this Agreement and the issuance, delivery and performance of the Notes by each Borrower, and the borrowing of the Loans do not and will not (i) violate any provision of law applicable to the Company or any of its Subsidiaries, (ii) violate the Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries, (iii) violate any order, judgment or decree of any court or other Governmental Authority binding on the Company or any of its Subsidiaries, (iv) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company or any of its Subsidiaries, or (v) result in or require the creation or imposition of any material Lien upon any of the material properties or assets of the Company or any of its Subsidiaries or require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company or any of its Subsidiaries other than such approvals and consents which have been or will be obtained on or before the Effective Date. C. Governmental Consents. The execution, delivery and performance by each Borrower of this Agreement and the issuance, delivery and performance by each Borrower of the Notes will not require on the part of such Borrower any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority other than any such registration, consent, approval, notice or other action which has been duly made, given or taken. D. Binding Obligation. This Agreement is and each of the Notes when executed and delivered and each Loan when made will be a legally valid and binding obligation of the Company and/or the applicable Borrower, as the case may be, enforceable against the Company and/or the applicable Borrower, as the case may be, in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 4.3 Financial Condition The Company has delivered to the Banks the following materials: (i) audited consolidated financial statements of the Company and its subsidiaries for the year ended January 2, 1993 as set forth in the 1992 Annual Report to Shareholders of the Company and (ii) unaudited consolidated financial statements of the Company and its subsidiaries for the fiscal quarters ended April 3, 1993 and July 3, 1993 as set forth in the Quarterly Report of the Borrower on Form 10-Q for each such fiscal quarter (collectively, the "Financial Statements"). All such Financial Statements were prepared in accordance with generally accepted accounting principles except for the preparation of footnote disclosures for the unaudited statements. All such Financial Statements fairly present the consolidated financial position of the Company and its subsidiaries as at the respective dates thereof and the consolidated statements of income and cash flows of the Company and its Subsidiaries for each of the periods covered thereby, subject, in the case of any unaudited interim financial statements, to changes resulting from normal year-end adjustments. 4.4 No Adverse Material Change Since January 2, 1993, there has been no change in the business, operations, properties, assets or condition (financial or otherwise) of the Company or any of its Subsidiaries, which has been, either in any case or in the aggregate, materially adverse to the Company and its Subsidiaries, taken as a whole. 4.5 Litigation Except as disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 and in the Financial Statements delivered to the Banks pursuant to Section 4.3 hereof, there is no action, suit, proceeding, governmental investigation (including, without limitation, any of the foregoing relating to laws, rules and regulations relating to the protection of the environment, health and safety) of which the Company has knowledge or arbitration (whether or not purportedly on behalf of the Company or any of its Subsidiaries) at law or in equity or before or by any Governmental Authority, domestic or foreign, pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries which is probable of being successful and which would have a Material Adverse Effect. 4.6 Payment of Taxes Except to the extent permitted by Section 5.3, all taxes, assessments, fees and other governmental charges upon the Company and each of its Subsidiaries and upon their respective properties, assets, income and franchises which are material to the Company and its Subsidiaries, taken as a whole, and were due and payable, have been paid. 4.7 Governmental Regulation Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935 or to any federal or state statute or regulation limiting its ability to incur Indebtedness for money borrowed as contemplated by this Agreement. 4.8 Securities Activities Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 4.9 ERISA Compliance A. The Company and its Subsidiaries and each of their respective ERISA Affiliates are in compliance in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Pension Plans and all Multiemployer Plans. B. No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan, as the case may be, which has resulted or would result in any material liability to the PBGC (or any successor thereto) or to any other Person under Section 4062, 4063, or 4064 of ERISA. C. Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any withdrawal liability under Part E of Title IV of ERISA to any Multiemployer Plan individually or in the aggregate in excess of $50,000,000. D. The sum of the amount of unfunded benefit liabilities under all Pension Plans (excluding each Pension Plan with an amount of unfunded benefit liabilities of zero or less) is not more than $100,000,000. E. Neither the Company nor any of its ERISA Affiliates has incurred any accumulated funding deficiency (whether or not waived) with respect to any Pension Plan individually or in the aggregate in excess of $2,000,000. F. Neither the Company nor any of its ERISA Affiliates has or reasonably expects to become subject to a lien in favor of any Pension Plan under Section 302(f) of ERISA individually or in the aggregate in excess of $1,000,000. G. Neither the Company nor any of its ERISA Affiliate has or reasonably expects to become subject to a requirement to provide security to any Pension Plan under Section 307 of ERISA individually or in the aggregate in excess of $10,000,000. As used in this subsection 4.9, the term "amount of unfunded benefit liabilities" has the meaning specified in Section 4001(a)(18) of ERISA, and the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Code. 4.10 Certain Fees No broker's or finder's fee or commission will be payable by the Company with respect to the offer, issuance and sale of any Note or the borrowing of any Loan comprising a Syndicated Loan or Competitive Bid Loan or the execution, delivery and performance of this Agreement. Section 5 AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments hereunder shall be in effect and until payment in full of all Loans and Notes unless Required Banks shall otherwise give prior written consent, it shall perform all covenants in this Section 5: 5.1 Financial Statements and Other Reports The Company will maintain, and cause each of its subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with generally accepted accounting principles in effect from time to time. The Company will deliver to the Banks (except to the extent otherwise expressly provided below in subsection 5.1B(ii)): A. (i) as soon as practicable and in any event within 45 days after the end of each fiscal quarter ending after the Effective Date in the Company's fiscal year the consolidated balance sheet of the Company and its consolidated subsidiaries as at the end of such period, and the related consolidated statements of income and cash flows of the Company and its consolidated subsidiaries in each case certified by the chief financial officer or controller of the Company that they fairly present the financial condition of the Company and its consolidated subsidiaries as at the dates indicated and the results of their operations and changes in their cash flows, subject to changes resulting from audit and normal year-end adjustments, based on their respective normal accounting procedures applied on a consistent basis (except as noted therein); (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year the consolidated balance sheet of the Company and its consolidated subsidiaries as at the end of such year and the related consolidated statements of income and cash flows of the Company and its consolidated subsidiaries for such fiscal year, accompanied by a report thereon of independent certified public accountants of recognized national standing selected by the Company which report shall be unqualified as to going concern and scope of audit and shall state that such consolidated financial statements present fairly the financial position of the Company and its consolidated subsidiaries as at the dates indicated and the results of their operations and changes in their cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years (except as noted in such report) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; B. (i) together with each delivery of financial statements of the Company and its consolidated subsidiaries pursuant to subdivisions A(i) and A(ii) above, (a) an Officer's Certificate of the Company stating that the signer has reviewed the terms of this Agreement and has made, or caused to be made under such signer's supervision, a review in reasonable detail of the transactions and condition of the Company and its consolidated subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance (as determined in accordance with GAAP during and at the end of such accounting periods) with the restrictions contained in Section 6.3 and, in addition, a written statement of the chief accounting officer, chief financial officer, any vice president or the treasurer or any assistant treasurer of the Company describing in reasonable detail the differences between the financial information contained in such financial statements and the information contained in the Compliance Certificate relating to the Company's compliance with Section 6.3 hereof; (ii) promptly upon their becoming available but only to the extent requested by a Bank, copies of all publicly available financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders or by any Subsidiary of the Company to its security holders other than the Company or another Subsidiary, of all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company and its Subsidiaries; (iii) promptly upon the chairman of the board, the chief executive officer, the president, the chief accounting officer, the chief financial officer, the treasurer or the general counsel of the Company obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, (b) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 7.2, or (c) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, an Officer's Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; and (iv) with reasonable promptness, such other information and data with respect to the Company or any of its subsidiaries as from time to time may be reasonably requested by any Bank. 5.2 Corporate Existence Except as permitted by Section 6.1, the Company will at all times preserve and keep in full force and effect its corporate existence and rights and franchises material to the business of the Company and its Subsidiaries, taken as a whole. 5.3 Payment of Taxes The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property when due which are material to the Company and its Subsidiaries, taken as a whole, provided that no such amount need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made therefor. 5.4 Maintenance of Properties; Insurance The Company will maintain or cause to be maintained in good repair, working order and condition all material properties used or useful in its business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate material repairs and renewals thereto and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its material properties and business and the material properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations and to the extent reasonably prudent may self-insure. 5.5 Inspection The Company shall permit any authorized representatives designated by any Bank to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their financial and accounting records, and, to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested; provided that any confidential information so obtained by any Bank shall remain confidential except where disclosure is mandated by applicable laws or such information otherwise becomes public other than by a breach by such Bank of this Section 5.5; provided further that this Section shall not prohibit any Bank from disclosing to the Agent (or the Agent to any Bank) any Event of Default or Potential Event of Default. 5.6 Compliance with Laws The Company and its Subsidiaries shall exercise all due diligence in order to comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including, without limitation, laws, rules and regulations relating to the disposal of hazardous wastes and asbestos in the environment), noncompliance with which would have a Material Adverse Effect. Section 6 NEGATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments shall be in effect and until payment in full of all of the Loans and the Notes, unless the Required Banks shall otherwise give prior written consent, it will perform all covenants in this Section 6: 6.1 Merger The Company may not consolidate with, merge with or into or sell, lease or otherwise transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to any Person unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company are sold, leased or transferred shall be a solvent corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by an agreement, executed and delivered to the Banks, in form and substance reasonably satisfactory to the Required Banks, all of the obligations of the Company under this Agreement, the Notes and the Competitive Bid Loans; (ii) immediately before and immediately after giving effect to such transaction, no Event of Default and no Potential Event of Default shall have occurred and be continuing (with the interest coverage ratio required by Section 6.3B being calculated on a pro forma basis for the four fiscal quarters of the Company and such Person ending immediately prior to the date of such consolidation, merger, sale, lease or transfer); and (iii) the Company shall deliver to the Banks an Officer's Certificate (attaching the arithmetic computations to demonstrate compliance with Section 6.3) and an opinion of counsel, each stating that such consolidation, merger, sale, lease or transfer and such agreement comply with this Section 6.1 and that all conditions precedent herein provided for relating to such transaction have been complied with. 6.2 Liens The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset (including any document or instrument in respect of goods or accounts receivable) (other than Margin Stock) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, except: (i) Liens in existence on the date hereof; (ii) Permitted Encumbrances; (iii) Liens on accounts receivable sold with recourse; (iv) Liens incurred in connection with the acquisition of equipment by the Company or any of its Subsidiaries for a cost less than $2,000,000 in any case, provided that the principal amount of the indebtedness so secured shall not exceed in any case 100% of the cost to the Company or such Subsidiary of the equipment acquired and provided, further, that each such Lien shall cover only the equipment acquired and the proceeds thereof, substitutions therefor and replacements thereof; and (v) Liens (other than Liens permitted by clauses (i)-(iv) above) securing obligations of the Company and its Subsidiaries (including Indebtedness) not in excess of an amount equal to 5% of the consolidated total assets of the Company and its Subsidiaries, all as determined in accordance with GAAP on a consolidated basis for the Company and its Subsidiaries. Nothing in this Section 6.2 shall prohibit the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by the Company or any of its Subsidiaries at its fair value, or the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. 6.3 Financial Covenants A. Minimum Consolidated Net Worth. The Company will not permit its Consolidated Net Worth (less the Textron Affiliate Amount) at any time during any fiscal quarter (each a "Measurement Quarter") ending on and after July 3, 1993 to be less than the sum of (x) $2,000,000,000 plus (y) an amount equal to 40% of the Consolidated Net Income of the Company for each fiscal quarter of the Company in which the Company had a Consolidated Net Income for such fiscal quarter in excess of $0 and which such fiscal quarter commenced on or after July 3, 1993 and ended on or prior to the first day of such Measurement Quarter plus (z) 100% of the proceeds of any equity issuances by the Company (excluding issuances as a result of the exercise of employee stock options) on and after the date of this Agreement. B. Interest Coverage Ratio. The Company shall not permit the ratio of (i) Con- solidated EBITDA to (ii) Consolidated Interest Expense at any date to be less than 1.5 to 1.0 calculated at the end of each fiscal quarter of the Company by reference to the four fiscal quarter periods ending on such date of calculation. 6.4 Existing Subordinated Debt The Company will not amend or otherwise change the terms of any Existing Subordinated Debt except as specifically permitted hereby, or make, directly or indirectly, any payment consistent with an amendment or change thereto, if the effect of such amendment or change is to increase the interest rate on such Debt, change the dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect to such Debt, grant any security interest in favor of such Existing Subordinated Debt, change the redemption provisions thereof, change the subordination provisions thereof, cause the Existing Subordinated Debt to be guaranteed by any Person or which, together with all other amendments or changes made, increase materially the obligations of the obligor or confer additional rights on the holder of such Debt which would be adverse to the Company or the Banks. 6.5 Use of Proceeds Notwithstanding any provisions of this Agreement to the contrary, no portion of the proceeds of any borrowing under this Agreement shall be used by the Company in any manner which would cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T, or Regulation X of the Board or any other regulation of the Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. Section 7 EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur and be continuing: 7.1 Failure To Make Payments When Due Failure to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; or failure to pay any interest on any Loan or any other amount due under this Agreement when due and such default shall continue for 5 days; or 7.2 Default in Other Agreements (i) Failure of the Company or any of its Subsidiaries to pay when due any principal or interest on any Indebtedness (other than Indebtedness referred to in Section 7.1) in an individual principal amount of $20,000,000 or more or items of Indebtedness with an aggregate principal amount of $20,000,000 or more beyond the end of any period prior to which the obligee thereunder is prohibited from accelerating payment thereunder or any grace period after the maturity thereof, or (ii) breach or default of the Company or any of its Subsidiaries (other than a default arising under any restrictive provision relating to any sale, pledge or other disposition of Margin Stock contained in a lending agreement to which any Bank or Affiliate thereof is a party) with respect to any other term of (y) any evidence of any Indebtedness in an individual principal amount of $20,000,000 or more or items of Indebtedness with an aggregate principal amount of $20,000,000 or more; or (z) any loan agreement, mortgage, indenture or other agreement relating thereto, if such failure, default or breach shall continue for more than the period of grace, if any, specified therein and shall not at the time of acceleration hereunder be cured or waived; or 7.3 Breach of Certain Covenants Failure of any Borrower to perform or comply with any term or condition contained in Section 5.2, 6.1, 6.3, 6.4 or 6.5 of this Agreement; or 7.4 Breach of Warranty Any representation or warranty made by any Borrower in this Agreement or in any statement or certificate at any time given by such Person in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 7.5 Other Defaults Under Agreement Any Borrower shall default in the performance of or compliance with any term contained in this Agreement other than those referred to above in Section 7.1, 7.3 or 7.4 and such default shall not have been remedied or waived within 30 days after receipt of notice from the Agent or any Bank of such default; or 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc. (A) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (B) an involuntary case is commenced against the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower, or over all or a substantial part of its property, shall have been entered; or an interim receiver, trustee or other custodian of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower for all or a substantial part of the property of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower is involuntarily appointed; or a warrant of attachment, execution or similar process is issued against any substantial part of the property of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower, and the continuance of any such events in subpart (B) for 60 days unless dismissed, bonded or discharged; or 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc. The Company or any of its Restricted Subsidiaries or any Subsidiary Borrower shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; the making by the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower of any assignment for the benefit of creditors; or the inability or failure of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower, or the admission by the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower in writing of its inability to pay its debts as such debts become due; or the Board of Directors of the Company or any Restricted Subsidiary or any Subsidiary Borrower (or any committee thereof) adopts any resolution or otherwise authorizes action to approve any of the foregoing; or 7.8 Judgments and Attachments Any money judgment, writ or warrant of attachment, or similar process involving individually or in the aggregate an amount in excess of $50,000,000 shall be entered or filed against the Company or any Restricted Subsidiary or any of its assets and shall remain undischarged, unvacated, unbonded or unstayed, as the case may be, for a period of 30 days or in any event later than five days prior to the date of any proposed sale thereunder; or 7.9 Dissolution Any order, judgment or decree shall be entered against the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower decreeing the dissolution or split up of the Company or that Restricted Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 7.10 ERISA Title IV Liabilities (i) The Company or any of its ERISA Affiliates shall terminate or suffer the termination of (by action of the PBGC or any successor thereto) any Pension Plan, or shall suffer the appointment of or the institution of proceedings to appoint a trustee to administer any Pension Plan, or shall withdraw (under Section 4063 of ERISA) from a Pension Plan, if as of the date thereof or any subsequent date the sum of the Company's and each ERISA Affiliate's liabilities to the PBGC or any other Person under Sections 4062, 4063 and 4064 of ERISA (calculated after giving effect to the tax consequences thereof) resulting from or otherwise associated with the above-described events exceeds $50,000,000; or (ii) The Company or any of its ERISA Affiliates shall withdraw from any Multiemployer Plan and the aggregate amount of withdrawal liability (determined pursuant to Sections 4201 et seq. of ERISA) to which the Company and its ERISA Affiliates become obligated to all Multiemployer Plans requires annual payments in excess of $5,000,000; THEN (i) upon the occurrence of any Event of Default described in the foregoing Sections 7.6 or 7.7, the unpaid principal amount of and accrued interest on all the Loans shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company and each Borrower and the obligation of each Bank to make any Loans hereunder shall thereupon terminate, and (ii) upon the occurrence of any other Event of Default, the Required Banks may, by written notice to the Company and each Borrower, declare the unpaid principal amount of and accrued interest on all the Loans to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Bank to make any Loan hereunder shall thereupon terminate. Nevertheless, if at any time within 60 days after acceleration of the maturity of the Loans, each Borrower shall pay all arrears of interest and all payments on account of the principal which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement or the Notes) and all other fees and expenses then owed hereunder and all Events of Default and Potential Events of Default (other than non-payment of principal of and accrued interest on the Loans and the Notes), in each case due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 10.6, then the Required Banks by written notice to the Company may (in their sole discretion) rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. Section 8 AGENT 8.1 Appointment Each of the Banks hereby appoints BT Co as its Agent (the "Agent") hereunder and each Bank hereby authorizes the Agent to act hereunder and under the other instruments and agreements referred to herein as its agent hereunder and thereunder. BT Co agrees to act as such upon the express conditions contained in this Section 8. The provisions of this Section 8 are solely for the benefit of the Agent, and neither the Company nor any other Borrower shall have any rights as a third party beneficiary of or any obligations under any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Company or any other Borrower. 8.2 Powers; General Immunity A. Duties Specified. Each Bank irrevocably authorizes the Agent to take such action on such Bank's behalf and to exercise such powers hereunder and under the other instruments and agreements referred to herein as are specifically delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. The Agent shall have only those duties and responsibilities which are expressly specified in this Agreement and it may perform such duties by or through its agents or employees. The duties of the Agent shall be mechanical and administrative in nature; and the Agent shall not have by reason of this Agreement a fiduciary or trust relationship in respect of any Bank; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or the other instruments and agreements referred to herein except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. The Agent shall not be responsible to any Bank for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or the Notes issued hereunder or any Loan, or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agent to any Bank or by or on behalf of the Borrower to the Agent or any Bank, or for the accuracy of any information relating to Competitive Bid Loans (including as to amounts outstanding at any time), or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans, or of the existence or possible existence of any Event of Default or Potential Event of Default. C. Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees or agents shall be responsible or liable to any Bank for any action taken or omitted hereunder or under any of the other Loan Documents or in connection herewith or therewith unless caused by its or their gross negligence or willful misconduct. If the Agent shall request instructions from any Bank with respect to any act or action (including the failure to take an action) in connection with this Agreement or the Notes, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Required Banks. Without prejudice to the generality of the foregoing, (i) the Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower), accountants, experts and other professional advisors selected by it; and (ii) no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or (where so instructed) refraining from acting under this Agreement, any Note or the other instruments and agreements referred to herein or therein in accordance with the instructions of the Required Banks. The Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement, any Note or the other instruments and agreements referred to herein or therein unless and until it has obtained the instructions of the Required Banks. D. Agent Entitled to Act as Bank. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Agent in its individual capacity as a Bank hereunder. With respect to its participation in the Loans, the Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Bank" or "Banks" or any similar term shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with the Company or any Affiliate or Subsidiary of the Company as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company or any such Affiliate or Subsidiary for services in connection with this Agreement or the Notes and otherwise without having to account for the same to the Banks. 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness________________ Each Bank represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Company and each other Borrower in connection with the making of the Loans hereunder and has made and shall continue to make its own appraisal of the creditworthiness of the Company. The Agent shall not have any duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of any Bank or to provide any Bank with any credit or other information with respect thereto whether coming into its possession before the making of the Loan or any time or times thereafter, and the Agent shall further not have any responsibility with respect to the accuracy of or the completeness of the information provided to the Banks. 8.4 Right to Indemnity Each Bank severally agrees to indemnify the Agent in accordance with its Pro Rata Share to the extent the Agent shall not have been reimbursed by the Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the other Loan Documents or in any way relating to or arising out of this Agreement or the Notes; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's negligence or willful misconduct. If any indemnity furnished to the Agent for any purpose shall, in the opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 8.5 Payee of Note Treated as Owner The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange for such Note. 8.6 Resignation by the Agent (a) The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 30 days' prior written notice to the Company and the Banks. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Company and shall be an incorporated bank or trust company with a combined surplus and undivided capital of at least $500 million. (c) If a successor Agent shall not have been so appointed within said 30 day period, the resigning Agent, with the consent of the Company, shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Banks, with the consent of the Company, appoint a successor Agent as provided above. 8.7 Successor Agent The Agent may resign at any time as provided in Section 8.6 hereof. Upon any such notice of resignation, the Required Banks shall have the right, upon five days' notice to the Company and subject to Section 8.6 hereof, to appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring Agent's resignation hereunder as the Agent the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. Section 9 GUARANTEE 9.1 Guarantee The Company hereby unconditionally guarantees the due and punctual payment of all principal of and interest on, and all other amounts now or hereafter payable by any Subsidiary Borrower to any Bank or Banks or the Agent under this Agreement, any Note or any Loans (collectively, "Guaranteed Obligations") when any of the same shall become due, whether at stated maturity, by required payment, declaration, acceleration, demand or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. { 362(a)), and agrees to pay any and all costs and expenses (including reasonable fees and disbursements of counsel) incurred by the Agent or the Banks in enforcing any rights under this Section 9. The Company agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that the Company will remain bound under this Section 9 notwithstanding any extension, renewal or other alteration of any Guaranteed Obligation. 9.2 Obligation Not Affected by Certain Events____________ The Company waives presentation of, demand of, and protest of any Guaranteed Obligation and also waives notice of protest for nonpayment. The obligations of the Company under this Section 9 shall not be affected by: (a) the failure of any Bank, the Agent or any other Person to assert any claim or demand or to enforce any right or remedy against any Subsidiary Borrower or any successor thereto under the provisions of this Agreement or any other agreement or otherwise; (b) any extension or renewal of any provision of any thereof; (c) any change in the time, manner or place of payment of any of the Guaranteed Obligations or any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any instrument or agreement executed pursuant thereto; or (d) the failure to perfect any security interest in, or the release of, any of the security held by any Bank, the Agent or other Person for any of the Guaranteed Obligations. 9.3 Guarantee a Guarantee of Payment The Company further agrees that this Section 9 constitutes a guarantee of payment when due and not of collection and waives any right to require that any resort be had by any Bank or the Agent or any other Person to any security held for payment of any of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of any Bank, the Agent or any other Person in favor of any Subsidiary Borrower or any other Person. 9.4 Obligation Not Subject to Limitation The obligation of the Company under this Section 9 shall not be subject to any reduction, limitation, impairment, or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise of any of the Guaranteed Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Guaranteed Obligations or discharge of any Subsidiary Borrower from any of the Guaranteed Obligations in a bankruptcy or similar proceeding or otherwise. Without limiting the generality of the foregoing, the obligation of the Company under this Section 9 shall not be discharged or impaired or otherwise affected by the failure of any Bank or the Agent or any other Person to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement or instrument or any other guarantee, by any waiver or modification of any thereof, by any default, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Company or which would otherwise operate as a discharge of the Company as a matter of law or equity. The Company further agrees that this Section 9 shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of, interest on or any other amount with respect to, any Guaranteed Obligation is rescinded or must otherwise be restored by any Bank, the Agent or any other Person upon the bankruptcy or reorganization of any Subsidiary Borrower, any other Person or otherwise. 9.5 Order of Payment The Company further agrees, in furtherance of the foregoing and not in limitation of any other right which any Bank, the Agent or any other Person may have at law or in equity against the Company by virtue of this Section 9, upon the failure of any Subsidiary Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether by required prepayment, acceleration or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. { 362(a)), the Company will forthwith pay, or cause to be paid, in cash, to the Agent for the ratable benefit of the Banks or the Agent, as the case may be, an amount equal to the sum of the unpaid principal amount of such Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to any Subsidiary Borrower, would have accrued on such Guaranteed Obligations) and all other Guaranteed Obligations then owed to the Banks and the Agent as aforesaid. All such payments shall be applied promptly, from time to time, by the Agent: First, to the payment of the costs and expenses of any collection, or other realization under this Section 9, including reasonable compensation to the Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Agent in connection therewith; Second, to the payment of accrued but unpaid interest on the Notes and the Loans comprising the Guaranteed Obligations; Third, to the payment of the Guaranteed Obligations not paid pursuant to clause Second above; Fourth, after payment in full of all Guaranteed Obligations, to the Company or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such payments. 9.6 Waiver by the Company The Company hereby waives absolutely and irrevocably any claim which it may have against any of the Subsidiary Borrowers by reason of any payment to the Banks or the Agent or to any other Person pursuant to or in respect of the guarantee set forth in this Section 9, including any claim by way of subrogation, contribution, reimbursement, indemnity or otherwise. Section 10 MISCELLANEOUS 10.1 Benefit of Agreement A. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Company may not assign or transfer any of its interest hereunder without the prior written consent of the Banks. B. Any Bank may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the offices of an Affiliate of such Bank, provided that doing so shall not cause any Borrower to incur any additional costs hereunder at the time of such transfer. C. Any Bank may assign its rights and delegate its obligations under this Agreement and further may sell participations in all or any part of any Loan or Loans made by it or its Commitment or any other interest herein or in its Notes to another bank or other entity; provided that (i) in the case of an assignment, such Bank shall (a) give to the Company and the Agent prior notice thereof, and, in the case of any assignment, the Company shall, except as set forth in the last sentence of this Section 10.1C and in Section 10.1D, have consented thereto and (b) comply with Section 10.1F hereof and thereupon, the assignee "Purchasing Bank" shall have, to the extent of such assignment (unless otherwise provided thereby), the rights and benefits described in Section 10.1F hereof, and (ii) in the case of a participation, except as set forth below, the participant shall not have any rights under this Agreement or any Note or any other document delivered in connection herewith (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Borrower under Sections 2.11E and 2.11I hereof shall be determined as if the Bank had not sold such participation. Except with respect to interest rate, principal amount of any Loan, fees, scheduled dates for payment of principal or interest or fees, scheduled termination of commitments and commitment amounts, a Bank will not in any such participation agreement restrict its ability to make any modification, amendment or waiver to this Agreement without the consent of the participant. Any Bank may furnish any information concerning the Company in possession of such Bank from time to time to Affiliates of such Bank and to assignees and participants (including prospective assignees and participants), provided, however, that (i) the furnishing Bank shall give the Company prior notice of any furnishing of non- public information (ii) the recipient shall agree to the terms of Section 10.12 hereof and (iii) the furnishing of such information (and the nature, manner and extent thereof) by any Bank to its Affiliates and such assignees and participants shall be further governed by the relevant agreement, assignment or participation agreement relating to such arrangement, assignment or participation, as the case may be. Notwithstand- ing anything to the contrary in the foregoing, any Bank may, without the consent of the Company, assign any of its rights and interests in Loans hereunder to (x) a federal reserve bank without the consent of the Company or (y) any Affiliate of such Bank; provided that an Affiliate to whom such disposition has been made shall not be considered a "Bank" for purposes of Section 10.6 but shall be considered a "Bank" for purposes of Sections 10.4 and 10.5. D. Notwithstanding the foregoing provisions of this Section 10.1, each Bank may at any time, upon 30 days' prior written notice to the Agent and the Company, sell, assign, transfer or negotiate all or any part of its Loans, Notes or Commitment if, but only if, concurrently therewith or prior thereto (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of a majority of the outstanding shares of voting stock of the Company pursuant to one or more transactions not approved, in their capacities as directors, by at least a majority of the individuals who served as directors of the Company on the date one year prior to the date of the first acquisition of voting stock leading to such acquisition or (b) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 12 month period were directors of the Company cease for any reason to constitute a majority of the board of directors of the Company. E. Except pursuant to an assignment permitted by this Agreement but only to the extent set forth in such assignment, no Bank shall, as between each Borrower and that Bank, be relieved of any of its obligations hereunder as a result of any sale, transfer or negotiation of, or granting of participations in, all or any part of the Loans, the Notes or Commitment of that Bank or other obligations owed to such Bank. F. Any assignment made pursuant to Section 10.1C hereof shall be made pursuant to a Transfer Supplement, substantially in the form of Exhibit F annexed hereto, executed by the Purchasing Bank, the transferor Bank, the Company and the Agent. Upon (i) such execution of such Transfer Supplement, (ii) delivery of an executed copy thereof to the Borrower, (iii) payment by such Purchasing Bank to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Purchasing Bank, and (iv) payment by such Purchasing Bank or transferor Bank (as they shall mutually agree) to the Agent of a non-refundable fee of $3,000 to cover administrative and other expenses which may be incurred in connection with such assignment, such Purchasing Bank shall for all purposes be a Bank party to this Agreement and shall have the rights (including without limitation the benefits of Sections 2.11 and 2.12) and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto and thereto with the Pro Rata Share of the applicable Commitment set forth in such Transfer Supplement, and no further consent or action by the Company, the Banks or the Agent shall be required. Such Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Pro Rata Shares arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement, the Loans and the Notes. Upon the consummation of any transfer to a Purchasing Bank pursuant to this paragraph F, the transferor Bank, the Agent and the Company shall make appropriate arrangements so that, if required, a replacement Note is issued to such transferor Bank and a new Note or, as appropriate, a replacement Note, issued to such Purchasing Bank, in each case in principal amounts reflecting their Pro Rata Shares or, as appropriate, their outstanding Loans, as adjusted pursuant to such Transfer Supplement. 10.2 Expenses Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to promptly pay (i) all the actual and reasonable out-of-pocket costs and expenses of the Agent in connection with the negotiation, preparation and execution of this Agreement, and the Notes; (ii) the reasonable fees, expenses and disbursements of Cahill Gordon & Reindel, counsel to the Agent and the Banks, in connection with the negotiation, preparation, execution and administration of this Agreement, the Notes, the Loans, and any amendments and waivers hereto or thereto; and (iii) all reasonable costs and expenses (including reasonable attorneys' fees, expenses and disbursements, and costs of settlement) incurred by the Banks in enforcing any obligations of or in collecting any payments due from any Borrower hereunder or under the Notes by reason of the occurrence of any Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings or otherwise. 10.3 Indemnity In addition to the payment of expenses pursuant to Section 10.2 hereof, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold the Agent and each Bank and any holder of any of the Notes and the officers, directors, employees, agents, advisors and affiliates of each of them (collectively called the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees, expenses and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto), which may be imposed on, incurred by, or asserted against that Indemnitee, in any manner relating to or arising out of this Agreement, the Banks' agreement to make the Loans or the use or intended use of the proceeds of any of the Loans hereunder (the "indemnified liabilities"); provided that, the Company shall have no obligation to any Indemnitee hereunder to the extent that such indemnified liabilities arose from the negligence or willful misconduct of that Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy or otherwise, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them. 10.4 Setoff In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Bank and each subsequent holder of any Note is hereby authorized by each Borrower at any time and from time to time, without notice to such Borrower, or to any other Person, and without presentment, demand or protest, any such being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other Indebtedness at any time held or owing by that Bank or that subsequent holder (including, without limitation, any branches or agencies thereof, wherever located) to or for the credit or the account of such Borrower against and on account of the obligations and liabilities of such Borrower to that Bank or that subsequent holder under this Agreement, or the Notes including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement or the Notes or the Loans, irrespective of whether or not (a) that Bank or that subsequent holder shall have made any demand hereunder or (b) that Bank or that subsequent holder shall have declared the principal or the interest on the Loans and Notes, and other amounts due hereunder, to be due and payable as permitted by Section 7 and although said obligations and liabilities, or any of them, may be contingent or unmatured. 10.5 Ratable Sharing Subject to the last sentence of this Section 10.5, each Bank and each subsequent holder by acceptance of a Revolving Note or a Syndicated Loan agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Syndicated Loans and Revolving Notes and amounts payable in respect of the facility fees, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Banks proportionately to their respective Pro Rata Shares whether received by voluntary payment, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Revolving Notes and Syndicated Loans, (ii) if any of them shall exercise any right of counterclaim, setoff, banker's lien or similar right with respect to amounts owed by any Borrower hereunder or under the Revolving Notes or the Syndicated Loans, then the Bank or holder, as the case may be, shall apportion the amount recovered as a result of the exercise of such right in accordance with each Bank's Pro Rata Share, and (iii) if any of them shall thereby through the exercise of any right of counterclaim, set off, banker's lien or otherwise or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal and interest due with respect to the Revolving Notes or Syndicated Loans held by the Bank or holder, or any amount payable hereunder which is greater than the proportion received by any other holder of the Revolving Notes or Syndicated Loans in respect of the aggregate amount of principal and interest due with respect to the Revolving Notes or Syndicated Loans held by it, or any amount payable hereunder, then the Bank or that holder of the Revolving Notes or Syndicated Loans receiving such proportionately greater payments shall (y) notify each other Bank and the Agent of such receipt and (z) purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such payment) in the Revolving Notes or Syndicated Loans held by the other holders so that all such recoveries of principal and interest with respect to the Revolving Notes or Syndicated Loans shall be proportionate to their Pro Rata Shares provided that, if all or part of such proportionately greater payment received by such purchasing holder is thereafter recovered from such holder, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to that holder to the extent of such recovery, but without interest. Each Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation in any such Revolving Note or Syndicated Loan so purchased and any other subsequent holder of a participation in any Revolving Note or Syndicated Loan otherwise acquired may exercise any and all rights of banker's lien, set off or counterclaim with respect to any and all moneys owing by such Borrower to that holder as fully as if that holder were a holder of such Revolving Note or Syndicated Loan in the amount of the participation held by that holder. Notwithstanding the foregoing, upon the occurrence and during the continuance of a Potential Event of Default or an Event of Default, the ratable sharing arrangements set forth in this Section 10.5 shall be based on each Bank's pro rata share of all Loans outstanding at such time, rather than on each Bank's Pro Rata Share. 10.6 Amendments and Waivers No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes or consent to any departure by any Borrower therefrom shall in any event be effective without the written concurrence of the Required Banks; except that (A) any amendment, modification, termination or waiver (i) of any provision that increases the principal amount of the Commitments or the Loans, changes a Bank's Pro Rata Share or affects the definitions of "Required Banks" and "Final Maturity Date," (ii) of any provision that expressly requires the approval or concurrence of all Banks, (iii) that decreases the interest rates borne by the Syndicated Loans, or postpones the payment of interest due on the Syndicated Loans, (iv) that decreases the amount or changes the due date of any amount payable in respect of the fees payable hereunder, (v) that eliminates the Company's guarantee set forth in Section 9 hereof or (vi) of any of the provisions contained in Sections 2.11B, 2.11C and 7.1 hereof and this Section 10.6 shall be effective only if evidenced by a writing signed by or on behalf of all Banks and (B) any waiver with respect to a Competitive Bid Loan can be given only by the Bank affected with respect thereto. No amendment, modification, termination or waiver of any provision of Section 8 hereof or any of the rights, duties, indemnities or obligations of the Agent, as agent shall be effective without the written concurrence of the Agent. The Agent may, but shall have no obligation to, with the concurrence of any Bank, execute amendments, modifications, waivers or consents on behalf of that Bank. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Borrower in any case shall entitle such Borrower to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.6 shall be binding upon each holder of the Notes or Loans, at the time outstanding, each future holder of the Notes or Loans and, if signed by such Borrower, on the Borrower. 10.7 Independence of Covenants All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 10.8 Notices Unless otherwise provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or telex or four Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; provided that notices to the Agent shall not be effective until received by Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 10.8) shall be set forth under each party's name on the signature pages hereto. 10.9 Survival of Warranties and Certain Agreements A. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of the Notes. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company or any other Borrower set forth in Sections 2.11E, 2.11I and 2.11L, the agreements of the Company set forth in Sections 10.2 and 10.3 and the agreements of Banks set forth in Sections 8.2C, 8.4, 10.4 and 10.5 shall survive the payment of the Loans, the Notes and the termination of this Agreement. 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative______________ No failure or delay on the part of any Bank or of any holder of any Note or lender of any Loan in the exercise of any power, right or privilege hereunder or under the Notes or the Loans shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or the Notes or the Loans are cumulative to and not exclusive of any rights or remedies otherwise available. 10.11 Severability In case any provision in or obligation under this Agreement or any Note or Loan shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations thereof, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.12 Obligations Several; Independent Nature of Bank's Rights_________ The obligation of each Bank hereunder is several, and no Bank shall be responsible for the obligation or commitment of any other Bank hereunder. Nothing contained in this Agreement and no action taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. 10.13 Headings Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.14 APPLICABLE LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS_________________ A. THIS AGREEMENT, THE NOTES AND THE LOANS SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. B. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. 10.15 Successors and Assigns; Subsequent Holders of Notes__________________ This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Banks. The terms and provisions of this Agreement shall inure to the benefit of any assignee or transferee of the Notes and Loans and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Banks shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. The Company's or any Borrower's rights or any interest therein hereunder may not be assigned without the written consent of all the Banks except pursuant to a merger, consolidation or sale, lease or transfer of assets permitted by Section 6.1 hereof. The Banks' rights of assignment are limited by and subject to Section 10.1 hereof. The Company may, in its sole discretion, upon ten (10) days' prior written notice, replace any of the Banks with one or more banks provided that (i) the Bank being replaced has concurrently therewith been paid in full all amounts due to such Bank hereunder and under any of its Notes, (ii) the full amount of the Commitments remains unchanged and (iii) the percentages of the total Commitments allocated to each other Bank (or any successors thereto) remains unchanged unless the prior written consent from such Bank has been obtained. Any such Bank so replaced shall, upon written request of the Company, execute and deliver such instruments and agreements as are reasonably necessary to accomplish the same. 10.16 Counterparts; Effectiveness This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective on such date (the "Effective Date") as a counterpart hereof shall be executed by each of the parties hereto and copies hereof shall be delivered to the Company and the Agent. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. COMPANY: TEXTRON INC. By: s/Richard A. McWhirter Executive Vice President and Chief Financial Officer By: s/Brian T. Downing Vice President and Treasurer Notice Address: Textron Inc. 40 Westminster Street Providence, RI 02903 Attention: Treasurer with a copy to: Textron Inc. 40 Westminster Street Providence, RI 02903 Attention: General Counsel S-2 BANKS AND AGENT: BANKERS TRUST COMPANY, as a Bank and as Agent By: s/Edward G. Benedict Name: Edward G. Benedict Title: Vice President Notice Address and Payment Office: Bankers Trust Company 280 Park Avenue 14-E New York, NY 10017 Attention: Edward G. Benedict Telephone No. (212) 454-3591 Telecopy No. (212) 454-2942 Commitment: $8,991,223 Pro Rata Share: 3.5965% S-3 ABN-AMRO BANK, N.V. By: s/Elliott O. May Name: Elliott O. May Title: Group Vice President and Marketing Manager Notice Address and Payment Office: ABN-Amro Bank, N.V. 53 State Street Boston, MA 02109 Attention: Elliott May Telephone No. Telecopy No. Commitment: $9,210,528 Pro Rata Share: 3.6842% S-4 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: s/Arlene S. Pedovitch Name: Arlene S. Pedovitch Title: Vice President Notice Address and Payment Office: Bank of America 1850 Gateway Boulevard, 4th fl. Concord, California 94520 Attention: Lorine Stafford Telephone No. Telecopy No. (510) 675-7531 Commitment: $13,157,900 Pro Rata Share: 5.2632% S-5 BANK OF BOSTON By: s/Carol A. Lovell Name: Carol A. Lovell Title: Director Notice Address and Payment Office: First National Bank of Boston 100 Federal Street Boston, MA 02110 Attention: Carol Lovell Telephone No. Telecpy No. Commitment: $14,473,685 Pro Rata Share: 5.7895% S-6 BANK OF MONTREAL/ HARRIS TRUST AND SAVINGS BANK By: s/Cecily Mistarz Name: Cecily Mistarz Title: Director Notice Address and Payment Office: Bank of Montreal/ Harris Trust and Savings Bank 115 South LaSalle Street 12th Floor Chicago, IL 60603 Attention: Calvin R. Myers Telephone No. Telecopy No. Commitment: $3,289,475 Pro Rata Share: 1.3158% S-7 THE BANK OF NEW YORK By: s/David C. Judge Name: David C. Judge Title: Vice President Notice Address and Payment Office: The Bank of New York One Wall Street New York, NY 10286 Attention: David C. Judge Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-8 THE BANK OF NOVA SCOTIA By: s/M. R. Bradley Name: M. R. Bradley Title: Representative Notice Address and Payment Office: The Bank of Nova Scotia 101 Federal Street 16th Floor Boston, MA 02110 Attention: Michael R. Bradley Telephone No. Telecopy No. Commitment: $3,333,333 Pro Rata Share: 1.3333% S-9 THE BANK OF TOKYO TRUST COMPANY By: s/G. Stewart Name: G. Stewart Title: Vice President Notice Address and Payment Office: Bank of Tokyo Trust Company Corporate Banking Department 100 Broadway, 12th Floor New York, NY 10005 Attention: George C. Stewart Telephone No. Telecopy No. Commitment: $3,728,067 Pro Rate Share: 1.4912% S-10 BANQUE NATIONALE de PARIS By: s/Phil Truesdale Name: Phil Truesdale Title: Vice President Notice Address and Payment Office: Banque Nationale de Paris 499 Park Avenue New York, NY 10022 Attention: Philemon Truesdale Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-11 BANQUE PARIBAS By: s/Stanley B. Berkman Name: Stanley B. Berkman Title: Group Vice President By: s/Stephen J. Kelly Name: Stephen J. Kelly Title: Vice President Notice Address and Payment Office: Banque Paribas The Equitable Tower 787 Seventh Avenue New York, NY 10019 Attention: Stephen Kelly Telephone No. (212) 841-2382 Telecopy No. (212) 841-2333 Commitment: $6,535,092 Pro Rata Share: 2.6140% S-12 BARCLAYS BANK PLC. By: s/Gregory D. Amoruso Name: Title: Vice President Notice Address and Payment Office: Barclays Bank Plc. 222 Broadway New York, NY 10038 Attention: Peter Nikitaidis Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-13 CIBC INC. By: s/W. B. Anderson Name: W. B. Anderson Title: Authorized Signatory Notice Address and Payment Office: Canadian Imperial Bank of Commerce Two Paces West 2727 Paces Ferry Road Atlanta, GA 30339 Attention: Michael J. Dorr Telephone No. (404) 319-4815 Telecopy No. (404) 319-4950 Commitment: $9,868,425 Pro Rata Share: 3.9474% S-14 THE CHASE MANHATTAN BANK, N.A. By: s/Sherwood E. Exum, Jr. Name: Sherwood E. Exum, Jr. Title: Managing Director Notice Address and Payment Office: The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza 6th Floor Manufacturing Component New York, NY 10081 Attention: Sherwood Exum, Jr. Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-15 CHEMICAL BANK By: s/Anne Kuchinsky Name: Anne Kuchinsky Title: Vice President Notice Address and Payment Office: Chemical Bank 270 Park Avenue New York, NY 10017 Attention: Stewart U. Wallace Telephone No. Telecopy No. Commitment: $14,035,092 Pro Rata Share: 5.6140% S-16 CITIBANK, N.A. By: s/W. Martens Name: W. Martens Title: Vice President Notice Address and Payment Office: Citibank, N.A. 399 Park Avenue New York, NY 10043 Attention: William G. Martens, III Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-17 COMERICA BANK By: s/Jon A. Bird Name: Jon A. Bird Title: Vice President Notice Address and Payment Office: Comerica Bank 500 Woodward Avenue MC 3280 Detroit, MI 48226 Attention: Jon A. Bird Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-18 CONTINENTAL BANK, N.A. By: s/David Noda Name: David Noda Title: Vice President Notice Address and Payment Office: Continental Bank, N.A. 231 South LaSalle Street Chicago, IL 60697 Attention: Elliot J. Jaffee Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-19 CREDIT LYONNAIS By: s/Robert Ivosevich Name: Robert Ivosevich Title: Senior Vice President Notice Address and Payment Office: Credit Lyonnais Exchange Place 53 State Street - 26th Floor Boston, MA 02109 Attention: Thierry Hauret Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-20 CREDIT SUISSE By: s/Juerg Johner Name: Juerg Johner Title: Notice Address and Payment Office: Credit Suisse Tower 49 12 East 40th Street New York, NY 10017 Attention: Juerg Johner Telephone No. Telecopy No. Commitment: $4,166,667 Pro Rata Share: 1.6667% S-21 DEUTSCHE BANK AG NEW YORK BRANCH By: s/Philip J. Palm Name: Philip J. Palm Title: Director Notice Address and Payment Office: Deutsche Bank AG New York Branch 31 West 52nd Street New York, NY 10019 Attention: Philip J. Palm Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-22 FIRST AMERICAN NATIONAL By: s/Scott M. Bane Name: Scott M. Bane Title: Vice President Notice Address and Payment Office: First American National First American Center Nashville, TN 37237 Attention: Scott M. Bane Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-23 FIRST INTERSTATE BANK OF CALIFORNIA By: s/Bruce L. Gregory Name: Bruce L. Gregory Title: Vice President Notice Address and Payment Office: First Interstate Bank of California 885 Third Avenue New York, NY 10022 Attention: Bruce L. Gregory Telephone No. Telecopy No. Commitment: $5,921,052 Pro Rata Share: 2.3684% S-24 THE FIRST NATIONAL BANK OF CHICAGO By: s/Courtenay R. Wood Name: Courtenay R. Wood Title: Vice President Notice Address and Payment Office: The First National Bank of Chicago North American Banking Group One First National Plaza Mail Suite 0374 Chicago, IL 60670-0374 Attention: Thomas M. Harkless Telephone No. Telecopy No. Commitment: $13,157,900 Pro Rata Share: 5.2632% S-25 FLEET NATIONAL BANK By: s/Kathleen A. Fitzgerald Name: Kathleen A. Fitzgerald Title: Vice President Notice Address and Payment Office: Fleet National Bank 111 Westminster Street Providence, RI 02903 Attention: Kathleen A. Fitzgerald Telephone No.: Telecopy No.: Commitment: $8,114,027 Pro Rata Share: 3.2456% S-26 FUJI BANK, LTD. By: s/Yoshihiko Shiotsugu Name: Yoshihiko Shiotsugu Title: Vice President and Manager Notice Address and Payment Office: Fuji Bank, Ltd. Two World Trade Center New York, NY 10048 Attention: Michael A. Imperiale Telephone No. Telecopy No. Commitment: $3,728,067 Pro Rata Share: 1.4912% S-27 INDUSTRIAL BANK OF JAPAN By: s/Takeshi Kawano Name: Takeshi Kawano Title: Senior Vice President and Senior Manager Notice Address and Payment Office: Industrial Bank of Japan 245 Park Avenue New York, NY 10167-0037 Attention: John Veltri Telephone No. Telecopy No. Commitment: $3,728,067 Pro Rata Share: 1.4912% S-28 MELLON BANK, N.A. By: s/Diane P. Durnin Name: Diane P. Durnin Title: Vice President Notice Address and Payment Office: Mellon Bank, N.A. 551 Madison Avenue New York, NY 10022 Attention: Diane Durnin Telephone No. Telecopy No. Commitment: $5,701,758 Pro Rata Share: 2.2807% S-29 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: s/Steven Kenneally Name: Steven Kenneally Title: Vice President Notice Address and Payment Office: Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Attention: Martin R. Atkin Telephone No. Telecopy No. Commitment: $13,157,900 Pro Rata Share: 5.2632% S-30 NATIONSBANK By: s/Thomas McCaskill Name: Thomas McCaskill Title: Senior Vice President Notice Address and Payment Office: NationsBank 767 Fifth Avenue - 23rd Floor New York, NY 10153 Attention: Michael J. Cerminaro Telephone No. Telecopy No. Commitment: $13,815,785 Pro Rata Share: 5.5263% S-31 NATIONAL WESTMINSTER BANK Plc. By: s/David Apps Name: David Apps Title: Vice President Notice Address and Payment Office: National Westminster Bank Plc. 175 Water Street - 29th Floor New York, NY 10038 Attention: David Apps Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-32 NBD BANK, N.A. By: s/Carolyn J. Parks Name: Carolyn J. Parks Title: Vice President Notice Address and Payment Office: NBD Bank, N.A. 611 Woodward Avenue Detroit, MI 48226 Attention: Carolyn J. Parks Telephone No. Telecopy No. Commitment: $3,289,475 Pro Rata Share: 1.3158% S-33 CORESTATES BANK, N.A. By: s/Donna J. Emhart Name: Donna J. Emhart Title: Commercial Officer Notice Address and Payment Office: Corestates Bank, N.A. 1345 Chestnut Street P.O. Box 7618 Philadelphia, PA 19101 Attention: Donna J. Emhart Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-34 THE ROYAL BANK OF CANADA By: s/Gary R. Overton Name: Gary R. Overton Title: Senior Manager Notice Address and Payment Office: Royal Bank of Canada USA Headquarters Financial Square New York, NY 10005-3531 Attention: Gary R. Overton Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-35 SANWA BANK, Ltd. By: s/Renko Hara Name: Renko Hara Title: Vice President Notice Address and Payment Office: Sanwa Bank, Ltd. Boston Branch One Financial Center Suite 2812 Boston, MA 02111 Attention: Dale C. Edmunds Telephone No. Telecopy No. Commitment: $3,289,475 Pro Rata Share: 1.3158% S-36 SHAWMUT BANK By: s/John B. Desmond Name: John B. Desmond Title: Vice President Notice Address and Payment Office: Shawmut Bank 777 Main Street Hartford, CT 06115 Attention: John B. Desmond Telephone No. Telecopy No. Commitment: $4,166,667 Pro Rata Share: 1.6667% S-37 SUNTRUST By: s/Peter Gentry Name: Peter Gentry Title: Assistant Vice President Notice Address and Payment Office: Suntrust Suntrust Corporate Services 25 Park Place, Center 123 Atlanta, GA 30303 Attention: Christina Ernshaw Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-38 SWISS BANK CORPORATION By: s/Stephanie W. Kim Name: Stephanie W. Kim Title: Associate Director Notice Address and Payment Office: Swiss Bank Corporation Swiss Bank Tower 10 East 50th Street SBT-17-A New York, NY 10022 Attention: Michael Fabiano Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-39 TORONTO DOMINION BANK By: s/Lisa Allison Name: Lisa Allison Title: Mgr. Cr. Admin. Notice Address and Payment Office: Toronto Dominion Bank 31 West 52nd Street New York, NY 10019 Attention: Katherine Lucey Telephone No. Telecopy No. Commitment: $3,508,766 Pro Rata Share: 1.4035% EX-10.20.B 5 EXHIBIT LINE OF CREDIT Dated as of November 1, 1993 Among TEXTRON INC. THE BANKS LISTED HEREIN AND BANKERS TRUST COMPANY, as Administrative Agent TEXTRON INC. LINE OF CREDIT dated as of November 1, 1993 TABLE OF CONTENTS Section Heading Page INTRODUCTION ......................................... 1 RECITALS ............................................. 1 Section 1 DEFINITIONS AND ACCOUNTING TERMS ..................... 1 1.1 Definitions .......................................... 1 1.2 Accounting Terms ..................................... 14 Section 2 AMOUNTS AND TERMS OF COMMITMENTS AND LOANS; NOTES ....................................... 14 2.1 Revolving Loans ...................................... 14 2.2 Competitive Bid Loans ................................ 17 2.3 Notices of Conversion/Continuation ................... 19 2.4 The Revolving Notes and Competitive Bid Notes .......................................... 20 2.5 Pro Rata Borrowings .................................. 21 2.6 Procedure for Extending Final Maturity Date ............................................... 22 2.7 Interest ............................................. 22 2.8 Commissions and Fees ................................. 25 2.9 Reductions in Commitments; Repayments and Payments ....................................... 26 2.10 Use of Proceeds ...................................... 30 2.11 Special Provisions Governing Eurodollar Rate Loans and/or Competitive Bid Loans .......................................... 30 2.12 Capital Requirements ................................. 38 Section 3 CONDITIONS TO LOANS .................................. 38 3.1 Conditions to Initial Loans .......................... 38 3.2 Conditions to All Loans .............................. 40 3.3 Conditions to All Competitive Bid Loans .............. 41 3.4 Conditions to Loans to Subsidiary Borrowers .......................................... 42 -i- Section 4 REPRESENTATIONS AND WARRANTIES ....................... 43 4.1 Organization, Powers and Good Standing ............... 43 4.2 Authorization of Borrowing, etc. ..................... 44 4.3 Financial Condition .................................. 45 4.4 No Adverse Material Change ........................... 45 4.5 Litigation ........................................... 45 4.6 Payment of Taxes ..................................... 46 4.7 Governmental Regulation .............................. 46 4.8 Securities Activities ................................ 46 4.9 ERISA Compliance ..................................... 46 4.10 Certain Fees ......................................... 47 Section 5 AFFIRMATIVE COVENANTS ................................ 47 5.1 Financial Statements and Other Reports ............... 47 5.2 Corporate Existence .................................. 50 5.3 Payment of Taxes ..................................... 50 5.4 Maintenance of Properties; Insurance ................. 50 5.5 Inspection ........................................... 51 5.6 Compliance with Laws ................................. 51 Section 6 NEGATIVE COVENANTS ................................... 51 6.1 Merger ............................................... 51 6.2 Liens ................................................ 52 6.3 Financial Covenants .................................. 53 6.4 Existing Subordinated Debt ........................... 54 6.5 Use of Proceeds ...................................... 54 Section 7 EVENTS OF DEFAULT .................................... 54 7.1 Failure To Make Payments When Due .................... 54 7.2 Default in Other Agreements .......................... 55 7.3 Breach of Certain Covenants .......................... 55 7.4 Breach of Warranty ................................... 55 7.5 Other Defaults Under Agreement ....................... 55 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc. .................................. 56 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc. .................................. 56 7.8 Judgments and Attachments ............................ 57 7.9 Dissolution .......................................... 57 7.10 ERISA Title IV Liabilities ........................... 57 Section 8 AGENT ................................................ 58 8.1 Appointment .......................................... 58 8.2 Powers; General Immunity ............................. 59 -ii- 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness ................................... 61 8.4 Right to Indemnity ................................... 61 8.5 Payee of Note Treated as Owner ....................... 61 8.6 Resignation by the Agent ............................. 62 8.7 Successor Agent ...................................... 62 Section 9 GUARANTEE............................................. 63 9.1 Guarantee............................................. 63 9.2 Obligation Not Affected by Certain Events...................................... 63 9.3 Guarantee a Guarantee of Payment...................... 64 9.4 Obligation Not Subject to Limitation.......................................... 64 9.5 Order of Payment...................................... 65 9.6 Waiver by the Company ................................ 65 Section 10 MISCELLANEOUS ........................................ 66 10.1 Benefit of Agreement ................................. 66 10.2 Expenses ............................................. 68 10.3 Indemnity ............................................ 69 10.4 Setoff ............................................... 70 10.5 Ratable Sharing ...................................... 70 10.6 Amendments and Waivers ............................... 71 10.7 Independence of Covenants ............................ 72 10.8 Notices .............................................. 72 10.9 Survival of Warranties and Certain Agreements ......................................... 73 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative ................................ 73 10.11 Severability ......................................... 73 10.12 Obligations Several; Independent Nature of Banks' Rights ................................... 74 10.13 Headings ............................................. 74 10.14 APPLICABLE LAW; CONSENT TO JURISDICTION AND SERVICE OF PROCESS ............................. 74 10.15 Successors and Assigns; Subsequent Holders of Notes ................................... 75 10.16 Counterparts; Effectiveness .......................... 75 SIGNATURE PAGES ..................................................... 76 -iii- EXHIBITS Exhibit A-1 - Form of Revolving Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B - Form of Opinion of Thomas D. Soutter, Esq., General Counsel of the Company Exhibit C - Form of Opinion of Cahill Gordon & Reindel Exhibit D-1 - Form of Notice of Syndicated Borrowing Exhibit D-2 - Form of Notice of Competitive Bid Borrowing Exhibit D-3 - Form of Notice of Conversion/Continuation Exhibit E - Form of Compliance Certificate Exhibit F - Form of Transfer Supplement Exhibit G - Form of Loan Assumption Agreement -iv- LINE OF CREDIT LINE OF CREDIT, dated as of November 1, 1993, among TEXTRON INC., a Delaware corporation (the "Company"), the BANKS signatory hereto (each a "Bank" and collectively the "Banks") and BANKERS TRUST COMPANY, a New York banking corporation ("BT Co"), as a Bank and as Administrative Agent for the Banks. W I T N E S S E T H : WHEREAS, the Company owns directly or indirectly all of the outstanding shares of capital stock of each of the Subsidiary Borrowers; WHEREAS, the Company desires that the Banks extend certain credit facilities to the Company and the Subsidiary Borrowers for the purposes set forth in Section 2.10; WHEREAS, each Bank is willing to extend its commitment to make loans to the Company and the Subsidiary Borrowers for such purposes on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the Company, the Banks and the Agent agree as follows: Section 1 DEFINITIONS AND ACCOUNTING TERMS 1.1 Definitions As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Adjusted Eurodollar Rate" means, for any Interest Period for a Eurodollar Rate Loan, the rate (rounded upward to the next highest one hundredth of one percent) obtained by dividing (i) the Eurodollar Rate for the first day of such Interest Period by (ii) a percentage equal to 100% minus the stated maximum rate of all reserves required to be maintained against "Eurocurrency liabili- ties" as specified in Regulation D (or against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate 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). "Affected Bank" means any Bank affected by any of the events described in Section 2.11B or 2.11C hereof. "Affiliate" means, with respect to any Person, any Person or group of Persons acting in concert in respect of the Person in question that, directly or indirectly, controls or is controlled by or is under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person or group of Persons acting in concert, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" has the meaning assigned to that term in Section 8.1 hereof. "Agreement" means this Line of Credit, as the same may at any time be amended, amended and restated, supplemented or otherwise modified in accordance with the terms hereof. "Applicable Margin" has the meaning set forth in Section 2.7. "Bank" and "Banks" have the respective meanings assigned to those terms in the introduction to this Agreement and its or their successors and permitted assigns. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy," as from time to time amended and any successor statutes. "Base Rate" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. "Base Rate Loans" are Syndicated Loans whose interest rate is based on Base Rate. "Board" means the Board of Governors of the Federal Reserve System. "Borrower" means each of the Company and each Subsidiary Borrower. "Borrowing" means the incurrence by any Borrower on a given date of Syndicated Loans. "BT Co" has the meaning assigned to that term in the introduction to this Agreement. "Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day on which banking institutions located in the State of New York are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with Eurodollar Rate Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in dollar deposits in the applicable interbank Eurodollar market. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Code" means the Internal Revenue Code of 1986, as from time to time amended. Any reference to the Code shall include a reference to corresponding provisions of any subsequent revenue law. "Commitment" means, at any time any determination thereof is to be made, the commitment (whether or not then utilized) of each Bank then in effect to extend credit hereunder, which initially shall be for each Bank the amount specified on the signature page hereto for such Bank. "Company" has the meaning assigned to that term in the introduction to this Agreement. "Competitive Bid Loan" means a Loan bearing interest at such rate and for such interest period, and on such other terms not inconsistent with the terms of this Agreement, as the applicable Borrower and the Bank making such Loan may mutually agree and which Loan is requested pursuant to a Notice of Competitive Bid Borrowing. "Competitive Bid Notes" means the promissory notes of the Borrowers issued pursuant to Section 2.4B hereto in substantially the form of Exhibit A-2 hereto. "Compliance Certificate" means a certificate substantially in the form annexed hereto as Exhibit E delivered to the Banks by the Company pursuant to Section 5.1B(i)(b). "Consolidated EBITDA" means, without duplication, for any consecutive four fiscal quarter period, the sum of the amounts for such period of (i) the Company's Consolidated Net Income, excluding therefrom any extraordinary items of gain or loss, plus (ii) the aggregate amount of cash dividends actually received by the Company or any of its Subsidiaries in respect of the capital stock of any Finance Company or Insurance Company and payable out of the net income for such period in which paid of any such Finance Company or Insurance Company, plus (iii) the aggregate amounts deducted in determining Consolidated Net Income for such period in respect of (a) the provision for taxes based on income of the Company and its Subsidiaries, (b) Consolidated Interest Expense and (c) depreciation and amortization, all as determined on a consolidated basis for the Company and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, for any consecutive four fiscal quarter period, total interest expense (including that attributable to Capital Leases in accordance with GAAP) of the Company and its Subsidiaries, all as determined on a consolidated basis in conformity with GAAP, with respect to all outstanding Indebtedness of the Company and its Subsidiaries. "Consolidated Net Income" means, for any consecutive four fiscal quarter period, the net income (or loss) of any Person (for purposes of this definition "Parent") and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Parent or is merged into or consolidated with Parent or any of its Subsidiaries or that Person's assets are acquired by Parent or any of its Subsidiaries. "Consolidated Net Worth" means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus/minus marketable equity securities valuation adjustment plus retained earnings (or minus accumulated deficit) plus $679,500,000 less the cost of treasury stock of the Company and its Subsidiaries on a consolidated basis (but excluding the effects of foreign currency translation adjustments under Financial Accounting Standards Board Statement No. 52) calculated in conformity with GAAP. "Contractual Obligation", as applied to any Person, means any provision of any security issued by that Person or of any material indenture, mortgage, deed of trust or other similar instrument of that Person under which Indebtedness is outstanding or secured or by which that Person or any of its properties is bound or to which that Person or any of its properties is subject. "Credit Agreement" means the Credit Agreement dated as of November 1, 1993 among the Company, the banks listed therein and BT Co, as administrative Agent, as such agreement may from time to time be amended, amended and restated, supplemented or otherwise modified. "Designation Date" means, with respect to any Subsidiary of the Company, the date on which the Company designates such Subsidiary as a Subsidiary Borrower. "Effective Date" has the meaning assigned to that term in Section 10.16 hereof. "Electing Holder" and "Electing Holders" have the meanings assigned to such terms in Section 2.6. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended, and any successor statute. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code or is a member of a controlled group, as defined in Section 414(b) of the Code, which includes such Person. "Eurodollar Rate" means, for any Interest Rate Determination Date, the arithmetic average (rounded upwards to the nearest 1/16 of 1%) of the offered quotation, if any, to first class banks in the Eurodollar market by each of the Reference Banks for U.S. dollar deposits of amounts in immediately available funds comparable to the principal amount of the Eurodollar Rate Loan of the Reference Bank for which the Eurodollar Rate is being determined with maturities comparable to the Interest Period for which such Eurodollar Rate will apply as of approximately 10:00 A.M. (New York time) two Business Days prior to the commencement of such Interest Period. If any Reference Bank fails to provide its offered quotation to Agent, the Eurodollar Rate shall be determined on the basis of the offered quotation(s) by the other Reference Bank(s). "Eurodollar Rate Loans" means Syndicated Loans or portions thereof during the period in which such Loans bear interest at rates determined in accordance with Sec- tion 2.7A hereof. "Event of Default" has the meaning assigned to that term in Section 7 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as from time to time amended, and any successor statutes. "Existing Subordinated Debt" means the indebtedness of the Company outstanding on the date of this Agreement pursuant to the Indenture dated as of May 1, 1985 with The Chase Manhattan Bank, N.A., as Trustee, as the same has been supplemented by the First Supplemental Subordinated Indenture and as in effect on the date of this Agreement. "Extension Notice" has the meaning assigned to that term in Section 2.6. "Federal Funds Rate" means on any one day the weighted average of the rate on overnight Federal funds transactions with members of the Federal Reserve System only arranged by Federal funds brokers as published as of such day by the Federal Reserve Bank of New York, provided that if such day is not a Business Day, the Federal Funds Rate shall be measured as of the immediately preceding Business Day. "Final Maturity Date" means October 30, 1994 unless such date is extended in accordance with Section 2.6 and, if so extended, then the date to which extended. "Finance Company" means any subsidiary of the Company which is primarily engaged in the business of a finance company. "Funding Date" means the date of the funding of a Loan made pursuant to a Notice of Borrowing but does not mean the date of any conversion or continuation of the interest rate applicable to any Loan pursuant to a Notice of Conversion/Continuation. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board as in effect on October 2, 1993 and applicable to and used by the Company in the preparation of the unaudited financial statements of the Company included in the Company's report on Form 10-Q for the fiscal quarter ended July 3, 1993. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indebtedness", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money of that Person, (ii) that portion of obligations with respect to Capital Leases which is properly classified as a liability on a balance sheet of that Person in conformity with GAAP, (iii) notes payable of that Person and drafts accepted by that Person representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation of that Person owed for all or any part of the deferred purchase price of property or services which purchase price is (a) due more than twelve months from the date of incurrence of the obligation in respect thereof, or (b) evidenced by a note or similar written instrument, (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person and (vi) any guarantee of that Person, direct or indirect, of any indebtedness, note payable, draft accepted, or obligation described in clauses (i)-(v) above of any other Person. "Initial Loans" means the initial Loans made under this Agreement. "Insurance Company" means any subsidiary of the Company which is primarily engaged in the business of an insurance company, including, without limitation, PRHC Inc.; provided, however, that PRHC Inc. shall not thereafter be deemed to be an Insurance Company if, at any time, PRHC Inc. or any of its Subsidiaries ceases to remain a company (i) primarily engaged in the business of an insurance company or (ii) whose principal business is to augment the operation of a Subsidiary of PRHC Inc. which is so engaged. "Interest Payment Date" means, (x) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Eurodollar Rate Loan; provided that in the case of each Interest Period of six months, "Interest Payment Date" shall also include the Interest Period Anniversary Date (or if such day is not a Business Day, then the next succeeding Business Day) for such Interest Period and (y) in the case of any Base Rate Loan, the last Business Day of each calendar quarter. "Interest Period" means any interest period applicable to a Eurodollar Rate Loan as determined pursuant to Section 2.7B hereof. "Interest Period Anniversary Date" means, for each Interest Period applicable to a Eurodollar Rate Loan which is six months, the three month anniversary of the commencement of that Interest Period. "Interest Rate Determination Date" means each date for calculating the Eurodollar Rate for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date shall be the second Business Day prior to the first day of the related Interest Period. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Loans" means one or more of the Syndicated Loans, Competitive Bid Loans or any combination thereof. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board as in effect from time to time. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or financial condition of the Company and its Subsidiaries, taken as a whole. "Multiemployer Plan" has the meaning assigned to that term in Section 4001(a)(3) of ERISA. "1987 Credit Agreement" has the meaning assigned to that term in Section 3.1E. "Notes" means the Revolving Notes, the Competitive Bid Notes, or any combination thereof. "Notice of Borrowing" means any Notice of Syndicated Borrowing, Notice of Competitive Bid Borrowing or any combination thereof. "Notice of Competitive Bid Borrowing" has the meaning assigned to that term in Section 2.2A hereof and shall be substantially in the form of Exhibit D-2 hereof. "Notice of Conversion/Continuation" means any notice delivered pursuant to Section 2.3A hereof and shall be substantially in the form of Exhibit D-3 hereto. "Notice of Syndicated Borrowing" has the meaning assigned to that term in Section 2.1B hereof and shall be substantially in the form of Exhibit D-1 hereto. "Officer's Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its Chairman of the Board (if an officer), its President, any Vice President of such corporation, its Chief Financial Officer, its Treasurer or any Assistant Treasurer of such corporation. "Payment Office" means the office of the Agent or any Bank, as the case may be, designated as such on the signature pages of this Agreement or such other office as to which the agent or such Bank shall notify the Company, the Agent and the other Banks in writing. "PBGC" means the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA or any successor thereto. "Pension Plan" means any plan (other than a Multiemployer Plan) described in Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof, which may be, is or has been established or maintained, or to which contributions may be, are or have been made by the Company or any of its ERISA Affiliates or as to which the Company would be considered as a "contributing sponsor" for purposes of Title IV of ERISA at any relevant time. "Permitted Encumbrances" means: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not at the time required by subsection 5.3; (ii) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles then in effect, shall have been made therefor; (iii) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) Any attachment or judgment Lien individually or in the aggregate not in excess of $50,000,000 unless the judgment it secures shall, within 30 days after the entry thereof, not have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (v) Leases or subleases granted to others not interfering in any material respect with the business of the Company or any of its Subsidiaries; (vi) Easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Subsidiaries; (vii) Any interest or title of a lessor under any lease; (viii) Liens arising from UCC financing statements regarding leases; and (ix) Liens in favor of custom and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods incurred in the ordinary course of business. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and any Governmental Authority. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "Prime Rate" shall mean the rate which BT Co announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BT Co may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Pro Rata Share" means, when used with reference to any Bank and any described aggregate or total amount, the percentage designated as such Bank's Pro Rata Share set forth under the name of such Bank on the applicable signature page of this Agreement. "Reference Banks" means BT Co, Morgan Guaranty Trust Company of New York and The Chase Manhattan Bank, N.A. "Regulation D" means Regulation D of the Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Reportable Event" means a "reportable event" described in Section 4043(b) of ERISA or in the regulations thereunder notice of which to PBGC is required within 30 days after the occurrence thereof, or receipt of a notice of withdrawal liability with respect to a Multiemployer Plan pursuant to Section 4202 of ERISA. "Required Banks" means, as at any time any determination thereof is to be made, the Banks holding at least 66-2/3% of the aggregate Commitments of all the Banks or, if no Commitments are in effect, 66-2/3% of Loans outstanding. "Restricted Subsidiary" means each Subsidiary (or a group of Subsidiaries that would constitute a Restricted Subsidiary if consolidated and which are engaged in the same or related lines of business) of the Company now existing or hereafter acquired or formed by the Company which (x) for the most recent fiscal year of the Company, accounted for more than 5% of the consolidated revenues of the Company and its Subsidiaries, or (y) as at the end of such fiscal year, was the owner of more than 5% of the consolidated assets of the Company and its Subsidiaries. For purposes of this definition, the proviso to the definition of Subsidiary shall not be applicable. "Revolving Notes" means the promissory notes of the Borrowers issued pursuant to Section 2.4A hereof in substantially the form of Exhibit A-1 hereto. "Securities Act" means the Securities Act of 1933, as from time to time amended, and any successor statutes. "Subsidiary" means, in respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof; provided, however, that no Finance Company or Insurance Company or any Subsidiary of any Finance Company or Insurance Company shall be treated as a Subsidiary of the Company. "Subsidiary Borrower" means any Subsidiary of the Company designated as such in writing by the Company; provided, that such Subsidiary shall enter into a Loan Assumption Agreement in the form annexed hereto as Exhibit G appropriately completed and that no Loan shall be made to such Subsidiary until Section 3.4 has been complied with as to such Subsidiary. "Syndicated Loan" means a Loan which is made as part of a Borrowing, is made collectively by the Banks based on each Bank's Pro Rata Share of such Loan, is made as either a Base Rate Loan or a Eurodollar Rate Loan and is requested pursuant to a Notice of Syndicated Borrowing. "Termination Event" means (i) a Reportable Event with respect to any Pension Plan, or (ii) the withdrawal of the Company or any of its ERISA Affiliates from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Pension Plan (including any such notice with respect to a Pension Plan amendment referred to in Section 4041(e) of ERISA, or (iv) the institution of proceedings to terminate a Pension Plan by the PBGC, or (v) any other event or condition which, to the best knowledge of the Company, would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. "Textron Affiliate", as applied to the Company, means any Person or Persons directly or indirectly controlling the Company. For purposes of this definition, controlling, as applied to the Company, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Company, whether through the ownership of voting securities or by contract or otherwise. Neither any Bank nor any parent of any Bank nor any Subsidiary of any such Bank or parent shall be treated as a Textron Affiliate. "Textron Affiliate Amount" means, as at any date of determination, the then aggregate outstanding amount of all loans and/or advances to any Textron Affiliate from the Company or any Subsidiary of the Company (without giving effect to the proviso to the definition of Subsidiary). "Total Commitment" means, as at any date of determination, the aggregate Commitments of all Banks then in effect (as such Commitments may be reduced from time to time pursuant to Section 2.9A hereof). The original amount of the Total Commitment is $250,000,000. "Type" means, in respect of any Syndicated Loan, any type of Syndicated Loan, i.e., either a Base Rate Loan or a Eurodollar Rate Loan. "United States Dollars" or "U.S. Dollars" or "$" means such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. 1.2 Accounting Terms For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Section 2 AMOUNTS AND TERMS OF COMMITMENTS AND LOANS; NOTES 2.1 Revolving Loans A. Commitments. (i) Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of each Borrower herein set forth, each Bank hereby severally agrees to lend to the Borrowers from time to time during the period from and including the Effective Date to and including the Final Maturity Date its Pro Rata Share of the Total Commitment. Each Bank's Commitment and the Total Commitment shall expire in full on the Final Maturity Date. Amounts borrowed under this Section 2.1A may, subject to the limitations set forth in this Agreement, be repaid and, up to but excluding the Final Maturity Date, be reborrowed. The Syndicated Loans and all other amounts owed hereunder with respect to the Syndicated Loans shall be paid in full no later than the Final Maturity Date. Borrowings on any Funding Date with respect to a Syndicated Loan under this Section 2.1A(i) shall be in an aggregate minimum amount of $10,000,000 and integral multiples of $5,000,000 in excess of that amount or, if less, the unutilized amount of the Total Commitment. Notwithstanding the foregoing, (i) Syndicated Loans made by a Bank on any Funding Date shall not exceed such Bank's Commitment then in effect and (ii) no Syndicated Loan may be borrowed by the Borrower if the aggregate principal amount of all Loans outstanding hereunder, after giving effect to the Loan so requested and all other Loans then requested which have not yet been funded shall exceed the Total Commitment then in effect. (ii) Subject to and upon the terms and conditions herein set forth, each Bank severally agrees that any Borrower may incur a Competitive Bid Loan pursuant to a Notice of Competitive Bid Borrowing from time to time on and after the Effective Date and prior to the date which is the Business Day preceding the date which is 30 days prior to the Final Maturity Date, provided that after giving effect to any Competitive Bid Loan and the concurrent use of the proceeds thereof the aggregate principal amount of all Loans outstanding hereunder, after giving effect to the Loan so requested and all other Loans then requested which have not yet been funded will not exceed the Total Commitment then in effect. Within the foregoing limits and subject to the conditions set forth in this Agreement, Competitive Bid Loans may be repaid and reborrowed in accordance with the provisions hereof. Competitive Bid Loans made on any Funding Date shall be in an aggregate minimum amount of $10,000,000 and in integral multiples of $5,000,000 in excess of such amount. B. Notice of Syndicated Borrowing. Subject to Section 2.1A, whenever any Borrower desires to borrow under this Section 2.1, it shall deliver to the Agent a Notice of Syndicated Borrowing (which may be telephonic, confirmed promptly in writing) no later than 10:30 A.M. (New York time), in the case of a Base Rate Loan, on the proposed Funding Date, and, in the case of a Eurodollar Rate Loan, three Business Days in advance of the proposed Funding Date. The Notice of Syndicated Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Loans, (iii) whether such Loans are to consist of Base Rate Loans or Eurodollar Rate Loans or a combination thereof and the amounts thereof, (iv) the Interest Period(s) therefor and (v) the aggregate principal amount of Loans outstanding, after giving effect to the proposed Loan and all other Loans then requested which have not yet been funded, and that such aggregate principal amount does not exceed the Total Commitment then in effect. Neither the Agent nor any Bank shall incur any liability to any Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of such Borrower or for otherwise acting in good faith under this Section 2.1B and, upon funding of Syndicated Loans by the Banks in accordance with this Agreement pursuant to any telephonic notice, such Borrower shall have borrowed such Loans hereunder. Except as provided in Section 2.11D, a Notice of Syndicated Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the applicable Borrower shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. Promptly after receipt of a Notice of Syndicated Borrowing pursuant to Section 2.1B (or telephonic notice in lieu thereof) with respect to a Syndicated Loan, the Agent shall notify each Bank of the proposed borrowing. Each Bank shall make its Pro Rata Share of the amount of such Loans available to the Agent, in same day funds, at the office of the Agent located at One Bankers Trust Plaza, New York, New York not later than 12:00 Noon (New York City time) on the Funding Date. Such Loans of a Bank shall be equal to such Bank's Pro Rata Share of the aggregate amount of all such Loans requested by the applicable Borrower pursuant to the applicable Notice of Syndicated Borrowing. Upon satisfaction or waiver of the conditions precedent specified in Section 3.1 (in the case of the Initial Loans) and Sections 3.2 and, if applicable, 3.4 (in the case of all Loans) the Agent shall make the proceeds of such Loans available to the applicable Borrower on such Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Agent to be credited to the account of such Borrower at such office of the Agent. Unless the Agent shall have been notified by any Bank (which notice may be telephonic, confirmed promptly in writing) prior to any Funding Date in respect of any Syndicated Loan that such Bank does not intend to make available to the Agent such Pro Rata Share of such Loan on such Funding Date, the Agent may assume that such Bank has made such amount available to the Agent on such Funding Date and the Agent in its sole discretion may, but shall not be obligated to, make available to the applicable Borrower a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such corresponding amount on prompt demand from such Bank together with interest thereon, for each day from such Funding Date until the date such amount is paid to the Agent at the customary rate set by the Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the applicable Borrower and such Borrower shall immediately pay such corresponding amount to the Agent. Nothing in this Section 2.1C shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which such Borrower may have against any Bank as a result of any default by such Bank hereunder. 2.2 Competitive Bid Loans A. Whenever the Company or a Subsidiary Borrower desires to incur a Competitive Bid Loan, it shall (i) in the case of the Company, deliver to the Agent and each Bank, and (ii) in the case of a Subsidiary Borrower, deliver to the Company (which shall deliver to the Agent and each Bank), not later than 11:00 a.m. (New York time) at least one Business Day prior to the funding date of such proposed Competitive Bid Loan, a Notice of Competitive Bid Borrowing, such notice to specify in each case the date of the proposed Competitive Bid Loan, the aggregate amount of the proposed Competitive Bid Loan(s), the maturity date for repayment of each Competitive Bid Loan to be made as part of such Competitive Bid Loans (each of which maturity dates may not be later than the Business Day prior to the Final Maturity Date), the interest payment date or dates relating thereto, and any other terms to be applicable to such Competitive Bid Loans (including, without limitation, the basis to be used by the Banks in determining the rate or rates of interest to be offered by them as provided in Section 2.2B). No Notice of Competitive Bid Borrowing shall be given earlier than three Business Days subsequent to the making of the last Competitive Bid Loan. B. Each Bank shall, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Loans to the applicable Borrower as part of such proposed Competitive Bid Loan at a rate or rates of interest specified by such Bank in its sole discretion, by notifying the Company, before 10:00 a.m. (New York City time) on the date (the "Reply Date") of such proposed Competitive Bid Loan specified in the Notice of Competitive Bid Borrowing delivered with respect thereto pursuant to Section 2.2A, of the minimum amount and maximum amount of each Competitive Bid Loan which such Bank would be willing to make as part of such proposed Competitive Bid Loan (which amounts may, subject to the provisions of Section 2.1A(ii), exceed such Bank's Commitment); provided that the minimum amount of any Bank's bid shall be at least $5,000,000. If any Bank shall not notify the Company, before 10:00 a.m. (New York City time) on the Reply Date of its offer of a Competitive Bid Loan, such Bank shall be deemed not to be making an offer with respect to such Competitive Bid Loan. C. The Company shall, in turn, before 11:00 a.m. (New York City time) on the Reply Date, either (1) cancel such Competitive Bid Loan by giving the Agent and each Bank notice to that effect (whereupon such Competitive Bid Loan will not be made), or (2) accept one or more of the offers made by any Bank or Banks pursuant to Section 2.2B, in its sole discretion, by giving notice to the Agent and such Bank of the amount of each Competitive Bid Loan (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Company by such Bank or Banks for such Competitive Bid Loan pursuant to Section 2.2B) to be made by such Bank as part of such Competitive Bid Loan, and reject any remaining offers made by Banks pursuant to Section 2.2B above by giving the Agent and such Bank notice to that effect. D. No later than Noon (New York City time) on the Funding Date of each Competitive Bid Loan, each Bank required to participate therein will make available its share of such Competitive Bid Loan (as specified in Section 2.2C) in same day funds at the office of The Chase Manhattan Bank, N.A. located at One Chase Manhattan Plaza, New York, New York, ABA No. 021000021, for the account of Textron Inc., ACCOUNT NO. 910-1-013655. E. Each Competitive Bid Loan shall be payable on the maturity date specified in the Notice of Competitive Bid Borrowing relating to such Competitive Bid Loan. 2.3 Notices of Conversion/Continuation A. Subject to the provisions of Section 2.11 hereof, the applicable Borrower shall have the option (i) to convert at any time all or any part of its outstanding Base Rate Loans equal to $10,000,000 and integral multiples of $5,000,000 in excess of that amount to Eurodollar Rate Loans and (ii) upon the expiration of any Interest Period applicable to outstanding Eurodollar Rate Loans, to continue all or any portion of such Eurodollar Rate Loans equal to $10,000,000 and integral multiples of $5,000,000 in excess of that amount as Eurodollar Rate Loans. The succeeding Interest Period(s) of such converted or continued Eurodollar Rate Loan shall commence on the date of conversion in the case of clause (i) above and on the last day of the Interest Period of the Eurodollar Rate Loans to be continued in the case of clause (ii) above. The applicable Borrower shall deliver a Notice of Conversion/Continuation to the Agent no later than 11:00 a.m. (New York City time) at least three Business Days, in the case of a conversion into or continuation of Eurodollar Rate Loans in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount of the Syndicated Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation and (iv) the requested Interest Period. Except as provided in Section 2.11D hereof, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan shall be irrevocable on or after the related Interest Rate Determination Date, and the applicable Borrower shall be bound to convert or continue in accordance therewith. B. Unless the applicable Borrower shall have given the Agent (x) a timely Notice of Conversion/Continuation in accordance with the provisions of Section 2.3A hereof with respect to Eurodollar Rate Loans outstanding or (y) written notice of such Borrower's intent to repay Eurodollar Rate Loans, furnished not later than 11:00 a.m. (New York City time) on the last day of the Interest Period with respect to such Eurodollar Rate Loans, the applicable Borrower shall be deemed to have requested that such Eurodollar Rate Loans be converted into Base Rate Loans on such day. Such Base Rate Loans shall be in an aggregate principal amount equal to (i) the aggregate principal amount of such Eurodollar Rate Loans not intended to be repaid less (ii) any repayment required to be made on such date pursuant to Section 2.9 hereof. 2.4 The Revolving Notes and Competitive Bid Notes A. Each Borrower's obligations to pay the principal of, and interest on, all the Syndicated Loans made by each Bank shall be evidenced by a Revolving Note duly executed and delivered by such Borrower with blanks appropriately completed in conformity herewith. The Revolving Note issued to each Bank shall (i) be payable to the order of such Bank, (ii) be dated the Effective Date, (iii) be in a stated principal amount equal to the initial Commitment of such Bank and be payable in the principal amount of the outstanding Syndicated Loans evidenced thereby, (iv) provide that all Syndicated Loans then outstanding shall be repaid on the Final Maturity Date as provided herein, (v) bear interest as provided in the appropriate clause of Section 2.7 hereof in respect of the Base Rate Loans, or the Eurodollar Rate Loans, as the case may be, evidenced thereby, (vi) be entitled to the benefits of this Agreement, and (vii) have attached thereto a schedule (a "Syndicated Loans and Principal Payments Schedule") substantially in the form of the Schedule to Exhibit A-1 hereto. At the time of the making of each Syndicated Loan or principal payment in respect thereof, each Bank shall, and is hereby authorized to, make a notation on the Syndicated Loans and Principal Payments Schedule of the date and the amount of such Syndicated Loan or payment, as the case may be. Notwithstanding the foregoing, the failure to make a notation with respect to the making of any Syndicated Loan, shall not limit or otherwise affect the obligation of the Borrower hereunder or under the applicable Note with respect to such Syndicated Loan and payments of principal by the Borrower shall not be affected by the failure to make a notation thereof on the appropriate Syndicated Loans and Principal Payments Schedule. B. Each Borrower's obligations to pay the principal of, and interest on, all the Competitive Bid Loans made by each Bank shall be evidenced by a Competitive Bid Note duly executed and delivered by such Borrower with blanks appropriately completed in conformity herewith. The Competitive Bid Note issued to each Bank shall (i) be payable to the order of such Bank, (ii) be dated the Effective Date, (iii) be in a stated principal amount equal to the Total Commitment and be payable in the principal amount of the outstanding Competitive Bid Loans evidenced thereby, (iv) provide that all Competitive Bid Loans then outstanding shall be repaid on the dates agreed to between such Borrower and such Bank and, in any event, not later than the Final Maturity Date, (v) bear interest at the rates and have interest payable on the dates agreed to between such Borrower and such Bank, (vi) be entitled to the benefits of this Agreement, and (vii) have attached thereto a schedule (a "Competitive Bid Loans and Principal Payments Schedule") substantially in the form of the Schedule to Exhibit A-2 hereto. At the time of the making of each Competitive Bid Loan or principal payment in respect thereof, each Bank shall, and is hereby authorized to, make a notation on the Competitive Bid Loans and Principal Payments Schedule of the date and the amount of such Competitive Bid Loan or payment, as the case may be. Notwithstanding the foregoing, the failure to make a notation with respect to the making of any Competitive Bid Loan, shall not limit or otherwise affect the obligation of the Borrower hereunder or under the applicable Note with respect to such Competitive Bid Loan and payments of principal by the Borrower shall not be affected by the failure to make a notation thereof on the appropriate Competitive Bid Loans and Principal Payments Schedule. 2.5 Pro Rata Borrowings The Syndicated Loans comprising each Borrowing under this Agreement shall be made by the Banks simultaneously and each Bank's Syndicated Loan shall be equal to such Bank's Pro Rata Share of such Borrowing. It is understood that no Bank shall be responsible for any default by any other Bank in its obligation to make a Loan hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder subject to the terms hereof, regardless of the failure of any other Bank to fulfill its commitment to make Loans hereunder. If, as a result of an error in the determination of any Bank's Pro Rata Share of a Borrowing with respect to a Syndicated Loan, a Bank makes a Syndicated Loan in excess of its Pro Rata Share (an "Erroneous Loan") the applicable Borrower shall, upon the request of the Agent, repay a portion of such Syndicated Loan equal to such excess or, within two days of receiving written notice of such error, correct such error by effecting a Borrowing of Syndicated Loans having a comparable maturity to the then remaining maturity of the Erroneous Loan (a "Correcting Loan") and allocating the Correcting Loan among the Banks such that, after such allocation, the sum of the principal amounts of the Erroneous Loan and the Correcting Loan held by each Bank shall represent such Bank's Pro Rata Share of the sum of the aggregate principal amounts of the Erroneous Loans and the Correcting Loans held by all Banks; provided, however, that the Borrower may not incur Correcting Loans if, after giving effect to such Correcting Loans, the outstanding Syndicated Loans of any Bank shall exceed such Bank's Commitment or if the aggregate principal amount of all Loans outstanding would exceed the Total Commitment then in effect. Borrowings of Correcting Loans shall be subject to all of the terms and conditions of Borrowings hereunder. 2.6 Procedure for Extending Final Maturity Date Subject to the conditions set forth in this Section 2.6, the Company, with the consent of the holders of 100% of the Commitments (the "Holders"), shall have the option to extend the Final Maturity Date for a period of 364 days from the then date thereof. The Company may exercise such option at any time and from time to time as follows: (i) No more than 60 and not less than 45 days prior to the Final Maturity Date then in effect, the Company shall notify the Agent and each Holder in writing (an "Extension Notice") of its desire to extend the Final Maturity Date to a date which is exactly 364 days after the Final Maturity Date then in effect. (ii) If on or prior to the 15th day prior to the Final Maturity Date all Persons then Holders consent to such extension in a writing delivered to the Agent and the Company, the Final Maturity Date then in effect which is requested in the applicable Extension Notice to be extended shall be extended automatically to a date which is 364 days after such Final Maturity Date then in effect. (iii) If any Holder shall have objected to the extension of any Final Maturity Date in a writing delivered to the Agent and the Company on or prior to the 30th day prior to the applicable Final Maturity Date or any Holder has not delivered the notice described in Section 2.6(ii) by such 30th day (each such Holder, an "Electing Holder"; collectively, the "Electing Holders"), then the Company may, on or prior to the 15th day prior to the Final Maturity Date, replace such Electing Holder in accordance with the second to last sentence of Section 10.15. 2.7 Interest A. Rate of Interest on Loans (i) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Syndicated Loan made to it from and including the date made to but not including the date repaid. (a) Each Eurodollar Rate Loan shall bear interest on the unpaid principal amount thereof for the applicable Interest Period at an interest rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted Eurodollar Rate. The "Applicable Margin" for any Interest Period means the applicable percentage amount set forth in the table below based upon the rating issued by Standard & Poor's Corporation and Moody's Investors Service, Inc. for the Company's long-term unsecured indebtedness at the Interest Rate Determination Date for such Interest Period: Rating Category* Applicable Margin A/A2 or higher .225% A-/A3 .250% BBB+/Baa1 .375% BBB/Baa2 .400% BBB-/Baa3 or lower or no rating .500% __________________ * In the case of "split" ratings (i.e., if the ratings of each such rating agency differ by one or more categories, including numerical modifiers and (+) and (-) as categories), the Applicable Margin will be based upon the higher of the two ratings. (b) Each Base Rate Loan shall bear interest on the unpaid principal thereof for the applicable Interest Period at an interest rate per annum equal to the applicable Base Rate. The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the applicable Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (ii) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Competitive Bid Loan made to it from and including the date made up to but not including the date repaid at the rate or rates per annum as may be mutually agreed upon by such Borrower and the Bank making the Competitive Bid Loan. B. Interest Periods In connection with each Eurodollar Rate Loan, the applicable Borrower shall elect an interest period (each an "Interest Period") to be applicable to such Eurodollar Rate Loan which Interest Period shall be either a one, two, three or six month period; provided that: (i) the Interest Period for each Eurodollar Rate Loan shall commence on the date of such Eurodollar Rate Loan; (ii) if an Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business day; provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) any Interest Period which begins on the last 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, subject to clause (iv) below, end on the last Business Day of such ending calendar month; (iv) no Interest Period shall extend beyond the Final Maturity Date; and (v) there shall be no more than 30 Interest Periods outstanding at any time. C. Interest Payments. Interest shall be payable on each (i) Syndicated Loan in arrears on each Interest Payment Date applicable to that Loan, and (ii) Competitive Bid Loan, at such times as agreed to by the applicable Borrower and the Bank making such Competitive Bid Loan (which shall be the scheduled maturity date of such Loan if less than 180 days after the making of such Loan), and in each case upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and when due and payable (whether at maturity, by acceleration or otherwise). D. Computation of Interest. Interest on Syndicated Loans shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. Interest on a Competitive Bid Loan shall be computed on the basis set forth in the applicable Notice of Competitive Bid Borrowing. In computing interest on any Loan, the date of the making of the Loan or, in the case of a Eurodollar Rate Loan, the first day of an Interest Period, as the case may be, shall be included and the date of payment or the expiration of an Interest Period, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. E. Post-Maturity Interest. Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payment on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 1% per annum in excess of the rate of interest otherwise payable under this Agreement for Prime Rate Loans. 2.8 Commissions and Fees A. Facility Fees. (i) The Company shall pay to the Agent for the account of the Banks a facility fee accrued from and including the Effective Date to and including the Final Maturity Date on the daily average aggregate amount of the Commitments (whether used or unused) based upon the rating issued by Standard & Poor's Corporation and Moody's Investors Service, Inc. for the Company's long-term unsecured indebtedness at the beginning of each fiscal quarter of the Company: Rating Category* Facility Fee A/A2 or higher .1000% A-/A3 .1250% BBB+/Baal .1500% BBB/Baa2 .2000% BBB-/Baa3 or lower or no .2250% rating __________________ * In the case of "split" ratings (i.e., if the ratings of each such rating agency differ by one or more categories, including numerical modifiers and (+) and (-) as categories), the facility fee will be based upon the higher of the two ratings. (ii) Such facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. Such facility fees shall be paid quarterly in arrears on each March 31, June 30, September 30 and December 31 and on the Final Maturity Date. From the effective date of any termination or reduction of Commitments, such facility fees shall cease to accrue or be correspondingly reduced. If the Commitments are terminated in their entirety or reduced, facility fees accrued on the total Commitments, or accrued on the aggregate amount of the reduction of the Commitments (in the case of such a reduction), shall be payable on the effective date of such termination or reduction. (iii) Upon receipt of any amount representing fees paid pursuant to this Section 2.8, the Agent shall pay such amount to the Banks based on their respective Pro Rata Shares. B. Administrative Fees. The Company agrees to pay to the Agent an annual fee (the "Administrative Fee") in an amount equal to the amount previously agreed to in writing by the Company and the Agent. Such Administrative Fee shall be payable quarterly in advance commencing on the first quarterly anniversary of the date of this Agreement and on each successive quarterly anniversary of such date, so long as any Loan or Commitment is outstanding on such date. C. Time of Payment. The Company shall make payment of each Bank's facility fee and of the Agent's Administrative Fee hereunder, not later than Noon (New York City time) on the date when due in freely transferable U.S. Dollars and in immediately available funds, to the Agent at its Payment Office. 2.9 Reductions in Commitments; Repayments and Payments___ A. Reductions of Total Commitment. After the Effective Date, the Company shall have the right, upon at least three Business Days' prior irrevocable written notice to the Agent, who will promptly notify the Banks thereof, by telephone confirmed in writing, without premium or penalty, to reduce or terminate the Total Commitment, in whole at any time or in part from time to time, in minimum aggregate amounts of $10,000,000 (unless the Total Commitment at such time is less than $10,000,000, in which case, in an amount equal to the Total Commitment at such time) and, if such reduction is greater than $10,000,000, in integral multiples of $5,000,000 in excess of such amount, provided that (a) any such reduction of the Total Commitment shall apply to the Commitment of each Bank in accordance with its Pro Rata Share of the aggregate of such reduction and (b) any such reduction in the Total Commitment shall be permanent. B. Voluntary Repayments. (i) The applicable Borrower shall have the right to repay any Base Rate Loan in whole at any time or in part from time to time, and any Eurodollar Rate Loan on the last day of the Interest Period with respect thereto, without premium or penalty in an aggregate minimum amount of $10,000,000 and integral multiples of $5,000,000 in excess of that amount or, if less, the outstanding principal amount of such Loan; provided that no Loan, either in whole or in part, may be repaid on the Borrowing Date of such Loan. The applicable Borrower shall give notice (by telex or telecopier, or by telephone (confirmed in writing promptly thereafter)) (which shall be irrevocable) to the Agent and each Bank of each proposed repayment hereunder, (x) with respect to Base Rate Loans, not later than 10:30 A.M. on the day of the proposed repayment and (y) with respect to Eurodollar Rate Loans, at least three Business Days prior to the day of the proposed repayment, and in each case shall specify the proposed repayment date (which shall be a Business Day), the aggregate principal amount of the proposed repayment and what Types of Loans are to be repaid and the Borrowing(s) pursuant to which made. (ii) If there exists an Event of Default or a Potential Event of Default and any Syndicated Loans are outstanding, no Borrower may prepay all or any portion of the principal amount of any Competitive Bid Loan prior to the maturity thereof. C. Mandatory Repayments. (i) Upon any partial or total reduction of a Bank's Commitment, each Borrower shall simultaneously therewith repay such Bank's Syndicated Loans in a principal amount equal to the amount, if any, by which the aggregate principal amount of such Bank's Syndicated Loans outstanding exceeds such Bank's Commitment as so reduced. (ii) Each Borrower shall repay to the relevant Bank (which shall promptly furnish notice thereof to the Agent) the unpaid principal amount of each Competitive Bid Loan made by such Bank hereunder on the maturity date with respect thereto and shall repay to the Agent the unpaid principal amount of each Syndicated Loan on the Final Maturity Date, in each case, together with all accrued and unpaid interest thereon. Upon obtaining knowledge of an Event of Default, a Potential Event of Default, or any other default with respect to a Competitive Bid Loan, the Bank which made such Competitive Bid Loan shall notify the Agent thereof. D. Method and Place of Payment. Except as otherwise specifically provided herein, all payments to be made by the applicable Borrower on account of principal and interest on each Loan shall be made without setoff or counterclaim and shall be made, in the case of a Syndicated Loan, to the Agent for the ratable account of each Bank, and, in the case of a Competitive Bid Loan, to the relevant Bank, in each case not later than Noon (New York City time) on the date when due and shall be made in freely transferable U.S. Dollars in immediately available funds at the Agent's or such Bank's Payment Office, respectively. Whenever any payment with respect to any Loan shall be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension; provided, however, that with respect to Eurodollar Rate Loans, if the next succeeding Business Day falls in another calendar month, such payments shall be made on the next preceding Business Day. The Agent shall remit to each Bank its Pro Rata Share of all such payments received in collected funds by the Agent for the account of such Bank in respect of which such payment is made. Such payments shall be made at the Payment Office of the Agent. Upon receipt of any principal payment with respect to a Competitive Bid Loan, the receiving Bank shall promptly (and in any event within one Business Day thereof) notify the Agent with respect thereto. E. Net Payments. (i) All payments by the applicable Borrower or the Company under this Agreement and/or the Notes shall be made without setoff or counterclaim and (unless, in the case of Competitive Bid Loans only, otherwise agreed to between the Borrower and the Bank making any such Competitive Bid Loan), in such amounts as may be necessary in order that all such payments (after deduction or withholding for or on account of any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any Governmental Authority, other than any tax on or measured by the net income of a Bank pursuant to the income tax laws of the United States or of the jurisdictions where such Bank's principal or lending offices are located (collectively, "Taxes")) shall not be less than the amounts otherwise specified to be paid under this Agreement and/or the Notes. If the applicable Borrower or the Company is required by law to make any deduction or withholding from any payment due hereunder, then the amount payable will be increased to such amount which, after deduction from such increased amount of all amounts required to be deducted or withheld therefrom, will not be less than the amount otherwise due and payable. Without prejudice to the foregoing, if any Bank or the Agent is required to make any payment on account of taxes, the Company will, upon notification by the Bank or the Agent promptly indemnify such person against such Taxes, together with any interest, penalties and expenses payable or incurred in connection therewith. The Company shall also reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income of such Bank pursuant to the laws of the United States of America, any State or political subdivision thereof, or the jurisdiction in which the principal office or lending office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction as such Bank shall determine are payable by such Bank in respect of Taxes paid to or on behalf of such Bank pursuant to Section 2. For purposes of this Section, the term "Taxes" includes interest, penalties and expenses payable or incurred in connection therewith. A certificate as to any additional amounts payable to a Bank under this Section 2.9E submitted to the Company by such Bank shall, absent manifest error, be final, conclusive and binding for all purposes upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the Company shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. (ii) Each Bank shall supply to the Company, within a reasonable period after the date of execution of this Agreement, executed copies of Internal Revenue Service Form 4224 or Form 1001 (which indicates that the respective Bank is entitled to receive interest exempt from United States withholding tax) or any successor Forms, and shall update such Forms as necessary in order to retain their effectiveness, to the extent each such Bank is legally entitled to execute and deliver either of such Forms. (iii) With respect to any Taxes which are paid by any Borrower in accordance with the provisions of this Section 2.09E, each Bank receiving the benefits of such payments of Taxes hereby agrees to pay to such Borrower any amounts refunded to such Bank which such Bank determines in its sole discretion to be a refund in respect of such Taxes. F. Order of Payment. Subject to the last sentence of this Section 2.9F, all payments made by the applicable Borrower to the Agent (other than payments to the Agent in its capacity as a Bank which has made Competitive Bid Loans to such Borrower and or in connection with any fee or indemnification payments not specifically designated under the terms of this Agreement as being for the benefit of the Banks) shall be applied by the Agent, on behalf of each Bank based on its Pro Rata Share, (a) first, to the payment of expenses referred to in Section 10.2 hereof, (b) second, to the payment of the fees referred to in Section 2.8 hereof, (c) third, to the payment of accrued and unpaid interest on such Bank's Base Rate Loans until all such accrued interest has been paid, (d) fourth, to the payment of accrued and unpaid interest on such Bank's Eurodollar Rate Loans until all such accrued interest has been paid, (e) fifth, to the payment of the unpaid principal amount of such Bank's Base Rate Loans, and (f) sixth, to the payment of the unpaid principal amount of such Bank's Eurodollar Rate Loans. Notwithstanding the foregoing, upon the occurrence and during the continuance of a Potential Event of Default or an Event of Default, all payments made by the applicable Borrower with respect to Loans shall be made to the Agent and after being applied in accordance with clauses (a) and (b) of this Section 2.9F, shall be paid to the Banks pro rata based upon the aggregate principal amount of Loans outstanding made by each Bank, and the payments allocable to Syndicated Loans shall then be applied in accordance with clauses (c), (d), (e) and (f) of this Section 2.9F. 2.10 Use of Proceeds The proceeds of the Loans made by the Banks to the Borrowers may be used for acquisitions, repurchases of capital stock of the Company, the funding of dividends payable to shareholders of the Company and for general corporate purposes of the Borrowers. 2.11 Special Provisions Governing Eurodollar Rate Loans and/or Competitive Bid Loans Notwithstanding any other provisions of this Agreement, the following provisions shall govern with respect to Eurodollar Rate Loans and Competitive Bid Loans as to the matters covered, unless, in the case of Competitive Bid Loans, otherwise agreed to between the Borrower and the Bank making any such Competitive Bid Loan: A. Determination of Interest Rate. As soon as practicable after 10:00 a.m. (New York City time) on an Interest Rate Determination Date, the Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower requesting such Eurodollar Loan and to each Bank. B. Substituted Rate of Borrowing. In the event that on any Interest Rate Determination Date any Bank (including the Agent) shall have determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i) and (ii)(b), shall be made only after consultation with the Company and the Agent) that: (i) by reason of any changes arising after the date of this Agreement affecting the Eurodollar market or affecting the position of that Bank in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Eurodollar Rate with respect to the Eurodollar Rate Loans as to which an interest rate determination is then being made; or (ii) by reason of (a) any change (including any changes proposed or published prior to the date hereof) after the date hereof in any applicable law or any governmental rule, regulation or order (or any interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation or order (including any thereof proposed or published, prior to the date hereof)) or (b) other circumstances affecting that Bank or the Eurodollar market or the position of that Bank in such market (such as, for example, but not limited to, official reserve requirements required by Regulation D to the extent not given effect in the Eurodollar Rate), the Adjusted Eurodollar Rate shall not represent the effective pricing to that Bank for Dollar deposits of comparable amounts for the relevant period; then, and in any such event, that Bank shall be an Affected Bank and it shall promptly (and in any event as soon as possible after being notified of a Borrowing) give notice (by telephone confirmed in writing) to the applicable Borrower and the Agent (which notice the Agent shall promptly transmit to each other Bank) of such determination. Thereafter, such Borrower shall pay to the Affected Bank with respect to such Eurodollar Rate Loans, upon written demand therefor, but only if such demand is made within 60 days of the end of the fiscal quarter in which such Interest Rate Determination Date falls, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Affected Bank in its sole discretion shall reasonably determine) as shall be required to cause the Affected Bank to receive interest with respect to such Affected Bank's Eurodollar Rate Loans for the Interest Period following that Interest Rate Determination Date (such Interest Period being an "Affected Interest Period") at a rate per annum equal to the Applicable Margin in excess of the effective pricing to the Affected Bank for Dollar deposits to make or maintain Eurodollar Rate Loans. A certificate as to additional amounts owed the Affected Bank, showing in reasonable detail the basis for the calculation thereof, submitted in good faith to the applicable Borrower and the Agent by the Affected Bank shall, absent manifest error, be final, conclusive and binding for all purposes. C. Required Termination and Prepayment. In the event that on any date any Bank shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Eurodollar Rate Loans (i) has become unlawful by, or would be inconsistent with, compliance by that Bank in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), or (ii) has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the Eurodollar market, then, and in any such event, that Bank shall be an Affected Bank and it shall promptly give notice (by telephone confirmed in writing) to the applicable Borrower and the Agent (which notice the Agent shall promptly transmit to each Bank) of that determination. Subject to the prior withdrawal of a Notice of Syndicated Borrowing or prepayment of the Eurodollar Rate Loans of the Affected Bank as contemplated by the following Section 2.11D hereof, the obligation of the Affected Bank to make Eurodollar Rate Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and the applicable Borrower shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this Section 2.11C is made or earlier, when required by law, repay Eurodollar Rate Loans of the Affected Bank together with all interest accrued thereon. D. Options of the Borrowers. In lieu of paying an Affected Bank such additional moneys as are required by Section 2.11B, 2.11I or 2.12 hereof or the prepayment of an Affected Bank required by Section 2.11C hereof, but in no event in derogation of Section 2.11E hereof, any Borrower may exercise any one of the following options: (i) If the determination by an Affected Bank relates only to Eurodollar Rate Loans then being requested by such Borrower pursuant to a Notice of Syndicated Borrowing or a Notice of Conver- sion/Continuation, the Borrower may by giving notice (by telephone confirmed in writing) to the Agent (who shall promptly give similar notice to each Bank) no later than the date immediately prior to the date on which such Eurodollar Rate Loans are to be made, withdraw as to the Affected Bank that Notice of Syndicated Borrowing or Notice of Conversion/Contin- uation, as the case may be; or (ii) Upon written notice to the Agent and each Bank, such Borrower may terminate the obligations of the Banks to make Loans as, and to convert Loans into, Eurodollar Rate Loans and in such event, the Borrower shall, prior to the time any payment pursuant to Section 2.11C hereof is required to be made or, if the provisions of Section 2.11B hereof are applicable, at the end of the then current Interest Period, convert all of such Eurodollar Rate Loans into Base Rate Loans; or (iii) Such Borrower may give notice (by telephone confirmed in writing) to the Affected Bank and the Agent (who shall promptly give similar notice to each Bank) and require the Affected Bank to make the Eurodollar Rate Loan then being requested as a Base Rate Loan or to continue to maintain its outstanding Base Rate Loan then the subject of a Notice of Conversion/Continuation as a Base Rate Loan or to convert its Eurodollar Rate Loan then outstanding that is so affected into Base Rate Loans at the end of the then current Interest Period (or at such earlier time as prepayment is otherwise required to be made pursuant to Section 2.11C hereof), that notice to pertain only to the Loans of the Affected Bank and to have no effect on the obligations of the other Banks to make or maintain Eurodollar Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans. E. Compensation. The Company shall compensate each Bank, upon written request by that Bank (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by that Bank to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and Competitive Bid Loans and any loss (other than loss of margins) sustained by that Bank in connection with the re-employment of such funds), which that Bank may sustain with respect to any Borrower's Eurodollar Rate Loans or Competitive Bid Loans if for any reason (other than a default or error by that Bank) (i) a borrowing of any Eurodollar Rate Loan or Competitive Bid Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, (ii) any repayment or conversion of any of such Bank's Eurodollar Rate Loans or Competitive Bid Loans occurs on a date which is not the last day of the Interest Period applicable to that Eurodollar Rate Loan or Competitive Bid Loan (if applicable), (iii) any repayment of any such Bank's Eurodollar Rate Loans or Competitive Bid Loans is not made on any date specified in a notice of repayment given by the Borrower, or (iv) as a consequence of any other failure by the Borrower to repay such Bank's Eurodollar Rate Loans or Competitive Bid Loans when required by the terms of this Agreement. F. Quotation of Eurodollar Rate. Anything herein to the contrary notwithstanding, if on any Interest Rate Determination Date no Eurodollar Rate is available by reason of the failure or inability of the Reference Banks to provide offered quotations to the Agent in accordance with the definition of "Eurodollar Rate", the Agent shall give the applicable Borrowers and each Bank prompt notice thereof and the Syndicated Loans requested shall be made as Base Rate Loans. G. Affected Bank's Obligation to Mitigate. Each Bank agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be an Affected Bank under Section 2.11B or 2.11C hereof, it will, to the extent not inconsistent with such Bank's internal policies, use reasonable efforts to make, fund or maintain the affected Eurodollar Rate Loans of such Bank through another lending office of such Bank if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Loans pursuant to Section 2.11B hereof would be materially reduced or the illegality or other adverse circumstances which would otherwise require prepayment of such Loans pursuant to Section 2.11C hereof would cease to exist and if, as determined by such Bank, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise materially adversely affect such Loans or such Bank. The Company hereby agrees to pay all reasonable expenses incurred by any Bank in utilizing another lending office of such Bank pursuant to this Section 2.11G. H. Booking of Eurodollar Rate Loans. Any Bank may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch offices or the office of an Affiliate of that Bank. I. Increased Costs. Except as provided in Section 2.11B, if, by reason of (x) after the date hereof, the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation (whether or not proposed or published prior to the date hereof), or (y) the compliance with any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) any Bank (or its applicable lending office) shall be subject to any tax, duty or other charge with respect to its Eurodollar Rate Loans or Competitive Bid Loans or its obligation to make Eurodollar Rate Loans or Competitive Bid Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Eurodollar Rate Loans or Competitive Bid Loans or its obligation to make Eurodollar Rate Loans or Competitive Bid Loans (except for changes in the rate of tax on the overall net income of such Bank or its applicable lending office imposed by the jurisdiction in which such Bank's principal executive office or applicable lending office is located); or (ii) any reserve (including, without limitation, any imposed by the Board), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank's applicable lending office shall be imposed or deemed applicable or any other condition affecting its Eurodollar Rate Loans or Competitive Bid Loans or its obligation to make Eurodollar Rate Loans or Competitive Bid Loans shall be imposed on any Bank or its applicable lending office or the interbank Eurodollar market; and as a result thereof there shall be any increase in the cost to that Bank of agreeing to make or making, funding or maintaining Eurodollar Rate Loans or Competitive Bid Loans (except to the extent already included in the determination of the applicable Adjusted Eurodollar Rate or the rate on a Competitive Bid Loan), or there shall be a reduction in the amount received or receivable by that Bank or its applicable lending office, then the Borrower shall from time to time, upon written notice from and demand by that Bank (which shall be promptly furnished upon the Banks being made subject thereto) (with a copy of such notice and demand to the Agent), pay to the Agent for the account of that Bank, within five Business Days after the date specified in such notice and demand, additional amounts sufficient to indemnify that Bank against such increased cost. A certificate as to the basis for and calculation of the amount of such increased cost, submitted to the Borrower and the Agent by that Bank, shall, absent manifest error, be final, conclusive and binding for all purposes. J. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Bank under this Section 2.11 in respect of a Eurodollar Rate Loan shall be made as though that Bank had actually funded its Eurodollar Rate Loan through the purchase of a Eurodollar deposit, bearing interest at the Eurodollar Rate applicable to such Eurodollar Rate Loan in an amount equal to the amount of the Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit, from an offshore office of that Bank to a domestic office of that Bank in the United States of America; provided, however, that each Bank may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculations of amounts payable under this Section 2.11. K. Eurodollar Rate Loans and Competitive Bid Loans After Default. Unless the Required Banks shall otherwise agree, after the occurrence of and during the continuance of a Potential Event of Default or an Event of Default, the Borrowers may not elect to have a Eurodollar Rate Loan or Competitive Bid Loan be made or have any Eurodollar Rate Loan continued or have any Base Rate Loan converted into a Eurodollar Rate Loan. L. Eurodollar Rate Taxes. The Borrower agrees that: (i) Promptly upon notice from any Bank to the Company, the Company will pay, prior to the date on which penalties attach thereto, all present and future income, stamp and other taxes, levies, or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of any Borrower's Eurodollar Rate Loans solely as a result of the interest rate being determined by reference to the Eurodollar Rate, as the case may be, and/or the provisions of this Agreement relating to the Eurodollar Rate and/or the recording, registration, notarization or other formalization of any thereof (all such taxes, levies, costs and charges being herein collectively called "Eurodollar Rate Taxes"); provided that Eurodollar Rate Taxes shall not include taxes imposed on or measured by the overall net income of that Bank by the country under the laws of which such Bank is organized or any political subdivision or taxing authority thereof or therein, or taxes imposed on or measured by the overall income of any branch or subsidiary of that Bank (whether gross or net income) by any jurisdiction or subdivision thereof in which that branch or subsidiary is doing business. The Company shall also pay such additional amounts equal to increases in taxes payable by that Bank which increases are attributable to payments made by the Company described in the immediately preceding sentence or this sentence. Promptly after the date on which payment of any such Eurodollar Rate Tax is due pursuant to applicable law, the Company will, at the request of that Bank, furnish to that Bank evidence, in form and substance satisfactory to that Bank, that the Company has met its obligation under this Section 2.11L; and (ii) The Company will indemnify each Bank against, and reimburse each Bank on demand for, any Eurodollar Rate Taxes payable under clause (i) above, as the case may be, as determined by that Bank in its good faith discretion. That Bank shall provide the Company with appropriate receipts for any payments or reimbursements made by the Borrower pursuant to this clause (ii) of Section 2.11L. 2.12 Capital Requirements If while any portion of the Total Commitment is in effect or any Loans are outstanding, any Bank determines that the adoption of any law, treaty, rule, regulation, guideline or order regarding capital adequacy or capital maintenance or any change therein, 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 such Bank, with any request or directive regarding capital adequacy or capital maintenance (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of increasing the amount of capital required to be maintained by such Bank (including, without limitation, with respect to any Bank's Commitment or Competitive Bid Loans outstanding), then the Company shall from time to time, within 15 days of written notice and demand from such Bank (with a copy to the Agent), pay to the Agent, for the account of such Bank, additional amounts sufficient to compensate such Bank for the cost of such additional required capital. A certificate showing in reasonable detail the computations made in arriving at such cost, submitted to the Company and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding for all purposes. Section 3 CONDITIONS TO LOANS 3.1 Conditions to Initial Loans The obligation of each Bank to make the Initial Loans is, in addition to the conditions precedent specified in Section 3.2, subject to satisfaction of each of the following conditions: A. On or before the Effective Date, the Company shall have delivered to the Banks (or to the Agent with sufficient copies, originally executed where appropriate, for each Bank) each, unless otherwise noted, dated the Effective Date: 1. Certified copies of its Certificate of Incorporation , together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation, each to be dated a recent date prior to the Effective Date; 2. Copies of its Bylaws, certified as of the Effective Date by its corporate secretary or an assistant secretary; 3. Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and any other documents, instruments and certificates required to be executed by the Company in connection herewith and approving and authorizing the execution, delivery and payment of the Notes to be issued by the Company and the incurrence of the Loans, each certified as of the Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 4. Signature and incumbency certificates with respect to the Persons executing this Agreement and the Notes; 5. Executed copies of this Agreement and the Credit Agreement; 6. Revolving Notes executed by the Company, substantially in the form of Exhibit A-1 annexed hereto and in accordance with Section 2.4A hereof, drawn to the order of each Bank and with appropriate insertions; and 7. Such other documents as the Agent may reasonably request. B. The Agent shall have received an originally executed copy of the favorable written opinion of Thomas D. Soutter, Esq., General Counsel of the Company, dated as of the Effective Date, substantially in the form of Exhibit B annexed hereto; the Company hereby expressly instructs such counsel to prepare such opinion and deliver it to the Banks for their benefit and such opinion shall contain a statement to that effect. C. The Agent shall have received an originally executed copy of the favorable written opinion of Cahill Gordon & Reindel, counsel to the Banks, dated as of the Effective Date, substantially in the form of Exhibit C annexed hereto. D. The Credit Agreement, dated as of October 30, 1987, as amended (the "1987 Credit Agreement"), among the Borrower, the Lenders listed therein and BT Co, as administrative agent, and all commitments to lend thereunder shall have been terminated and discharged in full (other than the competitive bid loans continued under the Credit Agreement) and the notes issued by the Borrower thereunder shall have been returned by such lenders to the Borrower, marked "Cancelled." 3.2 Conditions to All Loans The obligation of each Bank to make any Loans pursuant to a Notice of Borrowing is subject to prior or concurrent satisfaction or waiver by the Required Banks in the case of Syndicated Loans, and the Bank making the relevant Loan in the case of Competitive Bid Loans, of the following further conditions precedent: A. With respect to any such Loan, the Agent shall have received, (i) before the Funding Date thereof, an originally executed Notice of Borrowing signed by any of the chief executive officer, the chief financial officer, the treasurer or any assistant treasurer of the Company (the furnishing by the Company of each such Notice of Borrowing shall be deemed to constitute a representation and warranty of the Company that each of the conditions set forth in Section 3.2B hereof (and, in the case of a Notice of Competitive Bid Borrowing, Section 3.3 hereof) will be satisfied on the related Funding Date). B. As of the Funding Date of such Loan: 1. With respect to such Loan the representations and warranties contained herein shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under this Agreement, and except that the representations and warranties set forth in Sections 4.4 and 4.5 shall not apply to Competitive Bid Loans which do not increase the aggregate principal amount of such Competitive Bid Loans then outstanding with Banks making the same; 2. No event shall have occurred and be continuing or would result from the consummation of the Loans on such Funding Date and the use of the proceeds thereof which would constitute (a) an Event of Default or (b) a Potential Event of Default; 3. Each Borrower shall have performed in all material respects all agreements and satisfied in all material respects all conditions which this Agreement provides shall be performed by it on or before such Funding Date; 4. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain that Bank from making that Loan; and 5. The making of the Loans requested on such Funding Date shall not violate Regulation G, Regula- tion T, Regulation U or Regulation X of the Board or any other regulation of the Board or the Exchange Act. 3.3 Conditions to All Competitive Bid Loans A. Each Borrower shall, upon the request of the applicable Bank pursuant to Section 2.4B hereof, on or before the Funding Date of any Competitive Bid Loan, deliver to the Bank making such Competitive Bid Loan, the Competitive Bid Note executed by such Borrower in accordance with Section 2.14B, substantially in the form of Exhibit A-2 annexed hereto, drawn to the order of such Bank with appropriate insertions. B. The obligation of each Bank to make any Competitive Bid Loan is subject to concurrent satisfaction of the further condition precedent that on the date any Competitive Bid Loan is made there shall be outstanding a publicly held issue of unsecured Indebtedness of the Company described in clause (i) of the definition of Indebtedness which ranks pari passu with the Indebtedness represented by the Notes and which is classified as long-term indebtedness in accordance with generally accepted accounting principles then applied by the Company and rated greater than or equal to BBB- by Standard & Poor's Corporation or any successor equivalent rating and greater than or equal to Baa3 by Moody's Investors Service, Inc. or any successor equivalent rating. 3.4 Conditions to Loans to Subsidiary Borrowers A. Concurrently with or before the designation by the Company of any of its Subsidiaries as a Subsidiary Borrower, the Company shall deliver, or cause to be delivered, to the Banks (or to the Agent for the Banks with sufficient originally executed copies, where appropriate, for each Bank) with respect to such Subsidiary Borrower, each, unless otherwise noted, dated the Designation Date: 1. Certified copies of such Subsidiary Borrower's Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the State of incorporation of such Subsidiary Borrower, each to be dated a recent date prior to the Designation Date; 2. Copies of such Subsidiary Borrower's Bylaws, certified as of the Designation Date by its corporate secretary or an assistant secretary; 3. Resolutions of such Subsidiary Borrower's Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and any other documents, instruments and certificates to be executed by such Subsidiary Borrower in connection herewith or therewith and approving and authorizing the execution, delivery and payment of the Notes to be issued by such Subsidiary Borrower and the incurrence of Loans by such Subsidiary Borrower, each, certified as of the Designation Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 4. Signature and incumbency certificates of its officers executing a Loan Assumption Agreement substantially in the form of Exhibit G hereto and the Notes issued by it; 5. Revolving Notes executed by it substantially in the form of Exhibit A-1 annexed hereto and in accordance with Section 2.4, drawn to the order of each Bank and with appropriate insertions, with such changes as are acceptable to the Agent to reflect that such Revolving Notes are obligations of such Subsidiary Borrower, rather than of the Company; and 6. Such other documents as the Agent may reasonably request. B. The Agent shall have received an originally executed copy of the favorable written opinion of Thomas D. Soutter, Esq., General Counsel of the Company, dated as of the Designation Date, relating to such Subsidiary Borrower, substantially in the form of Exhibit B annexed hereto, with such changes as are acceptable to the Agent to reflect that such opinion relates to such Subsidiary Borrower rather than to the Company; the Company hereby expressly instructs such counsel to prepare such opinion and deliver it to the Banks for their benefit and such opinion shall contain a statement to that effect. Section 4 REPRESENTATIONS AND WARRANTIES In order to induce the Banks to enter into this Agreement and to make the Loans, the Company and each Borrower (as to itself only) represents and warrants to each Bank that the following statements are true, correct and complete: 4.1 Organization, Powers and Good Standing A. Organization and Powers. Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Borrower has all requisite corporate power and authority (i) to own and operate its properties and to carry on its business as now conducted and proposed to be conducted, except where the lack of corporate power and authority would not have a Material Adverse Effect and (ii) to enter into this Agreement and to carry out the transactions contemplated hereby, and to issue the Notes. B. Good Standing. Each Borrower is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing would not have a Material Adverse Effect. 4.2 Authorization of Borrowing, etc. A. Authorization of Borrowing. The execution, delivery and performance of this Agreement, and the issuance, delivery and payment of the Notes and the borrowing of the Loans have been duly authorized by all necessary corporate action by each Borrower. B. No Conflict. The execution, delivery and performance by each Borrower of this Agreement and the issuance, delivery and performance of the Notes by each Borrower, and the borrowing of the Loans do not and will not (i) violate any provision of law applicable to the Company or any of its Subsidiaries, (ii) violate the Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries, (iii) violate any order, judgment or decree of any court or other Governmental Authority binding on the Company or any of its Subsidiaries, (iv) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company or any of its Subsidiaries, or (v) result in or require the creation or imposition of any material Lien upon any of the material properties or assets of the Company or any of its Subsidiaries or require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company or any of its Subsidiaries other than such approvals and consents which have been or will be obtained on or before the Effective Date. C. Governmental Consents. The execution, delivery and performance by each Borrower of this Agreement and the issuance, delivery and performance by each Borrower of the Notes will not require on the part of such Borrower any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority other than any such registration, consent, approval, notice or other action which has been duly made, given or taken. D. Binding Obligation. This Agreement is and each of the Notes when executed and delivered and each Loan when made will be a legally valid and binding obligation of the Company and/or the applicable Borrower, as the case may be, enforceable against the Company and/or the applicable Borrower, as the case may be, in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 4.3 Financial Condition The Company has delivered to the Banks the following materials: (i) audited consolidated financial statements of the Company and its subsidiaries for the year ended January 2, 1993 as set forth in the 1992 Annual Report to Shareholders of the Company and (ii) unaudited consolidated financial statements of the Company and its subsidiaries for the fiscal quarters ended April 3, 1993 and July 3, 1993 as set forth in the Quarterly Report of the Borrower on Form 10-Q for each such fiscal quarter (collectively, the "Financial Statements"). All such Financial Statements were prepared in accordance with generally accepted accounting principles except for the preparation of footnote disclosures for the unaudited statements. All such Financial Statements fairly present the consolidated financial position of the Company and its subsidiaries as at the respective dates thereof and the consolidated statements of income and cash flows of the Company and its Subsidiaries for each of the periods covered thereby, subject, in the case of any unaudited interim financial statements, to changes resulting from normal year-end adjustments. 4.4 No Adverse Material Change Since January 2, 1993, there has been no change in the business, operations, properties, assets or condition (financial or otherwise) of the Company or any of its Subsidiaries, which has been, either in any case or in the aggregate, materially adverse to the Company and its Subsidiaries, taken as a whole. 4.5 Litigation Except as disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 and in the Financial Statements delivered to the Banks pursuant to Section 4.3 hereof, there is no action, suit, proceeding, governmental investigation (including, without limitation, any of the foregoing relating to laws, rules and regulations relating to the protection of the environment, health and safety) of which the Company has knowledge or arbitration (whether or not purportedly on behalf of the Company or any of its Subsidiaries) at law or in equity or before or by any Governmental Authority, domestic or foreign, pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries which is probable of being successful and which would have a Material Adverse Effect. 4.6 Payment of Taxes Except to the extent permitted by Section 5.3, all taxes, assessments, fees and other governmental charges upon the Company and each of its Subsidiaries and upon their respective properties, assets, income and franchises which are material to the Company and its Subsidiaries, taken as a whole, and were due and payable, have been paid. 4.7 Governmental Regulation Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935 or to any federal or state statute or regulation limiting its ability to incur Indebtedness for money borrowed as contemplated by this Agreement. 4.8 Securities Activities Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 4.9 ERISA Compliance A. The Company and its Subsidiaries and each of their respective ERISA Affiliates are in compliance in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Pension Plans and all Multiemployer Plans. B. No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan, as the case may be, which has resulted or would result in any material liability to the PBGC (or any successor thereto) or to any other Person under Section 4062, 4063, or 4064 of ERISA. C. Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any withdrawal liability under Part E of Title IV of ERISA to any Multiemployer Plan individually or in the aggregate in excess of $50,000,000. D. The sum of the amount of unfunded benefit liabilities under all Pension Plans (excluding each Pension Plan with an amount of unfunded benefit liabilities of zero or less) is not more than $100,000,000. E. Neither the Company nor any of its ERISA Affiliates has incurred any accumulated funding deficiency (whether or not waived) with respect to any Pension Plan individually or in the aggregate in excess of $2,000,000. F. Neither the Company nor any of its ERISA Affiliates has or reasonably expects to become subject to a lien in favor of any Pension Plan under Section 302(f) of ERISA individually or in the aggregate in excess of $1,000,000. G. Neither the Company nor any of its ERISA Affiliates has or reasonably expects to become subject to a requirement to provide security to any Pension Plan under Section 307 of ERISA individually or in the aggregate in excess of $10,000,000. As used in this subsection 4.9, the term "amount of unfunded benefit liabilities" has the meaning specified in Section 4001(a)(18) of ERISA, and the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Code. 4.10 Certain Fees No broker's or finder's fee or commission will be payable by the Company with respect to the offer, issuance and sale of any Note or the borrowing of any Loan comprising a Syndicated Loan or Competitive Bid Loan or the execution, delivery and performance of this Agreement. Section 5 AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments hereunder shall be in effect and until payment in full of all Loans and Notes unless Required Banks shall otherwise give prior written consent, it shall perform all covenants in this Section 5: 5.1 Financial Statements and Other Reports The Company will maintain, and cause each of its subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with generally accepted accounting principles in effect from time to time. The Company will deliver to the Banks (except to the extent otherwise expressly provided below in subsection 5.1B(ii)): A. (i) as soon as practicable and in any event within 45 days after the end of each fiscal quarter ending after the Effective Date in the Company's fiscal year the consolidated balance sheet of the Company and its consolidated subsidiaries as at the end of such period, and the related consolidated statements of income and cash flows of the Company and its consolidated subsidiaries in each case certified by the chief financial officer or controller of the Company that they fairly present the financial condition of the Company and its consolidated subsidiaries as at the dates indicated and the results of their operations and changes in their cash flows, subject to changes resulting from audit and normal year-end adjustments, based on their respective normal accounting procedures applied on a consistent basis (except as noted therein); (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year the consolidated balance sheet of the Company and its consolidated subsidiaries as at the end of such year and the related consolidated statements of income and cash flows of the Company and its consolidated subsidiaries for such fiscal year, accompanied by a report thereon of independent certified public accountants of recognized national standing selected by the Company which report shall be unqualified as to going concern and scope of audit and shall state that such consolidated financial statements present fairly the financial position of the Company and its consolidated subsidiaries as at the dates indicated and the results of their operations and changes in their cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years (except as noted in such report) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; B. (i) together with each delivery of financial statements of the Company and its consolidated subsidiaries pursuant to subdivision A(i) and A(ii) above, (a) an Officer's Certificate of the Company stating that the signer has reviewed the terms of this Agreement and has made, or caused to be made under such signer's supervision, a review in reasonable detail of the transactions and condition of the Company and its consolidated subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance (as determined in accordance with GAAP during and at the end of such accounting periods) with the restrictions contained in Section 6.3 and, in addition, a written statement of the chief accounting officer, chief financial officer, any vice president or the treasurer or any assistant treasurer of the Company describing in reasonable detail the differences between the financial information contained in such financial statements and the information contained in the Compliance Certificate relating to the Company's compliance with Section 6.3 hereof; (ii) promptly upon their becoming available but only to the extent requested by a Bank, copies of all publicly available financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders or by any Subsidiary of the Company to its security holders other than the Company or another Subsidiary, of all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company and its Subsidiaries; (iii) promptly upon the chairman of the board, the chief executive officer, the president, the chief accounting officer, the chief financial officer, the treasurer or the general counsel of the Company obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, (b) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 7.2, or (c) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, an Officer's Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition, and what action the Borrower has taken, is taking and proposes to take with respect thereto; and (iv) with reasonable promptness, such other information and data with respect to the Company or any of its subsidiaries as from time to time may be reasonably requested by any Bank. 5.2 Corporate Existence Except as permitted by Section 6.1, the Company will at all times preserve and keep in full force and effect its corporate existence and rights and franchises material to the business of the Company and its Subsidiaries, taken as a whole. 5.3 Payment of Taxes The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property when due which are material to the Company and its Subsidiaries, taken as a whole, provided that no such amount need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made therefor. 5.4 Maintenance of Properties; Insurance The Company will maintain or cause to be maintained in good repair, working order and condition all material properties used or useful in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate material repairs and renewals thereto and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its material properties and business and the material properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations and to the extent reasonably prudent may self-insure. 5.5 Inspection The Company shall permit any authorized representatives designated by any Bank to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their financial and accounting records, and, to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested; provided that any confidential information so obtained by any Bank shall remain confidential except where disclosure is mandated by applicable laws or such information otherwise becomes public other than by a breach by such Bank of this Section 5.5; provided further that this Section shall not prohibit any Bank from disclosing to the Agent (or the Agent to any Bank) any Event of Default or Potential Event of Default. 5.6 Compliance with Laws The Company and its Subsidiaries shall exercise all due diligence in order to comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including, without limitation, laws, rules and regulations relating to the disposal of hazardous wastes and asbestos in the environment), noncompliance with which would have a Material Adverse Effect. Section 6 NEGATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments shall be in effect and until payment in full of all of the Loans and the Notes, unless the Required Banks shall otherwise give prior written consent, it will perform all covenants in this Section 6: 6.1 Merger The Company may not consolidate with, merge with or into or sell, lease or otherwise transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to any Person unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company are sold, leased or transferred shall be a solvent corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by an agreement, executed and delivered to the Banks, in form and substance reasonably satisfactory to the Required Banks, all of the obligations of the Company under this Agreement, the Notes and the Competitive Bid Loans; (ii) immediately before and immediately after giving effect to such transaction, no Event of Default and no Potential Event of Default shall have occurred and be continuing (with the interest coverage ratio required by Section 6.3B being calculated on a pro forma basis for the four fiscal quarters of the Company and such Person ending immediately prior to the date of such consolidation, merger, sale, lease or transfer); and (iii) the Company shall deliver the Banks an Officer's Certificate (attaching the arithmetic computations to demonstrate compliance with Section 6.3) and an opinion of counsel, each stating that such consolidation, merger, sale, lease or transfer and such agreement comply with this Section 6.1 and that all conditions precedent herein provided for relating to such transaction have been complied with. 6.2 Liens The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset (including any document or instrument in respect of goods or accounts receivable) (other than Margin Stock) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, except: (i) Liens in existence on the date hereof; (ii) Permitted Encumbrances; (iii) Liens on accounts receivable sold with recourse; (iv) Liens incurred in connection with the acquisition of equipment by the Company or any of its Subsidiaries for a cost less than $2,000,000 in any case, provided that the principal amount of the indebtedness so secured shall not exceed in any case 100% of the cost to the Company or such Subsidiary of the equipment acquired and provided, further, that each such Lien shall cover only the equipment acquired and the proceeds thereof, substitutions therefor and replacements thereof; and (v) Liens (other than Liens permitted by clauses (i)-(iv) above) securing obligations of the Company and its Subsidiaries (including Indebtedness) not in excess of an amount equal to 5% of the consolidated total assets of the Company and its Subsidiaries, all as determined in accordance with GAAP on a consolidated basis for the Company and its Subsidiaries. Nothing in this Section 6.2 shall prohibit the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by the Company or any of its Subsidiaries at its fair value, or the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. 6.3 Financial Covenants A. Minimum Consolidated Net Worth. The Company will not permit its Consolidated Net Worth (less the Textron Affiliate Amount) at any time during any fiscal quarter (each a "Measurement Quarter") ending on and after July 3, 1993 to be less than the sum of (x) $2,000,000,000, plus (y) an amount equal to 40% of the Consolidated Net Income of the Company for each fiscal quarter of the Company in which the Company had a Consolidated Net Income for such fiscal quarter in excess of $0 and which such fiscal quarter commenced on or after July 3, 1993 and ended on or prior to the first day of such Measurement Quarter plus (z) 100% of the proceeds of any equity issuances by the Company (excluding issuances as a result of the exercise of employee stock options) on and after the date of this Agreement. B. Interest Coverage Ratio. The Company shall not permit the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense at any date to be less than 1.5 to 1.0 calculated at the end of each fiscal quarter of the Company by reference to the four fiscal quarter periods ending on such date of calculation. 6.4 Existing Subordinated Debt The Company will not amend or otherwise change the terms of any Existing Subordinated Debt except as specifically permitted hereby, or make, directly or indirectly, any payment consistent with an amendment or change thereto, if the effect of such amendment or change is to increase the interest rate on such Debt, change the dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect to such Debt, grant any security interest in favor of such Existing Subordinated Debt, change the redemption provisions thereof, change the subordination provisions thereof, cause the Existing Subordinated Debt to be guaranteed by any Person or which, together with all other amendments or changes made, increase materially the obligations of the obligor or confer additional rights on the holder of such Debt which would be adverse to the Company or the Banks. 6.5 Use of Proceeds Notwithstanding any provisions of this Agreement to the contrary, no portion of the proceeds of any borrowing under this Agreement shall be used by the Company in any manner which would cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T, or Regulation X of the Board or any other regulation of the Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. Section 7 EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur and be continuing: 7.1 Failure To Make Payments When Due Failure to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; or failure to pay any interest on any Loan or any other amount due under this Agreement when due and such default shall continue for 5 days; or 7.2 Default in Other Agreements (i) Failure of the Company or any of its Subsidiaries to pay when due any principal or interest on any Indebtedness (other than Indebtedness referred to in Section 7.1) in an individual principal amount of $20,000,000 or more or items of Indebtedness with an aggregate principal amount of $20,000,000 or more beyond the end of any period prior to which the obligee thereunder is prohibited from accelerating payment thereunder or any grace period after the maturity thereof, or (ii) breach or default of the Company or any of its Subsidiaries (other than a default arising under any restrictive provision relating to any sale, pledge or other disposition of Margin Stock contained in a lending agreement to which any Bank or Affiliate thereof is a party) with respect to any other term of (y) any evidence of any Indebtedness in an individual principal amount of $20,000,000 or more or items of Indebtedness with an aggregate principal amount of $20,000,000 or more; or (z) any loan agreement, mortgage, indenture or other agreement relating thereto, if such failure, default or breach shall continue for more than the period of grace, if any, specified therein and shall not at the time of acceleration hereunder be cured or waived; or 7.3 Breach of Certain Covenants Failure of any Borrower to perform or comply with any term or condition contained in Section 5.2, 6.1, 6.3, 6.4 or 6.5 of this Agreement; or 7.4 Breach of Warranty Any representation or warranty made by any Borrower in this Agreement or in any statement or certificate at any time given by such Person in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 7.5 Other Defaults Under Agreement Any Borrower shall default in the performance of or compliance with any term contained in this Agreement other than those referred to above in Section 7.1, 7.3 or 7.4 and such default shall not have been remedied or waived within 30 days after receipt of notice from the Agent or any Bank of such default; or 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc. (A) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (B) an involuntary case is commenced against the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower, or over all or a substantial part of its property, shall have been entered; or an interim receiver, trustee or other custodian of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower for all or a substantial part of the property of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower is involuntarily appointed; or a warrant of attachment, execution or similar process is issued against any substantial part of the property of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower, and the continuance of any such events in subpart (B) for 60 days unless dismissed, bonded or discharged; or 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc. The Company or any of its Restricted Subsidiaries or any Subsidiary Borrower shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; the making by the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower of any assignment for the benefit of creditors; or the inability or failure of the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower, or the admission by the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower in writing of its inability to pay its debts as such debts become due; or the Board of Directors of the Company or any Restricted Subsidiary or any Subsidiary Borrower (or any committee thereof) adopts any resolution or otherwise authorizes action to approve any of the foregoing; or 7.8 Judgments and Attachments Any money judgment, writ or warrant of attachment, or similar process involving individually or in the aggregate an amount in excess of $50,000,000 shall be entered or filed against the Company or any Restricted Subsidiary or any of its assets and shall remain undischarged, unvacated, unbonded or unstayed, as the case may be, for a period of 30 days or in any event later than five days prior to the date of any proposed sale thereunder; or 7.9 Dissolution Any order, judgment or decree shall be entered against the Company or any of its Restricted Subsidiaries or any Subsidiary Borrower decreeing the dissolution or split up of the Company or that Restricted Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 7.10 ERISA Title IV Liabilities (i) The Company or any of its ERISA Affiliates shall terminate or suffer the termination of (by action of the PBGC or any successor thereto) any Pension Plan, or shall suffer the appointment of or the institution of proceedings to appoint a trustee to administer any Pension Plan, or shall withdraw (under Section 4063 of ERISA) from a Pension Plan, if as of the date thereof or any subsequent date the sum of the Company's and each ERISA Affiliate's liabilities to the PBGC or any other Person under Sections 4062, 4063 and 4064 of ERISA (calculated after giving effect to the tax consequences thereof) resulting from or otherwise associated with the above-described events exceeds $50,000,000; or (ii) The Company or any of its ERISA Affiliates shall withdraw from any Multiemployer Plan and the aggregate amount of withdrawal liability (determined pursuant to Sections 4201 et seq. of ERISA) to which the Company and its ERISA Affiliates become obligated to all Multiemployer Plans requires annual payments in excess of $5,000,000; THEN (i) upon the occurrence of any Event of Default described in the foregoing Sections 7.6 or 7.7, the unpaid principal amount of and accrued interest on all the Loans shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company and each Borrower and the obligation of each Bank to make any Loans hereunder shall thereupon terminate, and (ii) upon the occurrence of any other Event of Default, the Required Banks may, by written notice to the Company and each Borrower, declare the unpaid principal amount of and accrued interest on all the Loans to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Bank to make any Loan hereunder shall thereupon terminate. Nevertheless, if at any time within 60 days after acceleration of the maturity of the Loans, each Borrower shall pay all arrears of interest and all payments on account of the principal which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement or the Notes) and all other fees and expenses then owed hereunder and all Events of Default and Potential Events of Default (other than non-payment of principal of and accrued interest on the Loans and the Notes), in each case due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 10.6, then the Required Banks by written notice to the Company may (in their sole discretion) rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. Section 8 AGENT 8.1 Appointment Each of the Banks hereby appoints BT Co as its Agent (the "Agent") hereunder and each Bank hereby authorizes the Agent to act hereunder and under the other instruments and agreements referred to herein as its agent hereunder and thereunder. BT Co agrees to act as such upon the express conditions contained in this Section 8. The provisions of this Section 8 are solely for the benefit of the Agent, and neither the Company nor any other Borrower shall have any rights as a third party beneficiary of or any obligations under any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Company or any other Borrower. 8.2 Powers; General Immunity A. Duties Specified. Each Bank irrevocably authorizes the Agent to take such action on such Bank's behalf and to exercise such powers hereunder and under the other instruments and agreements referred to herein as are specifically delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. The Agent shall have only those duties and responsibilities which are expressly specified in this Agreement and it may perform such duties by or through its agents or employees. The duties of the Agent shall be mechanical and administrative in nature; and the Agent shall not have by reason of this Agreement a fiduciary or trust relationship in respect of any Bank; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or the other instruments and agreements referred to herein except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. The Agent shall not be responsible to any Bank for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or the Notes issued hereunder or any Loan, or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agent to any Bank or by or on behalf of the Borrower to the Agent or any Bank, or for the accuracy of any information relating to Competitive Bid Loans (including as to amounts outstanding at any time), or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans, or of the existence or possible existence of any Event of Default or Potential Event of Default. C. Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees or agents shall be responsible or liable to any Bank for any action taken or omitted hereunder or under any of the other Loan Documents or in connection herewith or therewith unless caused by its or their gross negligence or willful misconduct. If the Agent shall request instructions from any Bank with respect to any act or action (including the failure to take an action) in connection with this Agreement or the Notes, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Required Banks. Without prejudice to the generality of the foregoing, (i) the Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower), accountants, experts and other professional advisors selected by it; and (ii) no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or (where so instructed) refraining from acting under this Agreement, any Note or the other instruments and agreements referred to herein or therein in accordance with the instructions of the Required Banks. The Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement, any Note or the other instruments and agreements referred to herein or therein unless and until it has obtained the instructions of the Required Banks. D. Agent Entitled To Act as Bank. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Agent in its individual capacity as a Bank hereunder. With respect to its participation in the Loans, the Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Bank" or "Banks" or any similar term shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with the Company or any Affiliate or Subsidiary of the Company as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company or any such Affiliate or Subsidiary for services in connection with this Agreement or the Notes and otherwise without having to account for the same to the Banks. 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness________________ Each Bank represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Company and each other Borrower in connection with the making of the Loans hereunder and has made and shall continue to make its own appraisal of the creditworthiness of the Company. The Agent shall not have any duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of any Bank or to provide any Bank with any credit or other information with respect thereto whether coming into its possession before the making of any Loan or any time or times thereafter, and the Agent shall further not have any responsibility with respect to the accuracy of or the completeness of the information provided to the Banks. 8.4 Right to Indemnity Each Bank severally agrees to indemnify the Agent in accordance with its Pro Rata Share to the extent the Agent shall not have been reimbursed by the Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the other Loan Documents or in any way relating to or arising out of this Agreement or the Notes; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's negligence or willful misconduct. If any indemnity furnished to the Agent for any purpose shall, in the opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 8.5 Payee of Note Treated as Owner The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange for such Note. 8.6 Resignation by the Agent (a) The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 30 days' prior written notice to the Company and the Banks. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Company and shall be an incorporated bank or trust company with a combined surplus and undivided capital of at least $500 million. (c) If a successor Agent shall not have been so appointed within said 30 day period, the resigning Agent, with the consent of the Company, shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Banks, with the consent of the Company, appoint a successor Agent as provided above. 8.7 Successor Agent The Agent may resign at any time as provided in Section 8.6 hereof. Upon any such notice of resignation, the Required Banks shall have the right, upon five days' notice to the Company and subject to Section 8.6 hereof, to appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring Agent's resignation hereunder as the Agent the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. Section 9 GUARANTEE 9.1 Guarantee The Company hereby unconditionally guarantees the due and punctual payment of all principal of and interest on, and all other amounts now or hereafter payable by any Subsidiary Borrower to any Bank or Banks or the Agent under this Agreement, any Note or any Loans (collectively, "Guaranteed Obligations") when any of the same shall become due, whether at stated maturity, by required payment, declaration, acceleration, demand or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.{ 362(a)), and agrees to pay any and all costs and expenses (including reasonable fees and disbursements of counsel) incurred by the Agent or the Banks in enforcing any rights under this Section 9. The Company agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that the Company will remain bound under this Section 9 notwithstanding any extension, renewal or other alteration of any Guaranteed Obligation. 9.2 Obligation Not Affected by Certain Events The Company waives presentation of, demand of, and protest of any Guaranteed Obligation and also waives notice of protest for nonpayment. The obligations of the Company under this Section 9 shall not be affected by: (a) the failure of any Bank, the Agent or any other Person to assert any claim or demand or to enforce any right or remedy against any Subsidiary Borrower or any successor thereto under the provisions of this Agreement or any other agreement or otherwise; (b) any extension or renewal of any provision of any thereof; (c) any change in the time, manner or place of payment of any of the Guaranteed Obligations or any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any instrument or agreement executed pursuant thereto; or (d) the failure to perfect any security interest in, or the release of, any of the security held by any Bank, the Agent or other Person for any of the Guaranteed Obligations. 9.3 Guarantee a Guarantee of Payment The Company further agrees that this Section 9 constitutes a guarantee of payment when due and not of collection and waives any right to require that any resort be had by any Bank or the Agent or any other Person to any security held for payment of any of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of any Bank, the Agent or any other Person in favor of any Subsidiary Borrower or any other Person. 9.4 Obligation Not Subject to Limitation The obligation of the Company under this Section 9 shall not be subject to any reduction, limitation, impairment, or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise of any of the Guaranteed Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Guaranteed Obligations or discharge of any Subsidiary Borrower from any of the Guaranteed Obligations in a bankruptcy or similar proceeding or otherwise. Without limiting the generality of the foregoing, the obligation of the Company under this Section 9 shall not be discharged or impaired or otherwise affected by the failure of any Bank or the Agent or any other Person to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement or instrument or any other guarantee, by any waiver or modification of any thereof, by any default, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Company or which would otherwise operate as a discharge of the Company as a matter of law or equity. The Company further agrees that this Section 9 shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of, interest on or any other amount with respect to, any Guaranteed Obligation is rescinded or must otherwise be restored by any Bank, the Agent or any other Person upon the bankruptcy or reorganization of any Subsidiary Borrower, any other Person or otherwise. 9.5 Order of Payment The Company further agrees, in furtherance of the foregoing and not in limitation of any other right which any Bank, the Agent or any other Person may have at law or in equity against the Company by virtue of this Section 9, upon the failure of any Subsidiary Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether by required prepayment, acceleration or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. { 362(a)), the Company will forthwith pay, or cause to be paid, in cash, to the Agent for the ratable benefit of the Banks or the Agent, as the case may be, an amount equal to the sum of the unpaid principal amount of such Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to any Subsidiary Borrower, would have accrued on such Guaranteed Obligations) and all other Guaranteed Obligations then owed to Banks and the Agent as aforesaid. All such payments shall be applied promptly, from time to time, by the Agent: First, to the payment of the costs and expenses of any collection, or other realization under this Section 9, including reasonable compensation to the Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Agent in connection therewith; Second, to the payment of accrued but unpaid interest on the Notes and the Loans comprising the Guaranteed Obligations; Third, to the payment of the Guaranteed Obligations not paid pursuant to clause Second above; Fourth, after payment in full of all Guaranteed Obligations, to the Company or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such payments. 9.6 Waiver by the Company The Company hereby waives absolutely and irrevocably any claim which it may have against any of the Subsidiary Borrowers by reason of any payment to the Banks or the Agent or to any other Person pursuant to or in respect of the guarantee set forth in this Section 9, including any claim by way of subrogation, contribution, reimbursement, indemnity or otherwise. Section 10 MISCELLANEOUS 10.1 Benefit of Agreement A. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Company may not assign or transfer any of its interest hereunder without the prior written consent of the Banks. B. Any Bank may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the offices of an Affiliate of such Bank, provided that doing so shall not cause any Borrower to incur any additional costs hereunder at the time of such transfer. C. Any Bank may assign its rights and delegate its obligations under this Agreement and further may sell participations in all or any part of any Loan or Loans made by it or its Commitment or any other interest herein or in its Notes to another bank or other entity; provided that (i) in the case of an assignment, such Bank shall (a) give to the Company and the Agent prior notice thereof, and, in the case of any assignment, the Company shall, except as set forth in the last sentence of this Section 10.1C and in Section 10.1D, have consented thereto and (b) comply with Section 10.1F hereof and thereupon, the assignee "Purchasing Bank" shall have, to the extent of such assignment (unless otherwise provided thereby), the rights and benefits described in Section 10.1F hereof, and (ii) in the case of a participation, except as set forth below, the participant shall not have any rights under this Agreement or any Note or any other document delivered in connection herewith (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Borrower under Sections 2.11E and 2.11I hereof shall be determined as if the Bank had not sold such participation. Except with respect to interest rate, principal amount of any Loan, fees, scheduled dates for payment of principal or interest or fees, scheduled termination of commitments and commitment amounts, a Bank will not in any such participation agreement restrict its ability to make any modification, amendment or waiver to this Agreement without the consent of the participant. Any Bank may furnish any information concerning the Company in possession of such Bank from time to time to Affiliates of such Bank and to assignees and participants (including prospective assignees and participants), provided, however, that (i) the furnishing Bank shall give the Company prior notice of any furnishing of non- public information (ii) the recipient shall agree to the terms of Section 10.12 hereof and (iii) the furnishing of such information (and the nature, manner and extent thereof) by any Bank to its Affiliates and such assignees and participants shall be further governed by the relevant agreement, assignment or participation agreement relating to such arrangement, assignment or participation, as the case may be. Notwithstand- ing anything to the contrary in the foregoing, any Bank may, without the consent of the Company, assign any of its rights and interests in Loans hereunder to (x) a federal reserve bank without the consent of the Company or (y) any Affiliate of such Bank; provided that an Affiliate to whom such disposition has been made shall not be considered a "Bank" for purposes of Section 10.6 but shall be considered a "Bank" for purposes of Sections 10.4 and 10.5. D. Notwithstanding the foregoing provisions of this Section 10.1, each Bank may at any time, upon 30 days' prior written notice to the Agent and the Company, sell, assign, transfer or negotiate all or any part of its Loans, Notes or Commitment if, but only if, concurrently therewith or prior thereto (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of a majority of the outstanding shares of voting stock of the Company pursuant to one or more transactions not approved, in their capacities as directors, by at least a majority of the individuals who served as directors of the Company on the date one year prior to the date of the first acquisition of voting stock leading to such acquisition or (b) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 12 month period were directors of the Company cease for any reason to constitute a majority of the board of directors of the Company. E. Except pursuant to an assignment permitted by this Agreement but only to the extent set forth in such assignment, no Bank shall, as between each Borrower and that Bank, be relieved of any of its obligations hereunder as a result of any sale, transfer or negotiation of, or granting of participations in, all or any part of the Loans, the Notes or Commitment of that Bank or other obligations owed to such Bank. F. Any assignment made pursuant to Section 10.1C hereof shall be made pursuant to a Transfer Supplement, substantially in the form of Exhibit F annexed hereto, executed by the Purchasing Bank, the transferor Bank, the Company and the Agent. Upon (i) such execution of such Transfer Supplement, (ii) delivery of an executed copy thereof to the Borrower, (iii) payment by such Purchasing Bank to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Purchasing Bank, and (iv) payment by such Purchasing Bank or transferor Bank (as they shall mutually agree) to the Agent of a non-refundable fee of $3,000 to cover administrative and other expenses which may be incurred in connection with such assignment, such Purchasing Bank shall for all purposes be a Bank party to this Agreement and shall have the rights (including without limitation the benefits of Sections 2.11 and 2.12) and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto and thereto with the Pro Rata Share of the applicable Commitment set forth in such Transfer Supplement, and no further consent or action by the Company, the Banks or the Agent shall be required. Such Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Pro Rata Shares arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement, the Loans and the Notes. Upon the consummation of any transfer to a Purchasing Bank pursuant to this paragraph F, the transferor Bank, the Agent and the Company shall make appropriate arrangements so that, if required, a replacement Note is issued to such transferor Bank and a new Note or, as appropriate, a replacement Note, issued to such Purchasing Bank, in each case in principal amounts reflecting their Pro Rata Shares or, as appropriate, their outstanding Loans, as adjusted pursuant to such Transfer Supplement. 10.2 Expenses Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to promptly pay (i) all the actual and reasonable out-of-pocket costs and expenses of the Agent in connection with the negotiation, preparation and execution of this Agreement, and the Notes; (ii) the reasonable fees, expenses and disbursements of Cahill Gordon & Reindel, counsel to the Agent and the Banks, in connection with the negotiation, preparation, execution and administration of this Agreement, the Notes, the Loans and any amendments and waivers hereto or thereto; and (iii) all reasonable costs and expenses (including reasonable attorneys' fees, expenses and disbursements, and costs of settlement) incurred by the Banks in enforcing any obligations of or in collecting any payments due from any Borrower hereunder or under the Notes by reason of the occurrence of any Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings or otherwise. 10.3 Indemnity In addition to the payment of expenses pursuant to Section 10.2 hereof, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold the Agent and each Bank and any holder of any of the Notes and the officers, directors, employees, agents, advisors and affiliates of each of them (collectively called the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees, expenses and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto), which may be imposed on, incurred by, or asserted against that Indemnitee, in any manner relating to or arising out of this Agreement, the Banks' agreement to make the Loans or the use or intended use of the proceeds of any of the Loans hereunder (the "indemnified liabilities"); provided that, the Company shall have no obligation to an Indemnitee hereunder to the extent that such indemnified liabilities arose from the negligence or willful misconduct of that Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy or otherwise, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them. 10.4 Setoff In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Bank and each subsequent holder of any Note is hereby authorized by such Borrower at any time and from time to time, without notice to such Borrower, or to any other Person, and without presentment demand or protest, any such being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other Indebtedness at any time held or owing by that Bank or that subsequent holder (including, without limitation, any branches or agencies thereof, wherever located) to or for the credit or the account of such Borrower against and on account of the obligations and liabilities of such Borrower to that Bank or that subsequent holder under this Agreement, or the Notes including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement or the Notes or the Loans, irrespective of whether or not (a) that Bank or that subsequent holder shall have made any demand hereunder or (b) that Bank or that subsequent holder shall have declared the principal or the interest on the Loans and Notes, and other amounts due hereunder to be due and payable as permitted by Section 7 and although said obligations and liabilities, or any of them, may be contingent or unmatured. 10.5 Ratable Sharing Subject to the last sentence of this Section 10.5, each Bank and each subsequent holder by acceptance of a Revolving Note or a Syndicated Loan agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Syndicated Loans and Revolving Notes and amounts payable in respect of facility fees, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Banks proportionately to their respective Pro Rata Shares whether received by voluntary payment, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Revolving Notes and Syndicated Loans, (ii) if any of them shall exercise any right of counterclaim, setoff, banker's lien or similar right with respect to amounts owed by any Borrower hereunder or under the Revolving Notes or the Syndicated Loans, then the Bank or holder, as the case may be, shall apportion the amount recovered as a result of the exercise of such right in accordance with each Bank's Pro Rata Share, and (iii) if any of them shall thereby through the exercise of any right of counterclaim, setoff, banker's lien or otherwise or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal and interest due with respect to the Revolving Notes or Syndicated Loans held by the Bank or holder, or any amount payable hereunder which is greater than the proportion received by any other holder of the Revolving Notes or Syndicated Loans in respect of the aggregate amount of principal and interest due with respect to the Revolving Notes or Syndicated Loans held by it, or any amount payable hereunder, then the Bank or that holder of the Revolving Notes or Syndicated Loans receiving such proportionately greater payments shall (y) notify each other Bank and the Agent of such receipt and (z) purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such payment) in the Revolving Notes or Syndicated Loans held by the other holders so that all such recoveries of principal and interest with respect to the Revolving Notes or Syndicated Loans shall be proportionate to their Pro Rata Shares provided that, if all or part of such proportionately greater payment received by such purchasing holder is thereafter recovered from such holder, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to that holder to the extent of such recovery, but without interest. Each Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation in any such Revolving Note or Syndicated Loan so purchased and any other subsequent holder of a participation in any Revolving Note or Syndicated Loan otherwise acquired may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all moneys owing by such Borrower to that holder as fully as if that holder were a holder of such Revolving Note or Syndicated Loan in the amount of the participation held by that holder. Notwithstanding the foregoing, upon the occurrence and during the continuance of a Potential Event of Default or an Event of Default, the ratable sharing arrangements set forth in this Section 10.5 shall be based on each Bank's pro rata share of all Loans outstanding at such time, rather than on each Bank's Pro Rata Share. 10.6 Amendments and Waivers No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes or consent to any departure by any Borrower therefrom shall in any event be effective without the written concurrence of the Required Banks; except that (A) any amendment, modification, termination or waiver (i) of any provision that increases the principal amount of the Commitments or the Loans, changes a Bank's Pro Rata Share or affects the definitions of "Required Banks" and "Final Maturity Date," (ii) of any provision that expressly requires the approval or concurrence of all Banks, (iii) that decreases the interest rates borne by the Syndicated Loans, or postpones the payment of interest due on the Syndicated Loans, (iv) that decreases the amount or changes the due date of any amount payable in respect of the fees payable hereunder, (v) that eliminates the Company's guarantee set forth in Section 9 hereof or (vi) of any of the provisions contained in Sections 2.11B, 2.11C and 7.1 hereof and this Section 10.6 shall be effective only if evidenced by a writing signed by or on behalf of all Banks and (B) any waiver with respect to a Competitive Bid Loan can be given only by the Bank affected with respect thereto. No amendment, modification, termination or waiver of any provision of Section 8 hereof or any of the rights, duties, indemnities or obligations of the Agent, as agent shall be effective without the written concurrence of the Agent. The Agent may, but shall have no obligation to, with the concurrence of any Bank, execute amendments, modifications, waivers or consents on behalf of that Bank. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Borrower in any case shall entitle such Borrower to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.6 shall be binding upon each holder of the Notes or Loans, at the time outstanding, each future holder of the Notes or Loans and, if signed by such Borrower, on the Borrower. 10.7 Independence of Covenants All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 10.8 Notices Unless otherwise provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or telex or four Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; provided that notices to the Agent shall not be effective until received by Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 10.8) shall be set forth under each party's name on the signature pages hereto. 10.9 Survival of Warranties and Certain Agreements A. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of the Notes. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company or any other Borrower set forth in Sections 2.11E, 2.11I and 2.11L, the agreements of the Company set forth in Sections 10.2 and 10.3 and the agreements of Banks set forth in Sections 8.2C, 8.4, 10.4 and 10.5 shall survive the payment of the Loans, the Notes and the termination of this Agreement. 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative______________ No failure or delay on the part of any Bank or any holder of any Note or lender of any Loan in the exercise of any power, right or privilege hereunder or under the Notes or the Loans shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or the Notes or the Loans are cumulative to and not exclusive of any rights or remedies otherwise available. 10.11 Severability In case any provision in or obligation under this Agreement or any Note or Loan shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations thereof, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.12 Obligations Several; Independent Nature of Banks' Rights_____________________________ The obligation of each Bank hereunder is several, and no Bank shall be responsible for the obligation or commitment of any other Bank hereunder. Nothing contained in this Agreement and no action taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. 10.13 Headings Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.14 APPLICABLE LAW; CONSENT TO JURISDICTION AND SERVICE OF PROCESS_________________ A. THIS AGREEMENT, THE NOTES AND THE LOANS SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. B. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. 10.15 Successors and Assigns; Subsequent Holders of Notes__________________ This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Banks. The terms and provisions of this Agreement shall inure to the benefit of any assignee or transferee of the Notes and Loans and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Banks shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. The Company's or any Borrower's rights or any interest therein hereunder may not be assigned without the written consent of all the Banks except pursuant to a merger, consolidation or sale, lease or transfer of assets permitted by Section 6.1 hereof. The Banks' rights of assignment are limited by and subject to Section 10.1 hereof. The Company may, in its sole discretion, upon ten (10) days' prior written notice, replace any of the Banks with one or more Banks provided that (i) the Bank being replaced has concurrently therewith been paid in full all amounts due to such Bank hereunder and under any of its Notes, (ii) the full amount of the Commitments remains unchanged and (iii) the percentages of the total Commitments allocated to each other Bank (or any successors thereto) remains unchanged unless the prior written consent from such Bank has been obtained. Any such Bank so replaced shall, upon written request of the Company, execute and deliver such instruments and agreements as are reasonably necessary to accomplish the same. 10.16 Counterparts; Effectiveness This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective on such date (the "Effective Date") as a counterpart hereof shall be executed by each of the parties hereto and copies hereof shall be delivered to the Company and the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. COMPANY: TEXTRON INC. By: s/Richard A. McWhirter Executive Vice President and Chief Financial Officer By: s/Brian T. Downing Vice President and Treasurer Notice Address: Textron Inc. 40 Westminster Street Providence, RI 02903 Attention: Treasurer with a copy to: Textron Inc. 40 Westminster Street Providence, RI 02903 Attention: General Counsel S-2 BANKS AND AGENT: BANKERS TRUST COMPANY, as a Bank and as Agent By: s/Edward G. Benedict Name: Edward G. Benedict Title: Vice President Notice Address and Payment Office: Bankers Trust Company 280 Park Avenue 14-E New York, NY 10017 Attention: Edward G. Benedict Telephone No. (212) 454-3591 Telecopy No. (212) 454-2942 Commitment: $8,991,223 Pro Rata Share: 3.5965% S-3 ABN-AMRO BANK, N.V. By: s/Elliott O. May Name: Elliott O. May Title: Group Vice President and Marketing Manager Notice Address and Payment Office: ABN-Amro Bank, N.V. 53 State Street Boston, MA 02109 Attention: Elliott May Telephone No. Telecopy No. Commitment: $9,210,528 Pro Rata Share: 3.6842% S-4 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: s/Arlene S. Pedovitch Name: Arlene S. Pedovitch Title: Vice President Notice Address and Payment Office: Bank of America 1850 Gateway Boulevard, 4th fl. Concord, California 94520 Attention: Lorine Stafford Telephone No. Telecopy No. (510) 675-7531 Commitment: $13,157,900 Pro Rata Share: 5.2632% S-5 BANK OF BOSTON By: s/Carol A. Lovell Name: Carol A. Lovell Title: Director Notice Address and Payment Office: First National Bank of Boston 100 Federal Street Boston, MA 02110 Attention: Carol Lovell Telephone No. Telecpy No. Commitment: $14,473,685 Pro Rata Share: 5.7895% S-6 BANK OF MONTREAL/ HARRIS TRUST AND SAVINGS BANK By: s/Cecily Mistarz Name: Cecily Mistarz Title: Director Notice Address and Payment Office: Bank of Montreal/ Harris Trust and Savings Bank 115 South LaSalle Street 12th Floor Chicago, IL 60603 Attention: Calvin R. Myers Telephone No. Telecopy No. Commitment: $3,289,475 Pro Rata Share: 1.3158% S-7 THE BANK OF NEW YORK By: s/David C. Judge Name: David C. Judge Title: Vice President Notice Address and Payment Office: The Bank of New York One Wall Street New York, NY 10286 Attention: David C. Judge Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-8 THE BANK OF NOVA SCOTIA By: s/M. R. Bradley Name: M. R. Bradley Title: Representative Notice Address and Payment Office: The Bank of Nova Scotia 101 Federal Street 16th Floor Boston, MA 02110 Attention: Michael R. Bradley Telephone No. Telecopy No. Commitment: $3,333,333 Pro Rata Share: 1.3333% S-9 THE BANK OF TOKYO TRUST COMPANY By: s/G. Stewart Name: G. Stewart Title: Vice President Notice Address and Payment Office: Bank of Tokyo Trust Company Corporate Banking Department 100 Broadway, 12th Floor New York, NY 10005 Attention: George C. Stewart Telephone No. Telecopy No. Commitment: $3,728,067 Pro Rate Share: 1.4912% S-10 BANQUE NATIONALE de PARIS By: s/Phil Truesdale Name: Phil Truesdale Title: Vice President Notice Address and Payment Office: Banque Nationale de Paris 499 Park Avenue New York, NY 10022 Attention: Philemon Truesdale Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-11 BANQUE PARIBAS By: s/Stanley B. Berkman Name: Stanley B. Berkman Title: Group Vice President By: s/Stephen J. Kelly Name: Stephen J. Kelly Title: Vice President Notice Address and Payment Office: Banque Paribas The Equitable Tower 787 Seventh Avenue New York, NY 10019 Attention: Stephen Kelly Telephone No. (212) 841-2382 Telecopy No. (212) 841-2333 Commitment: $6,535,092 Pro Rata Share: 2.6140% S-12 BARCLAYS BANK PLC. By: s/Gregory D. Amoruso Name: Title: Vice President Notice Address and Payment Office: Barclays Bank Plc. 222 Broadway New York, NY 10038 Attention: Peter Nikitaidis Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-13 CIBC INC. By: s/W. B. Anderson Name: W. B. Anderson Title: Authorized Signatory Notice Address and Payment Office: Canadian Imperial Bank of Commerce Two Paces West 2727 Paces Ferry Road Atlanta, GA 30339 Attention: Michael J. Dorr Telephone No. (404) 319-4815 Telecopy No. (404) 319-4950 Commitment: $9,868,425 Pro Rata Share: 3.9474% S-14 THE CHASE MANHATTAN BANK, N.A. By: s/Sherwood E. Exum, Jr. Name: Sherwood E. Exum, Jr. Title: Managing Director Notice Address and Payment Office: The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza 6th Floor Manufacturing Component New York, NY 10081 Attention: Sherwood Exum, Jr. Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-15 CHEMICAL BANK By: s/Anne Kuchinsky Name: Anne Kuchinsky Title: Vice President Notice Address and Payment Office: Chemical Bank 270 Park Avenue New York, NY 10017 Attention: Stewart U. Wallace Telephone No. Telecopy No. Commitment: $14,035,092 Pro Rata Share: 5.6140% S-16 CITIBANK, N.A. By: s/W. Martens Name: W. Martens Title: Vice President Notice Address and Payment Office: Citibank, N.A. 399 Park Avenue New York, NY 10043 Attention: William G. Martens, III Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-17 COMERICA BANK By: s/Jon A. Bird Name: Jon A. Bird Title: Vice President Notice Address and Payment Office: Comerica Bank 500 Woodward Avenue MC 3280 Detroit, MI 48226 Attention: Jon A. Bird Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-18 CONTINENTAL BANK, N.A. By: s/David Noda Name: David Noda Title: Vice President Notice Address and Payment Office: Continental Bank, N.A. 231 South LaSalle Street Chicago, IL 60697 Attention: Elliot J. Jaffee Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-19 CREDIT LYONNAIS By: s/Robert Ivosevich Name: Robert Ivosevich Title: Senior Vice President Notice Address and Payment Office: Credit Lyonnais Exchange Place 53 State Street - 26th Floor Boston, MA 02109 Attention: Thierry Hauret Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-20 CREDIT SUISSE By: s/Juerg Johner Name: Juerg Johner Title: Notice Address and Payment Office: Credit Suisse Tower 49 12 East 40th Street New York, NY 10017 Attention: Juerg Johner Telephone No. Telecopy No. Commitment: $4,166,667 Pro Rata Share: 1.6667% S-21 DEUTSCHE BANK AG NEW YORK BRANCH By: s/Philip J. Palm Name: Philip J. Palm Title: Director Notice Address and Payment Office: Deutsche Bank AG New York Branch 31 West 52nd Street New York, NY 10019 Attention: Philip J. Palm Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-22 FIRST AMERICAN NATIONAL By: s/Scott M. Bane Name: Scott M. Bane Title: Vice President Notice Address and Payment Office: First American National First American Center Nashville, TN 37237 Attention: Scott M. Bane Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-23 FIRST INTERSTATE BANK OF CALIFORNIA By: s/Bruce L. Gregory Name: Bruce L. Gregory Title: Vice President Notice Address and Payment Office: First Interstate Bank of California 885 Third Avenue New York, NY 10022 Attention: Bruce L. Gregory Telephone No. Telecopy No. Commitment: $5,921,052 Pro Rata Share: 2.3684% S-24 THE FIRST NATIONAL BANK OF CHICAGO By: s/Courtenay R. Wood Name: Courtenay R. Wood Title: Vice President Notice Address and Payment Office: The First National Bank of Chicago North American Banking Group One First National Plaza Mail Suite 0374 Chicago, IL 60670-0374 Attention: Thomas M. Harkless Telephone No. Telecopy No. Commitment: $13,157,900 Pro Rata Share: 5.2632% S-25 FLEET NATIONAL BANK By: s/Kathleen A. Fitzgerald Name: Kathleen A. Fitzgerald Title: Vice President Notice Address and Payment Office: Fleet National Bank 111 Westminster Street Providence, RI 02903 Attention: Kathleen A. Fitzgerald Telephone No.: Telecopy No.: Commitment: $8,114,027 Pro Rata Share: 3.2456% S-26 FUJI BANK, LTD. By: s/Yoshihiko Shiotsugu Name: Yoshihiko Shiotsugu Title: Vice President and Manager Notice Address and Payment Office: Fuji Bank, Ltd. Two World Trade Center New York, NY 10048 Attention: Michael A. Imperiale Telephone No. Telecopy No. Commitment: $3,728,067 Pro Rata Share: 1.4912% S-27 INDUSTRIAL BANK OF JAPAN By: s/Takeshi Kawano Name: Takeshi Kawano Title: Senior Vice President and Senior Manager Notice Address and Payment Office: Industrial Bank of Japan 245 Park Avenue New York, NY 10167-0037 Attention: John Veltri Telephone No. Telecopy No. Commitment: $3,728,067 Pro Rata Share: 1.4912% S-28 MELLON BANK, N.A. By: s/Diane P. Durnin Name: Diane P. Durnin Title: Vice President Notice Address and Payment Office: Mellon Bank, N.A. 551 Madison Avenue New York, NY 10022 Attention: Diane Durnin Telephone No. Telecopy No. Commitment: $5,701,758 Pro Rata Share: 2.2807% S-29 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: s/Steven Kenneally Name: Steven Kenneally Title: Vice President Notice Address and Payment Office: Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Attention: Martin R. Atkin Telephone No. Telecopy No. Commitment: $13,157,900 Pro Rata Share: 5.2632% S-30 NATIONSBANK By: s/Thomas McCaskill Name: Thomas McCaskill Title: Senior Vice President Notice Address and Payment Office: NationsBank 767 Fifth Avenue - 23rd Floor New York, NY 10153 Attention: Michael J. Cerminaro Telephone No. Telecopy No. Commitment: $13,815,785 Pro Rata Share: 5.5263% S-31 NATIONAL WESTMINSTER BANK Plc. By: s/David Apps Name: David Apps Title: Vice President Notice Address and Payment Office: National Westminster Bank Plc. 175 Water Street - 29th Floor New York, NY 10038 Attention: David Apps Telephone No. Telecopy No. Commitment: $2,631,575 Pro Rata Share: 1.0526% S-32 NBD BANK, N.A. By: s/Carolyn J. Parks Name: Carolyn J. Parks Title: Vice President Notice Address and Payment Office: NBD Bank, N.A. 611 Woodward Avenue Detroit, MI 48226 Attention: Carolyn J. Parks Telephone No. Telecopy No. Commitment: $3,289,475 Pro Rata Share: 1.3158% S-33 CORESTATES BANK, N.A. By: s/Donna J. Emhart Name: Donna J. Emhart Title: Commercial Officer Notice Address and Payment Office: Corestates Bank, N.A. 1345 Chestnut Street P.O. Box 7618 Philadelphia, PA 19101 Attention: Donna J. Emhart Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-34 THE ROYAL BANK OF CANADA By: s/Gary R. Overton Name: Gary R. Overton Title: Senior Manager Notice Address and Payment Office: Royal Bank of Canada USA Headquarters Financial Square New York, NY 10005-3531 Attention: Gary R. Overton Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-35 SANWA BANK, Ltd. By: s/Renko Hara Name: Renko Hara Title: Vice President Notice Address and Payment Office: Sanwa Bank, Ltd. Boston Branch One Financial Center Suite 2812 Boston, MA 02111 Attention: Dale C. Edmunds Telephone No. Telecopy No. Commitment: $3,289,475 Pro Rata Share: 1.3158% S-36 SHAWMUT BANK By: s/John B. Desmond Name: John B. Desmond Title: Vice President Notice Address and Payment Office: Shawmut Bank 777 Main Street Hartford, CT 06115 Attention: John B. Desmond Telephone No. Telecopy No. Commitment: $4,166,667 Pro Rata Share: 1.6667% S-37 SUNTRUST By: s/Peter Gentry Name: Peter Gentry Title: Assistant Vice President Notice Address and Payment Office: Suntrust Suntrust Corporate Services 25 Park Place, Center 123 Atlanta, GA 30303 Attention: Christina Ernshaw Telephone No. Telecopy No. Commitment: $1,315,785 Pro Rata Share: 0.5263% S-38 SWISS BANK CORPORATION By: s/Stephanie W. Kim Name: Stephanie W. Kim Title: Associate Director Notice Address and Payment Office: Swiss Bank Corporation Swiss Bank Tower 10 East 50th Street SBT-17-A New York, NY 10022 Attention: Michael Fabiano Telephone No. Telecopy No. Commitment: $9,868,425 Pro Rata Share: 3.9474% S-39 TORONTO DOMINION BANK By: s/Lisa Allison Name: Lisa Allison Title: Mgr. Cr. Admin. Notice Address and Payment Office: Toronto Dominion Bank 31 West 52nd Street New York, NY 10019 Attention: Katherine Lucey Telephone No. Telecopy No. Commitment: $3,508,766 Pro Rata Share: 1.4035% EX-12.1 6 EXHIBIT EXHIBIT 12.1 TEXTRON PARENT COMPANY BORROWING GROUP COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES (Unaudited) (In millions except ratios)
Year 1993 1992 1991 1990 1989 Fixed charges: Interest expense (1) $ 235.5 $ 253.1 $ 244.0 $ 258.5 $ 263.1 Estimated interest portion of rents 21.2 20.4 18.7 20.5 22.4 Total fixed charges $ 256.7 $ 273.5 $ 262.7 $ 279.0 $ 285.5 Income: Income before income taxes (2) $ 613.5 $ 527.0 $ 495.0 $ 459.2 $ 410.3 Fixed charges 256.7 273.5 262.7 279.0 285.5 Eliminate equity in undistributed pre-tax income of finance and insurance subsidiaries (338.5) (286.4) (245.5) (163.0)(3) (206.2) Adjusted income $ 531.7 $ 514.1 $ 512.2 $ 575.2 $ 489.6 Ratio of income to fixed charges 2.07 1.88 1.95 2.06 1.71
____________________ (1) Includes interest unrelated to borrowings of $37.1 million in 1993, $36.3 million in 1992, $27.0 million in 1991, $25.7 million in 1990 and $24.4 million in 1989 (primarily interest accretion). (2) Excludes the cumulative effect of changes in accounting principles in 1992 and extraordinary losses in 1989. (3) Net of an extraordinary dividend of $50.0 million. EX-12.2 7 EXHIBIT EXHIBIT 12.2 TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES (Unaudited) (In millions except ratios)
Year 1993 1992 1991 1990 1989 Fixed charges: Interest expense (1) $ 667.8 $ 742.0 $ 754.4 $ 774.6 $ 733.1 Estimated interest portion of rents 42.7 41.0 38.5 39.3 38.7 Total fixed charges $ 710.5 $ 783.0 $ 792.9 $ 813.9 $ 771.8 Income: Income before income taxes (2) $ 613.5 $ 527.0 $ 495.0 $ 459.2 $ 410.3 Fixed charges 710.5 783.0 792.9 813.9 771.8 Adjusted income $1,324.0 $1,310.0 $1,287.9 $1,273.1 $1,182.1 Ratio of income to fixed charges 1.86 1.67 1.62 1.56 1.53
____________________ (1) Includes interest unrelated to borrowings of $37.1 million in 1993, $36.3 million in 1992, $27.0 million in 1991, $25.7 million in 1990 and $24.4 million in 1989 (primarily interest accretion). (2) Excludes the cumulative effect of changes in accounting principles in 1992 and extraordinary losses in 1989. EX-13 8 EXHIBIT Front Cover Textron Annual Report to Shareholders for the Year 1993 Inside Front Cover Contents: Financial Highlights 1 Organization of Divisions 2 Letter to Shareholders 5 Automotive 8 Bell Helicopter 12 Cessna Aircraft 16 Financial Services 20 Operations Review 24 Board of Directors 28 Financial Section 29 Directory of Divisions 67 Principal Officers 70 1 FINANCIAL
- ------------------------------------------------------------------------------- HIGHLIGHTS (Dollars in millions except per share data) 1993 1992 1991 - ------------------------------------------------------------------------------- Revenues $ 9,078 $ 8,348 $ 7,840 - ------------------------------------------------------------------------------- Income before cumulative effect of changes in accounting principles $ 379 $ 324* $ 300 Per common share $ 4.21 $ 3.66* $ 3.42 - ------------------------------------------------------------------------------- Average common shares outstanding 90,052,000 88,580,000 87,563,000 - ------------------------------------------------------------------------------- Total assets $ 19,658 $ 18,367 $ 15,737 - ------------------------------------------------------------------------------- Book value per common share $ 31.18 $ 28.11 $ 33.65 Dividends declared per common share $ 1.24 $ 1.12 $ 1.03 - ------------------------------------------------------------------------------- Return on average shareholders' equity 14.4% 13.7% 10.7% - ------------------------------------------------------------------------------- Employees 56,000 54,000 52,000 - -------------------------------------------------------------------------------
*Income before cumulative effect of changes in accounting principles in 1992 excludes the one-time charges related to the changes in accounting for retiree benefits other than pensions and income taxes. Including the effect of these accounting changes, Textron had a net loss for 1992 of $355 million ($4.01 per share). BAR CHARTS: Income per Common Share 1991 $3.42 1992 $3.66 1993 $4.21 Revenues per Employee ($ in thousands) 1991 $149 1992 $152 1993 $163 2 Organization of Divisions MANUFACTURING AIRCRAFT Bell Helicopter Textron Commercial and military helicopters Tiltrotor aircraft development The Cessna Aircraft Company Light and mid-size business jet aircraft Utility turboprop aircraft AUTOMOTIVE CWC Castings Textron Camshafts and other castings Davidson Exterior Trim Textron Molded decorative exterior trim parts Davidson Interiors Textron Interior trim Instrument panels McCord Winn Textron Electro-mechanical components Windshield washer systems Randall Textron Decorative trim parts and functional components Textron Acustar Plastics Exterior and interior trim parts Instrument panels Automotive lighting INDUSTRIAL Avdel plc Fastening and assembly systems Camcar Textron Fasteners and components Cherry Textron Aerospace and commercial fasteners Cone Drive Textron Worm gears and speed reducers E-Z-GO Textron Golf cars and utility vehicles Greenlee Textron Contractor tools and electrical test equipment Homelite Textron Chain saws, generators, trimmers and blowers Jacobsen Textron Turf maintenance equipment Micromatic Textron Proprietary machine tools and industrial equipment Speidel Textron Watch attachments and fashion jewelry Percent of Textron's Revenues for 1993 Manufacturing: 69% Aircraft: 22% Automotive: 13% Industrial: 14% Systems and Components: 20% 3 SYSTEMS & COMPONENTS Aircraft Engine Components Textron Gas turbine engine components Airfoil Textron Blades, vanes and rotors Avco Overseas Services Textron Logistics support Fuel Systems Textron Gas turbine engine fuel system components HR Textron Aerospace control systems Textron Aerostructures Aircraft wings and components Textron Defense Systems Sensor-fuzed munitions systems Aircraft landing systems Surveillance systems Textron Lycoming Reciprocating Engine Piston aviation engines Textron Lycoming Turbine Engine Gas turbine engines Textron Marine and Land Systems Air cushion landing craft Surface effect ships Cadillac Gage armored vehicles Textron Specialty Materials Advanced composite and fire protection materials FINANCIAL SERVICES FINANCE Avco Financial Services Consumer finance and credit insurance Textron Financial Corporation Commercial finance PAUL REVERE Paul Revere Individual non-cancellable disability income insurance Group long-term disability insurance Group life and dental insurance Individual life insurance Annuities Percent of Textron's Revenues for 1993 Financial Services: 31% Finance: 18% Paul Revere: 13% 4 Textron is a multi-industry company with operations in two business sectors-Manufacturing and Financial Services. The Manufacturing sector consists of the Aircraft, Automotive, Industrial, and Systems and Components segments. The Financial Services sector includes Finance and Paul Revere. We have quality products, leading market positions, advanced technologies, a substantial and growing international presence and, above all, a highly skilled and motivated work force that owns nearly 20 percent of the company's stock. Textron is committed to increasing shareholder value through continuous improvement in its operations, earnings per share and return on equity, and by maintaining a strong balance sheet with strong credit ratings. 5 TO OUR SHAREHOLDERS Our company performed very well in 1993. We had good financial results and made significant progress in refining our strategic direction. Earnings per share (EPS) increased by 15% to $4.21. The fourth quarter marked the seventeenth consecutive quarter of year-to-year EPS improvement. Strong operating results and continued focus on asset management resulted in over $200 million of free cash flow. We are proud of these results because they evidence the effort to achieve our primary goal - to build shareholder value - to increase the value of your investment in Textron. Our focus on shareholder value was further reinforced by an intensive strategic look at our businesses. During 1993, key employees contributed to developing a profile of Textron - a vision of what we should look like for the balance of the nineties. Long-term success will be based on growing our core businesses, expanding our presence in international markets and facing head-on the challenges of underperforming assets. Core Businesses We look to three core businesses as the drivers of future growth - Automotive, Aircraft and Financial Services. Automotive - In 1993, with the addition of Textron Acustar Plastics, we strengthened our position as a leading independent supplier of interior and exterior trim components in North America. Aircraft - We have two of the world's finest airframe companies in Bell Helicopter and Cessna Aircraft. They serve a diverse customer base on a global basis and are committed to superior products and services. Financial Services - These businesses have provided steady earnings growth even when tested by a weak economy. In addition, special efforts were made in 1993 to strengthen Paul Revere's position in the rapidly growing disability insurance market. International We believe that opportunities for growth in the U.S. will be matched and, in 6 many cases, exceeded by opportunities internationally. Bell, Cessna, Avco Financial Services and Paul Revere have all established reputations for high quality products and services overseas. We want the rest of Textron to step up to those levels of performance. Textron's International Office serves as a catalyst for maximizing opportunities for our divisions. We also expect Avdel to significantly contribute to our international expansion. Underperforming Assets We have been aggressively managing businesses which we believe will not, in their present configuration, provide sustainable returns in the future. Most of these divisions are in the Systems and Components segment and face the dual challenge of declining defense spending and a depressed commercial aerospace market. We are challenging our management to explore additional measures to ensure acceptable returns. Our Commitment We are committed to these key financial targets: achieving steady growth in EPS; improving return on equity and maintaining a strong financial position with solid credit ratings. By meeting these financial goals, we will reach our ultimate objective - to build long-term value for you, our shareholders. We are committed to this financial objective. Our management and 56,000 employees are dedicated to increasing the value of Textron. We welcome new Board members - H. Jesse Arnelle, John D. Macomber and Thomas B. Wheeler - who provide additional leadership for Textron. We owe a special debt of gratitude to James R. Martin, who retired from the Board in 1993, and to Joseph R. Carter, William M. Ellinghaus and J. Paul Sticht who leave the Board in April after many years of valued service. For all of the reasons mentioned above, we expect your company to reach a new level of performance, not only in 1994, but in the years beyond. s/James F. Hardymon James F. Hardymon Chairman and Chief Executive Officer s/Lewis B. Campbell Lewis B. Campbell President and Chief Operating Officer 7 At the heart of our commitment to build long-term value for our shareholders are four Textron businesses which possess especially strong growth potential for the nineties. Textron's AUTOMOTIVE divisions design and manufacture interior and exterior trim components for domestic and foreign vehicle makers. Included in Textron's Aircraft segment are two of the world's finest airframe companies. BELL HELICOPTER produces diverse military and commercial product lines, including the development of tiltrotor technology. CESSNA AIRCRAFT is the world's leading manufacturer of light and mid-size business jets and utility turboprop aircraft. And lastly, Textron's three FINANCIAL SERVICES divisions provide consumer and commercial finance products and individual, non-cancellable disability income insurance products. 8 AUTOMOTIVE Successful companies grow by increasing the market penetration of their products, even during sluggish economic conditions. With the acquisition in May 1993 of certain assets of Chrysler Corporation's Acustar Plastics, a world-class supplier of automotive plastic components, Textron strengthened its position in North America as a leading independent supplier of automotive interior plastic trim. Textron Acustar Plastics' product lines include instrument panels, interior trim components, exterior body color painted parts and center consoles. The division also provides Textron with new automotive prod- 9 ucts, including exterior lighting, and gives the company a foothold in the growing modular assembly business. Textron currently manages integrated interiors for two major vehicle platforms - the new Cadillac Seville and Eldorado and Chrysler's LH series. Almost $750 in Textron-made products are on every Cadillac Seville and Eldorado and more than $800 of products are on each Chrysler LH series car. Textron enhanced both its responsiveness to customers and its ability to take advantage of the automotive industry's growing outsourcing trend by realigning 10 the operations of four of its automotive businesses in 1993. Textron combined Davidson Instrument Panel and Davidson Interior Trim to create Davidson Interiors Textron. The company also aligned the Davidson Exterior Trim division with Textron Acustar Plastics. The realigned divisions will help foster operating synergies and optimize investment and program management resources in all of Textron's automotive plastics products. Textron has established product niches in other areas. Davidson Exterior Trim manufactures body color painted front and rear fascia and exterior body molding and panels, primarily for Chrysler and General Motors. Randall Textron is expanding its automotive business with Chrysler, Ford and General Motors, while McCord Winn Textron is a leader in lumbar seat support systems and provides the automotive windshield washer systems for all of Chrysler's vehicles. Davidson Interiors' revolutionary Flexible Bright (trademark) trim grille, provided for the Lincoln Mark VIII, combines a chrome-like look with durability, corrosion resistance, flexibility and significant weight savings. Automotive sales amounted to an average of $112 of components for every automobile and light truck assembled in North America. The fastest growing automotive product is interior plastic components. 11 [PHOTO] 12 BELL HELICOPTER Bell Helicopter continues to be a world leader in commercial helicopter production, both in the number of units and in the dollar value of units delivered in the non-U.S. Government market. As pressure continues to reduce domestic defense spending it is expected that, in some cases, the U.S. Government will lengthen the lives of existing military programs. Because of this trend, Bell believes that its current line of military aircraft, which includes the AH-1W twin-turbine powered SuperCobra for the U.S. Marine Corps and the OH-58D Kiowa Warrior for the U.S. Army, is well-positioned for the future. 13 In March 1993, the U.S. Army awarded Bell a contract to provide 102 training aircraft and nine cockpit procedures trainers for the Army's New Training Helicopter program, with an option to build 55 additional helicopters and three trainers. Bell delivered the first two training helicopters - designated the TH-67 Creek by the Army - in October 1993, several weeks ahead of schedule. All U.S. military helicopter pilots will now receive their initial training in a Bell helicopter. Bell has created an equally impressive array of helicopters for commercial and civilian use. The fields of 14 emergency medical service and offshore oil exploration have developed into important markets for Bell. In 1993, Bell introduced new commercial helicopters, including the Model 206LT TwinRanger, a twin-engine version of the 206L-4 LongRanger. Bell has a program in place to modernize its line of commercial helicopters by the end of this decade and to guide new product decisions in the future. One of Bell's most dynamic projects is the joint development and production of tiltrotor technology with Boeing Helicopters. The tiltrotor aircraft takes off and lands vertically like a helicopter. In flight, its rotors tilt forward to fly like an airplane. Because of its unique capabilities, the tiltrotor could be an important source of revenue growth in the late 1990s when the program is scheduled to go into production. Bell is also using tiltrotor technology to develop an Unmanned Aerial Vehicle (UAV), the Bell Eagle Eye, for military use in over-the-horizon surveillance and target acquisition missions. Commercial and civilian markets may use the UAV for light cargo deliveries and oil and gas pipeline inspections in remote locations. Bell's strategy is to win customers by being responsive to their needs and to produce the most reliable helicopters in the world. Bell focuses on specific military and commercial helicopter markets. 15 [PHOTO] 16 CESSNA AIRCRAFT The Cessna Aircraft Company is, by far, the world's largest designer and manufacturer of light and mid-size business jets. More than 2,000 Citation business jets have been built since 1972. The benefits from Textron's 1992 acquisition of Cessna are expected to increase with the anticipated growth of the business jet market for the remainder of this decade. To maintain its industry leadership, Cessna adheres to an aggressive program of product development and improvement. With six models of business jets, Cessna provides a wider selection to existing and potential cus- 17 tomers than any other business jet manufacturer. Cessna Citations are also backed by the largest single-product service network of any business jet in the world. The CitationJet, Cessna's newest aircraft, helped boost revenues with 34 deliveries from March to December. Cessna's most exciting development project is the Citation X. This aircraft is expected to compete for sales in both the mid-size and large business jet markets. The Citation X is designed to operate at speeds of up to Mach .9 - almost 600 miles-per-hour - making it capable of flying from Los Angeles to New York in four hours. 18 The prototype of the Citation X was rolled out in September and performed flawlessly during its first flight in December. FAA certification of the Citation X is expected in August 1995 with first deliveries of the aircraft scheduled to begin in late 1995. By the end of 1993, Cessna had already sold a significant portion of the production of the Citation X through mid-1997. For the fourth consecutive year, Cessna's Citation V was the world's best selling light business jet. Cessna plans to accelerate sales of this model with the introduction of the Citation V Ultra. The first delivery of the Ultra is scheduled for September 1994. The Ultra can 19 climb more quickly, fly faster and carry a greater payload than the current Citation V. The aircraft also features the most comprehensive and advanced avionics package offered as standard equipment in this class of business jet. In the single-engine utility turboprop market, Cessna has no competition. Cessna designs and manufactures a line of single-engine utility turboprop aircraft known as the Caravan. These rugged, reliable cargo haulers operate worldwide, frequently under difficult conditions. Cessna is developing the only all-American entry in the competition for the U.S. Government's JPATS (Joint Primary Aircraft Training System) program. The JPATS program calls for the delivery of 764 jet trainer aircraft to the U.S. Air Force and the U.S. Navy, beginning in 1996, and a ground-based training system with long-term logistical support. With the potential for foreign sales, JPATS would be worth more than $4 billion to the winning entry over the life of the program. The JPATS CitationJet performed a successful first flight in December 1993 and certification is expected by mid-1994. Cessna produced the only primary jet trainer ever used by the U.S. Air Force. Cessna has built more than 2,000 Citation business jets since 1972. Every 20 seconds, a Citation takes off or lands somewhere in the world. Cessna operates the largest network of company-owned business jet service centers in the U.S. and has authorized service centers around the world. 20 FINANCIAL SERVICES Avco Financial Services (AFS) provides consumer financing, both unsecured and secured by personal property and real estate mortgages, as well as credit life, accident and health insurance for loan customers through Avco Insurance Services/Balboa Life and Casualty. With receivables of more than $5 billion, approximately 1,200 offices in Australia, Canada, New Zealand, Spain, the United Kingdom and the United States, and more than 1.8 million customers around the world, AFS accounts for approximately half of the Financial Services sector's revenues. AFS reported its sixth consecutive year of receivables 21 and earnings growth in 1993, despite weak consumer loan demand and high unemployment in the six countries in which it operates. Textron Financial Corporation (TFC) achieved its fifteenth consecutive year of record earnings and increased receivables in 1993. TFC had total receivables of over $2.5 billion at the end of 1993. For more than 30 years, TFC has provided financing to a variety of customers, including customers for such Textron-made products as Bell helicopters, E-Z-GO golf cars and Homelite and Jacobsen outdoor equipment. 22 The key strategic elements of TFC's business are excellent customer service, low cost of operations and a diversified loan portfolio. Paul Revere's revenues surpassed $1.1 billion for the second consecutive year in 1993. Paul Revere's performance was enhanced by expanding markets, improved margins, a solid investment portfolio and excellent claims paying ratios. In 1993, Paul Revere became the first company in its industry's history to produce more than $100 million in new individual disability premiums in a 12 month period. This milestone was fueled largely by its innovative National Accounts Program. During the year, Paul Revere also increased the number of agreements it has with financial institutions to sell Paul Revere annuities directly to the public. In October 1993, Paul Revere made its successful debut on the New York Stock Exchange under the ticker symbol PRL. Textron sold 7.5 million shares, or 17 percent, of Paul Revere's common stock. Textron contributed $100 million to the capital of Paul Revere prior to the stock sale. Financial Services' strong asset quality, strict underwriting standards and credit evaluation policies helped improve operating margins. Financial Services has provided steady annual earnings growth. 23 [PHOTO] 24 OPERATIONS REVIEW CONTINUOUS IMPROVEMENT Textron is committed to continuous improvement and the implementation of world class manufacturing techniques at all of its operations. Businesses utilize work place concepts such as Total Cost Management to improve productivity, reduce operating costs and effectively manage assets; Total Quality Management to encourage and empower employees at all levels to recognize and maintain high quality standards; and Just-In-Time manufacturing techniques to reduce inventories and eliminate activities that do not add value to Textron products. At Textron Aerostructures, employees participated on strategic planning teams which evaluated and established plans to enhance customer responsiveness; reduce development and production cycle times; achieve perfect quality; and address employee-related issues. Among the results, Aerostructures reduced average cycle time in 1993 by more than 30 percent. Dedication to quality manufacturing is one of the reasons CWC Castings received the Ford Motor Company's "Q-1" Award for successfully achieving Ford's high standards of performance. At Textron Lycoming Reciprocating Engine, major components are built as a specified subassembly until final assembly configuration is determined. This change provides made-to-order finished components to the assembly line only as needed, reducing finished parts inventories. Speidel improved operating efficiencies and achieved cost reductions through faster order turnaround time, better accuracy and the expanded use of bar coding, telemarketing and environmentally friendly packaging. As a result, Speidel exceeded its 1993 cost reduction goal. INTERNATIONAL GROWTH Textron is committed to substantially increasing its international business by the year 2000. Textron International was created in 1993 to help coordinate and direct the company's marketing program. Textron International established six regional marketing teams - Western Europe; Southeast Asia; Northeast Asia; BAR CHART: Cessna Business Jet Sales ($ in millions) 1991 $542 1992 $537 1993 $579 25 Mexico and Latin America; Eastern Europe and the Commonwealth of Independent States; and the Middle East and Africa. Five of the six teams held organizational meetings in 1993. Management and manufacturing personnel in Textron received considerable instruction on how to achieve International Organization of Standards' ISO-9000 and ISO-9001 quality certification, prerequisites to worldwide credibility in manufacturing. Certification is awarded through an independent auditor's endorsement that a manufacturer has conformed to certain quality management and process requirements. Greenlee Textron received its ISO-9001 certification in 1993. Speidel significantly increased its international business with Swiss watchmaker Swatch in 1993. Swatch nearly tripled its orders of Speidel's high-quality original equipment and replacement watchbands. Speidel also established a new subsidiary in Canada. An intense effort by Textron Marine and Land Systems paid off in 1993 when the Japanese Defense Agency agreed to order at least one air-cushion landing craft (LCAC), with an option to buy five more. The division also delivered an air-cushion fire and rescue craft to the Civil Aviation Authority of Singapore in 1993. Davidson Interiors' facility in Europe continued to manufacture instrument panels for the Ford Mondeo and the Chrysler Eurostar minivan as part of its joint venture, Davidson/Marley B.V., in the Netherlands. Textron Lycoming Turbine Engine is working aggressively to expand its market in Western Europe with Avro International to ensure commercial success of Avro's regional jetliner. The division is also positioned to capture new European applications in the regional turboprop/turbofan market with its new Common Core 500 series of engines. PEOPLE DEVELOPMENT In order to prosper in the future, Textron must continue to develop a solid foundation of trained and productive employees through internal and off-site 26 education and training programs. The Cessna Aircraft Company's 21st Street training program was applauded by U.S. Secretary of Labor Robert Reich during a visit in 1993. The training facility, opened in 1991, helps area residents learn work and literacy skills to become economically self-sufficient. By hiring the people who graduate from the program, Cessna is a major catalyst in the revitalization of the 21st Street neighborhood in Wichita, Kansas. Textron Financial Corporation's Gold Key College offers TFC employees 80 different courses, ranging from investment control policies and procedures to tax and accounting issues. The courses are taught by TFC employees who are knowledgeable in those fields. The Textron Advanced Management Program and the Executive Development Program provide selected Textron employees with an opportunity to broaden their business knowledge and management skills through courses on topics such as human resources, labor relations and ethics. Textron also helps employees take care of their own families. Davidson Interiors supports day care through a matching-pay policy, while Bell Helicopter has a Dependent Care Tax Savings Plan that provides qualified employees with the opportunity to set aside pre-tax earnings for dependent care. Textron Specialty Materials is one of many Textron divisions which offers employees assistance programs and referrals on matters of substance abuse, marital difficulties, financial problems and psychological counseling. COMMUNITY ACTIVITIES Textron and its employees have a long history of award-winning community service participation. In 1993, Textron divisions pitched in for flood victims of the Midwest who lost their homes and belongings to rising waters. Money, food, bottled water, clothing and other survival supplies were donated and distributed to emergency relief agencies throughout the region. Avco Financial Services volunteers filled sandbags in several communities and coordinated relief efforts with other Textron divisions. Bell Helicopter BAR CHART: Textron sales per North American assembled automobile and light truck 1991 $74 1992 $80 1993 $112 27 employees donated more than $30,000, while the division offered trailer trucks and drivers to deliver food, bottled water and other essential supplies to the St. Louis, Missouri area. Many Textron divisions have developed relationships with area schools through Adopt-A-School programs in inner cities across the country. Volunteers from Paul Revere computerized the library at the Chandler Magnet Elementary School in Worcester, Massachusetts making it the only elementary school in the city to have an automated library. The Textron Charitable Trust awards scholarships to college-bound children of employees who qualify through the Textron Merit Scholarship Program. Textron annually awards grants of $500 to $2,000, based on need, to help pay for student tuition costs, general fees and living expenses. The Trust's Matching Gift Program matches employee contributions on a 2-for-1 basis to qualified cultural, educational and environmental institutions and hospitals. For the second year in a row, Cessna Aircraft was the top contributor to the Kansas Foodbank. The division donated more than 300,000 pounds of food for the needy, nearly triple its 1992 donation. ENVIRONMENTAL, HEALTH AND SAFETY Textron is continually improving and expanding its waste minimization and recycling programs to reduce toxic emissions and hazardous waste and to make better use of recyclable materials. Textron has decreased its dependence on chemicals which are harmful to the environment, such as trichloroethane, and employees are instructed on the proper way to handle hazardous materials. Computer paper is being recycled by the ton, as are mixed paper, corrugated cardboard, food containers, newspapers, coolant and toner cartridges. Many Textron divisions have smoke-free facilities and offer in-house wellness programs to employees. Those include glaucoma tests and screenings for blood pressure, cholesterol and other common health conditions. Employees are offered instructional classes in cardiopulmonary resuscitation (CPR), as well as referrals for counseling for substance and alcohol abuse and other problems. One of Textron's goals is to increase international business for its divisions with the marketing assistance of Textron International. Textron employees volunteer considerable time and resources to local United Way agencies, Special Olympics and youth development programs. 28 TEXTRON BOARD OF DIRECTORS James F. Hardymon (1) Chairman and Chief Executive Officer Textron Inc. Providence, RI Lewis B. Campbell (1) President and Chief Operating Officer Textron Inc. Providence, RI H. Jesse Arnelle (4,5) Senior Partner Arnelle & Hastie (law firm) San Francisco, CA Joseph R. Carter (4,5) Chairman Massachusetts Biotechnology Research Institute Worcester, MA R. Stuart Dickson (2,5) Chairman Ruddick Corporation (diversified holding company) Charlotte, NC B.F. Dolan (1,3) Retired Chairman Textron Inc. Charlotte, NC William M. Ellinghaus (2,4) Retired President AT&T New York, NY Webb C. Hayes, III (1,3) Partner Baker & Hostetler (law firm) Washington, DC John D. Macomber (2,3) Principal JDM Investment Group (private investment firm) Washington, DC Barbara Scott Preiskel (3,5) Formerly Senior Vice President and General Counsel Motion Picture Association New York, NY Sam F. Segnar (1,3) Retired Chairman and Chief Executive Officer Enron Corporation (diversified natural gas company) Houston, TX Jean Head Sisco (2,4) Partner Sisco Associates (international trade consulting firm) Washington, DC John W. Snow (1,4) Chairman, President and Chief Executive Officer CSX Corporation (diversified transportation company) Richmond, VA J. Paul Sticht (2,3) Retired Chairman RJR Nabisco, Inc. (international consumer products company) Winston-Salem, NC Martin D. Walker (4,5) Chairman and Chief Executive Officer M.A. Hanna Company (an international specialty chemicals company) Cleveland, OH Thomas B. Wheeler (2,5) President and Chief Executive Officer Massachusetts Mutual Life Insurance Company Springfield, MA Numbers indicate committee memberships (1) Executive Committee: Chairman, James F. Hardymon (2) Audit Committee: Chairman, William M. Ellinghaus (3) Nominating Committee: Chairwoman, Barbara Scott Preiskel (4) Organization and Compensation Committee: Chairman, Joseph R. Carter (5) Pension Committee: Chairman, Martin D. Walker 29 - ------------------------------------------------------------------------------- FINANCIAL SECTION - ------------------------------------------------------------------------------- 29 Financial Review 38 Report of Management 38 Report of Independent Auditors 39 Consolidated Financial Statements 60 Financial Information by Borrowing Group 65 Quarterly Financial Information 66 Five-Year Summary - ------------------------------------------------------------------------------- FINANCIAL REVIEW - ------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Financing for Textron is conducted through two separate borrowing groups: the Textron Parent Company Borrowing Group (consisting of all entities of Textron other than its finance and insurance subsidiaries) and Textron's finance and insurance subsidiaries. This framework allows the finance and insurance subsidiaries, with specialized needs related to their portfolios of receivables and investments, to finance their respective operations, each through its own external group of creditors without guarantee from the Textron Parent Company Borrowing Group. Accordingly, the liquidity and capital resources of Textron's operations are best understood by separately considering its independent borrowing groups. TEXTRON PARENT COMPANY BORROWING GROUP Sources of cash to the Textron Parent Company Borrowing Group include cash generated by the operations comprising this group and dividends received from the finance and insurance subsidiaries, supplemented with borrowings. Information about the cash flows of this group for each of the three years in the period ended January 1, 1994 is set forth in the Group's statement of cash flows included in Note 18 (page 62) to the consolidated financial statements. The Group's operating activities provided cash flows of $584.3 million in 1993, up from $403.1 million in 1992. The increase reflected (a) a higher reduction in inventories, due principally to an increase in deliveries and resumption of progress payments on certain long-term contracts and programs and improvements in inventory management, (b) a higher level of trade payables, due primarily to increased production at Bell Helicopter and Cessna, and (c) higher income from operations. The Group's debt decreased by $258.0 million in 1993 as operating cash flows and the proceeds from the sale of a minority interest in The Paul Revere Corporation (PRC) exceeded capital asset additions, payments of dividends, the acquisition of Textron Acustar Plastics and a $100 million contribution to the capital of PRC. Textron's ratio of debt to total capital 30 - ------------------------------------------------------------------------------- improved to 42% at January 1, 1994, down from 48% at January 2, 1993. Cash flows from operating activities in 1992 of $403.1 million were higher than the 1991 level due principally to a decrease in inventories in 1992 versus an increase in 1991. The Group's debt increased by $463.1 million in 1992 due to financing the $605.0 million acquisition of Cessna. Cash flows from operating activities in 1991 of $272.8 million were lower than the 1990 level due primarily to one-time extraordinary dividends of $50.0 million received from Textron's finance and insurance operations in 1990. The Group's debt decreased in 1991 by $105.1 million as operating cash flows exceeded capital asset additions and payments of dividends. Capital asset additions during 1993, 1992 and 1991 of $225.6 million, $197.9 million and $133.6 million, respectively, were primarily for (a) the replacement of machinery and equipment, (b) machinery and equipment required for increased capacity at existing facilities, and (c) in 1993 and 1992, for production tooling for new aircraft at Cessna. Capital asset additions during 1994 are not expected to differ substantially from the level of such additions in 1993. Textron is involved in a number of remedial actions under various federal and state laws and regulations relating to the environment which impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which their hazardous wastes or materials were disposed or released. Expenditures to evaluate and remediate contaminated sites approximated $18 million, $25 million and $10 million in 1993, 1992 and 1991, respectively. Textron currently projects that expenditures for remediation will range between $20 million and $30 million for each of the years 1994 and 1995. Textron cannot reasonably estimate at this time expenditures for remediation by year beyond 1995 due to various factors and uncertainties inherent in the estimation of such expenditures. (See Textron's Summary of Significant Accounting Policies and Note 16 to the consolidated financial statements for further information about environmental matters.) Based upon the information currently available, Textron believes it has made adequate provision for costs associated with known remediation efforts. Despite the uncertainty concerning the overall costs of additional remedial actions that might be identified in the future, it is not currently anticipated that such costs will have a material adverse effect on Textron's liquidity, net income or financial condition. In 1990, PRC purchased in the open market (on behalf of Textron) 1,696,500 shares of Textron common stock at a total cost of approximately $40 million. Such purchase was accounted for in the Textron Parent Company Borrowing Group's balance sheet as a purchase of stock for the Textron Parent Company Borrowing Group's treasury and as a dividend (special distribution) from PRC. In July 1993, Textron's Board of Directors approved Textron's purchase of all of the shares of Textron common stock owned by PRC in four annual installments of 424,125 shares each, beginning on April 10, 1994, at a share price to be equal to the average closing price of Textron's stock over the fiscal quarter preceding each such purchase. This commitment ($98.8 million, based on the closing price of Textron's common stock on December 31, 1993) has been recorded in the Textron Parent Company Borrowing Group's balance sheet as an accrued liability and an additional investment in PRC. Textron, which had been the sole shareholder of PRC, sold 7.5 million shares of PRC, representing 16.7% of the outstanding shares of PRC, on October 26, 1993, for $174.5 million (net of related expenses) in an underwritten public offering registered under the Securities Act of 1933. Textron contributed $100 million to the capital of PRC prior to the sale. The proceeds from the sale were used to reduce debt. On May 3, 1993, Textron acquired the plastics operations of the Acustar division of Chrysler Corporation at a cost of $139.2 million, financed by variable rate short-term borrowings. Textron has the ability to refinance these borrowings under existing long-term credit agreements. On February 28, 1992, Textron purchased all of the outstanding common stock of Cessna at a cost of $605.0 million, financed through a combination of borrowings under Textron's existing credit agreements (short-term, variable rate financing) and medium- and long-term (fixed rate) debt issuances. During 1993, Textron redeemed an aggregate principal amount of $221.2 million of its 10-3/4%, 9-1/2% and 9-1/4% Senior and Subordinated Notes, due through 2017, for $231.6 million, resulting in a pretax charge to income of $13.6 million. The redemptions, which are expected to result in lower interest costs in the future, were financed primarily with the proceeds from the sale of PRC stock. 31 - ------------------------------------------------------------------------------- Textron had $236 million available at January 1, 1994 for the issuance of unsecured debt securities under its shelf registration statement with the Securities and Exchange Commission. Also at January 1, 1994, Textron had credit facilities aggregating $1.5 billion. The portion of the credit facilities not used or reserved as support for commercial paper or bank borrowings was $878 million at January 1, 1994. Management believes that the Textron Parent Company Borrowing Group will continue to have adequate access to credit markets and that its credit facilities and cash flows from operations -- including dividends received from Textron's finance and insurance operations -- will continue to be more than sufficient to meet its operating needs and to finance growth. FINANCE AND INSURANCE SUBSIDIARIES This group includes Avco Financial Services (AFS), Textron Financial Corporation (TFC) and PRC. The insurance operations have historically generated positive cash flows sufficient to preclude the need for borrowings. Information about the cash flows of this group for each of the three years in the period ended December 31, 1993 is set forth in the Group's statement of cash flows included in Note 18 (page 64) to the consolidated financial statements. The amount of the net assets of Textron's finance and insurance subsidiaries available for cash dividends and other payments to the Textron Parent Company Borrowing Group is restricted by the terms of lending agreements and insurance statutory requirements. The finance and insurance subsidiaries paid dividends to the Textron Parent Company Borrowing Group of $93.5 million, $78.4 million and $78.2 million in 1993, 1992 and 1991, respectively. AFS and TFC each utilize a broad base of financial sources for their respective liquidity and capital requirements. Cash is provided from both operations and several different sources of borrowings, including unsecured borrowings under bank lines of credit, the issuance of commercial paper and short-term bank debt, and sales of medium- and long-term debt in the U.S. and foreign financial markets. During 1993, the net proceeds from medium- and long-term financing sources, including the issuances described below, totalled $1.3 billion. Debt increased by $407.0 million in 1993, due principally to receivable growth. During 1993, AFS filed a shelf registration statement with the Securities and Exchange Commission, increasing its shelf by $1.5 billion. Also during 1993, AFS' Canadian shelf registration statement expired and a new Canadian shelf registration statement was filed, increasing its shelf to cover up to an aggregate of $313 million of unsecured debt securities. AFS issued $1.0 billion of unsecured debt securities, including $947.0 million under its shelf registration statements, in 1993. AFS had $1.6 billion and $160.9 million available at December 31, 1993 for the issuance of unsecured debt securities under its shelf registration statements with the Securities and Exchange Commission and Canadian provincial security exchanges, respectively. AFS redeemed $97 million of its 8-7/8% Senior Subordinated Notes, due 1996, in 1993 at 100% of the principal amount. During 1993, TFC issued $227 million of medium-term notes under a $350 million medium-term notes facility under Rule 144A of the Securities Act of 1933, as amended. TFC had $123 million available under this facility at December 31, 1993. By utilizing medium- and long-term fixed rate financing, as well as interest rate exchange agreements, Textron's finance subsidiaries effectively had a ratio of variable rate debt to total debt of 52% at December 31, 1993. For liquidity purposes, AFS and TFC have a policy of maintaining sufficient unused bank lines of credit to support their outstanding commercial paper and short-term bank borrowings. The subsidiaries' combined commercial paper and short-term bank borrowings coverage ratio at December 31, 1993 was 103%. PRC maintains lines of credit of $30 million for short-term funding of investment purchases and other short-term cash requirements. Such lines were fully available at December 31, 1993. Textron's finance and insurance subsidiaries have substantial amounts of investments and finance receivables backed up or secured by real estate. AFS had residential real estate loans outstanding of $2.3 billion at December 31, 1993, which were secured primarily by first and second mortgages on single family homes, and averaged $25 thousand in outstanding principal balance per loan. Residential real estate loans are geographically dispersed 32 - ------------------------------------------------------------------------------- among many customers and the loan amounts are limited to a maximum of 85% of the appraised market value at the date of the loans, although most loans are made at significantly lower loan to value ratios. TFC had commercial real estate loans and leveraged leases of real estate aggregating $513.8 million and $154.3 million, respectively, at December 31, 1993. The real estate portfolio consists principally of first mortgages on income producing properties and is diversified both geographically and by type of property financed. The portfolio was underwritten at loan origination so that historic cash flows exceeded debt service and so that loans were generally for less than 80% of the value of the property. Loans were originally written with scheduled maturities of generally between three and five years. However, a substantial number of loans have been refinanced at contractual maturity. At December 31, 1993, TFC had suspended the accrual of interest on $77.2 million of real estate loans, down from $88.8 million at December 31, 1992. In addition, at December 31, 1993, Textron's insurance subsidiaries held $179.4 million of first mortgages on real estate. At that date, the insurance subsidiaries had suspended the accrual of interest on $4.7 million of first mortgages, down from $16.8 million at December 31, 1992. The real estate portfolio is well diversified geographically and by type of property financed. Loans are generally limited to 75% of the appraised value of established properties at the date of the loans with sufficient cash flows to meet debt service requirements. Foreclosed real estate loans of Textron's finance and insurance subsidiaries are transferred out of finance receivables or investments in mortgages into other assets or other investments at the lower of fair value (less estimated costs to sell) or the outstanding loan balance. The carrying value of real estate is periodically reevaluated and, where appropriate, adjustments are made through a valuation allowance to reflect subsequent changes in fair value, but carrying value is never increased above the amount originally transferred. At December 31, 1993, real estate classified in other assets or other investments aggregated $74.0 million, down from $106.5 million at December 31, 1992. Although Textron believes it has made adequate provision for its nonperforming real estate assets, realization of these assets remains subject to uncertainties. Subsequent evaluations of nonperforming assets, in light of factors then prevailing, including economic conditions, may require additional increases in the allowance for losses for such assets. Textron's insurance subsidiaries' investments also included mortgage-backed securities at an amortized cost of $1.1 billion at December 31, 1993, a substantial portion of which is guaranteed by the U.S. Government or U.S. Government agencies. Future investment income from mortgage-backed securities may be affected by the timing of principal payments and the yields on reinvestment alternatives available at the time of such payments. In 1993, accelerated prepayments on mortgage-backed securities generated an increase in funds available for investment at a time when interest rates were lower than the current portfolio yield. Textron also has significant investments in other debt securities. A substantial portion of these investments is in high quality, investment grade assets. Textron's investment strategies place an emphasis on matching investment maturities with the timing of amounts estimated to be payable under insurance contracts. Textron will adopt Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), as of the beginning of 1994. Upon adopting FAS 115, Textron will record net unrealized gains of approximately $95 million, net of applicable income taxes, relating to debt securities classified in the available for sale portfolio, which will be carried at fair value. The net unrealized gains will be recorded as an increase to shareholders' equity. The adoption of FAS 115 will have no cash flow impact on Textron. (See Textron's Summary of Significant Accounting Policies for further information about FAS 115.) - ------------------------------------------------------------------------------- Textron has recognized net deferred tax assets of $250.7 million at January 1, 1994, attributable to temporary differences between the financial reporting basis and income tax basis of certain assets and liabilities. Management believes that such net deferred tax assets will be realized based on Textron's history of earnings and its expectations for the future. (See Note 14 to the consolidated financial statements for further information.) For further information about investments and collateral for finance receivables, see Note 2, "Investments," and Note 3, "Finance Receivables," to the consolidated financial statements. For further information about the debt and credit facilities of the Textron Parent Company Borrowing Group and the finance subsidiaries, see Note 8, "Debt and Credit Facilities," to the consolidated financial statements. 33
- ----------------------------------------------------------------------------------------------------------------------------------- REVENUES AND INCOME BY BUSINESS SEGMENT - ----------------------------------------------------------------------------------------------------------------------------------- For a description of the businesses comprising each segment, see pages 67 to 70 of this report. For additional financial information by business segment, see Note 17. - ----------------------------------------------------------------------------------------------------------------------------------- REVENUES INCOME BUSINESS SEGMENTS ------------------------------ ---------------------------- (In millions) 1993 1992 1991 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- MANUFACTURING: Aircraft $1,987.2 $1,520.6 $1,255.3 $171.4 $128.0 $112.7 Automotive 1,167.9 778.8 668.5 87.4 65.3 49.7 Industrial 1,277.5 1,195.4 1,118.1 114.2 105.6 88.2 Systems and Components 1,838.7 2,121.9 2,168.6 124.7 181.8 222.8 - ----------------------------------------------------------------------------------------------------------------------------------- 6,271.3 5,616.7 5,210.5 497.7 480.7 473.4 - ----------------------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES: Finance 1,610.5 1,621.7 1,547.6 288.9 249.8 226.2 Paul Revere 1,192.8 1,105.8 1,064.4 145.9 115.0 97.5 - ----------------------------------------------------------------------------------------------------------------------------------- 2,803.3 2,727.5 2,612.0 434.8 364.8 323.7 - ----------------------------------------------------------------------------------------------------------------------------------- $9,074.6 $8,344.2 $7,822.5 932.5 845.5 797.1 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Corporate expenses and other -- net (87.2) (68.7) (75.7) Interest expense -- net (231.8) (249.8) (226.4) - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes $613.5 $527.0 $495.0 ====== ====== ====== - -----------------------------------------------------------------------------------------------------------------------------------
Notes: (i) Prior year amounts have been reclassified to conform to the current year's segment presentation. (ii) The results of operations of Textron Acustar Plastics are included from May 4, 1993. The results of operations of Cessna are included from February 29, 1992. (iii) Revenues by business segment exclude interest income of the Textron Parent Company Borrowing Group of $3.7 million, $3.3 million and $17.6 million in 1993, 1992 and 1991, respectively. (iv) Income of the Finance segment is net of interest expense. (v) Corporate expenses and other-net for 1993 include a pretax charge of $13.6 million related to the early redemption of debt and a charge of $2.6 million to eliminate the minority interest in the net income of Paul Revere subsequent to October 26, 1993. (vi) Revenues between segments were insignificant in each year.
- ------------------------------------------------------------------------------- BACKLOG - ------------------------------------------------------------------------------- (Unaudited) JANUARY 1, January 2, (In billions) 1994 1993 - ------------------------------------------------------------------------------- U.S. GOVERNMENT: Aircraft $1.0 $1.1 Systems and Components 1.2 1.6 - ------------------------------------------------------------------------------- 2.2 2.7 - ------------------------------------------------------------------------------- COMMERCIAL: Aircraft 1.6 1.7 Industrial .2 .2 Systems and Components 1.2 1.0 - ------------------------------------------------------------------------------- 3.0 2.9 - ------------------------------------------------------------------------------- $5.2 $5.6 ==== ==== - -------------------------------------------------------------------------------
Notes: (i) Prior year amounts have been reclassified to conform to the current year's segment presentation. (ii) The decrease in Textron's U.S. Government backlog was due primarily to deliveries on a Lycoming Turbine Engine contract for the AGT 1500 engine for the U.S. Army's Abrams main battle tank (scheduled to be completed in 1994) and deliveries of Textron Marine and Land Systems' LCAC landing craft. 34 - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS 1993 VS. 1992 Textron's net income in 1993 was $379.1 million ($4.21 per share), up 17% from income of $324.1 million ($3.66 per share) before the one-time cumulative effect of accounting changes in 1992. Revenues increased to $9.1 billion in 1993 from $8.3 billion in 1992. Operating income of Textron's six business segments aggregated $932.5 million in 1993, up 10% from $845.5 million in 1992. The drivers of the increase in income were the Aircraft and Automotive segments, both of which increased by 34%, and the Financial Services segments, which reported a 19% overall growth in income. See the table under the caption "Revenues and Income by Business Segment"and the discussion of the results of each segment below. Textron's business segments have been realigned due to the significant growth of the automotive business and the contraction of the defense and the commercial aerospace markets. Prior year amounts have been reclassified to conform to the current year's segment presentation. Corporate expenses and other - net in 1993 were higher by $18.5 million than their corresponding level in 1992, principally as a result of a $13.6 million pretax charge related to the early redemption of high coupon debt, the elimination of the minority interest in the net income of Paul Revere subsequent to October 26, 1993 and foreign exchange gains in 1992. The lower interest expense of the Textron Parent Company Borrowing Group -- $231.8 million in 1993 vs. $249.8 million in 1992 -- reflected both a lower level of average borrowing and a decreased average cost of borrowing. Textron's effective income tax rate of 38.2% in 1993 was lower than the 1992 rate of 38.5%, due to the new tax legislation, as the one-time benefit from increasing net deferred tax assets more than offset the effect of the increase in the federal statutory tax rate from 34% to 35%. 1992 VS. 1991 Textron's income in 1992 before the one-time cumulative effect of accounting changes was $324.1 million ($3.66 per share), up 8% from $299.5 million ($3.42 per share) in 1991. Revenues increased to $8.3 billion in 1992 from $7.8 billion in 1991, due principally to the acquisition of Cessna. Operating income aggregated $845.5 million in 1992, compared with $797.1 million in 1991. The accounting changes, which related to the accounting for postretirement benefits other than pensions and income taxes (see Notes 13 and 14 to the consolidated financial statements for further information), resulted in one-time non-cash charges to 1992 income aggregating $679.5 million ($7.67 per share) and, thus, a net loss of $355.4 million ($4.01 per share). Corporate expenses and other - net in 1992 were lower than their 1991 level, reflecting the effect of foreign exchange gains in 1992. The higher net interest expense of the Textron Parent Company Borrowing Group -- $249.8 million in 1992 vs. $226.4 million in 1991 -- was due to an increased level of borrowings (attributable to the acquisition of Cessna), increased interest accretion and interest income on tax refunds in 1991, partially offset by a decreased average cost of borrowing in 1992. Textron's effective income tax rate in 1992 of 38.5% was lower than the 1991 rate of 39.5%, with no single item accounting for the decrease. AIRCRAFT 1993 VS. 1992 The Aircraft segment's revenues and income increased in 1993 by $466.6 million (31%) and $43.4 million (34%), respectively, due to higher results at both Bell Helicopter and Cessna. Bell Helicopter's income increased as a result of higher revenues in both its U.S. Government and non-U.S. Government businesses and the effect in 1992 of a $10 million loss provision on the V-22 full scale development (FSD) contract. Cessna's income increased as a result of (a) higher sales, due to the inclusion of Cessna's manufacturing operations for 12 months in 1993 compared with 10 months in 1992, and (b) an $18 million gain from an insurance settlement, which were partially offset by a higher level of expenses in 1993, primarily related to higher product development expenses for the CitationX aircraft and bid and proposal expenses for the Joint Primary Aircraft Training System (JPATS) competition for a new U.S. military trainer. In October 1992, the U.S. Government terminated substantially all of the fixed price FSD contract on the V-22 program and issued the Bell-Boeing team a new cost-type letter contract, providing initial funding in the amount of $550 million for the engineering and manufacturing development (EMD) phase of the V-22 program. The final definitized EMD contract, with a proposed value of approximately $2.5 billion, is expected to be negotiated in 1994. Under the proposed terms of the EMD contract, Bell-Boeing will build four production- representative V-22 aircraft and modify two existing aircraft to meet the requirements of the U.S. Marine Corps' medium lift replacement aircraft. 35 - ------------------------------------------------------------------------------- While settlement of the terminated portions of the FSD contract has not been finalized with the U.S. Government, Textron believes that its share of cumulative losses on the FSD contract is not likely to exceed the amounts previously recorded. 1992 VS. 1991 The Aircraft segment's revenues and income increased in 1992 by $265.3 million (21%) and $15.3 million (14%), respectively, due to the inclusion of the operating results of Cessna's manufacturing operations for 10 months in 1992, partially offset by lower revenues and income at Bell Helicopter. Bell Helicopter's revenues decreased significantly in its non-U.S. Government business due to market softness and decreased to a lesser degree in its U.S. Government business. Bell's income decreased primarily as a result of the lower revenues, the effect in 1991 of a favorable LIFO inventory reserve adjustment (resulting from a reduction in LIFO inventories) and the effect of the new accounting method relative to postretirement benefits other than pensions, partially offset by the benefit of a lower provision in 1992 ($10 million vs. $45 million in 1991) for cost increases on the V-22 FSD contract and other loss provisions in 1991. AUTOMOTIVE 1993 VS. 1992 The Automotive segment's revenues increased $389.1 million (50%) in 1993 primarily as a result of the inclusion of the operating results of Textron Acustar Plastics for eight months, higher automotive production and a broader market penetration of automotive interior products. Income increased $22.1 million (34%), due to the higher revenues, partially offset by a special warranty provision and provisions for restructuring costs of $7 million. 1992 VS.1991 The Automotive segment's revenues increased $110.3 million (16%) over the 1991 level primarily as a result of broader market penetration of automotive interior products. Income increased $15.6 million (31%), due to the higher revenues, partially offset by higher start-up costs on new programs and plants. INDUSTRIAL 1993 VS. 1992 The Industrial segment's revenues increased $82.1 million (7%) and income increased $8.6 million (8%). Revenues increased due to growth in the outdoor products and fasteners businesses. Income increased as a result of the higher volume, partially offset by provisions for restructuring costs of $9 million. 1992 VS. 1991 The Industrial segment's revenues increased $77.3 million (7%) and income increased $17.4 million (20%). Revenues increased in all businesses -- outdoor products, fasteners and diversified products. Income increased primarily as a result of the higher volume, improved manufacturing performance and a gain on the sale of the Forest City Tool woodworking tool business, partially offset by an increase in 1992 in the provision for environmental remediation costs. SYSTEMS AND COMPONENTS 1993 VS. 1992 The Systems and Components segment's revenues decreased $283.2 million (13%) and income decreased $57.1 million (31%), reflecting the weakness in the commercial aerospace industry, reduction in defense spending and the wind down of certain U.S. Government contracts. Income decreased, due primarily to the reduction in volume, provisions for legal matters and a gain in 1992 on the sale of the Textron Filtration Systems division. Provisions for restructuring costs were at approximately the same level in each year. Textron Lycoming Turbine Engine, the major line of business in this segment, reported higher income, despite lower revenues. Its income increased as a result of (a) a cumulative adjustment recorded in 1993 to reflect an increase in the estimated profit margin (reflecting the benefit of reductions in overhead, including a reduction in costs relative to postretirement benefits) on a long-term contract for turbine engines used on the Abrams main battle tank compared with a cumulative adjustment recorded in 1992 to reflect a decrease in the estimated profit margin on that contract and (b) a higher level of commercial engine and overhaul sales. Revenues decreased at this division due to reduced shipments of turbine engines for the Abrams tank and lower sales of other military engines. Excluding the effects of provisions for legal matters and restructuring costs in 1993 (which aggregated $31 million) and provisions for restructuring costs in 1992 ($14 million), revenues and income at the other divisions in this segment decreased principally at Textron Defense Systems, Airfoil Textron, Textron Lycoming Reciprocating Engine and Textron Specialty Materials. At Textron Defense Systems, revenues and income decreased due to the benefit in 1992 of an equi- 36 - ------------------------------------------------------------------------------- table price adjustment on a long-term contract and the wind down in 1993 of several U.S. Government contracts. The lower results at Airfoil Textron and Textron Lycoming Reciprocating Engine were attributable to further softness in the commercial aerospace and general aviation industries, respectively, while the lower results at Textron Specialty Materials were attributable to lower sales of its fire protection materials. Textron's Systems and Components segment will be impacted in 1994 by a further decline in revenues, reflecting a wind down of certain U.S. Government contracts, a decline in U.S. Government spending for the defense products of this segment and the current depressed business conditions in the commercial airline industry. While operating results will be impacted by the lower revenues, reported income is not expected to differ significantly in 1994 from 1993 as a result of significant provisions in 1993 for restructuring costs and legal matters. In response to this adverse business environment, Textron has taken and will continue to take aggressive cost reduction and other actions, such as long-term agreements with its customers, further restructurings of its businesses, outsourcing and the pursuit of other business opportunities that may arise, including joint ventures and divestitures. Textron will also continue to focus its resources where it has technological or other competitive advantages, so as to minimize the effects of these difficult business conditions. However, the outlook for this segment's businesses contains uncertainties relative to (a) the programs and funding levels in future defense budgets as a result of continuing pressures to reduce federal outlays and (b) the length and severity of the commercial airline industry downturn. 1992 VS. 1991 The Systems and Components segment's revenues decreased $46.7 million (2%) and income decreased $41.0 million (18%), reflecting the weakness in the commercial aerospace industry, reduction in defense spending and the wind down of certain U.S. Government contracts. Income decreased, due primarily to the reduction in volume, the effect of the new accounting method relative to postretirement benefits other than pensions and a provision for restructuring costs, partially offset by a gain on the sale of the Textron Filtration Systems division. Income decreased at Textron Lycoming Turbine Engine and Airfoil Textron, partially offset by higher income at Textron Defense Systems and Textron Aerostructures. Revenues and income decreased significantly at Textron Lycoming Turbine Engine due to lower results in both the U.S. Government and commercial aerospace businesses. In its military business, income decreased principally as a result of a cumulative adjustment recorded in 1992 to reflect a reduction in the estimated profit margin on a long-term contract for turbine engines used on the Abrams main battle tank and reduced shipments on that contract in 1992 compared to the prior year. Revenues and income decreased on its commercial aerospace programs as a result of a significantly lower level of engines and spare parts sales, partially offset by lower product development costs and significantly lower losses in the LT101 turbine engine business, attributable to lower engineering costs. Income declined at Airfoil Textron due to a provision for restructuring costs and lower revenues, attributable to further softness in the commercial aerospace industry and reduced defense spending. Income increased at Textron Defense Systems primarily as a result of a higher benefit in 1992 than in 1991 of an equitable price adjustment under a long-term contract and a decrease in required provisions for cost increases on certain fixed price development contracts. Revenues also increased at Textron Defense Systems due primarily to increased deliveries on a military satellite communications system components contract, partially offset by reduced deliveries on missile components contracts as these contracts near completion. At Textron Aerostructures, revenues and income increased as a result of the benefit of the nonrecurring portion of an equitable price adjustment on a long-term aircraft wing components contract and increased deliveries under the same program, partially offset by the benefit in 1991 of a cumulative adjustment to increase the estimated profit margin on the Gulfstream IV wing program. FINANCE 1993 VS. 1992 The Finance segment's revenues decreased $11.2 million while income increased $39.1 million (16%). Income at AFS increased, due principally to (a) a decrease in the cost of borrowed funds, (b) a higher level of finance receivables outstanding and (c) a decrease in insurance losses, as 1992 included losses related to Hurricane Andrew, partially offset by (d) a decrease in yields on finance receivables and (e) higher insurance commissions resulting from improved loss experience on nonfinance- 37 - ------------------------------------------------------------------------------- related insurance business. Revenues decreased, due to the decline in yields on finance receivables and a decline in foreign exchange translation rates, partially offset by a higher level of finance receivables outstanding. The ratio of net credit losses to average net receivables decreased to 2.14% in 1993 from 2.20% in 1992. In TFC's commercial finance business, revenues increased as a result of (a) an increased level of receivables, (b) the inclusion of the operating results of Cessna's finance operations for 12 months in 1993 compared with 10 months in 1992 and (c) a lower level of accounts on which the accrual of interest income has been suspended, partially offset by a decrease in yields and lower gains on the sales of finance receivables portfolios. Its income increased due to those factors, a decrease in the cost of borrowed funds and a decrease in loan loss provisions, primarily related to reductions in equipment loan losses and, to a lesser extent, losses on real estate loans. 1992 VS. 1991 The Finance segment's revenues increased $74.1 million (5%) and income increased $23.6 million (10%). Income at AFS increased due principally to (a) a decrease in the cost of borrowed funds, (b) higher revenues attributable to a higher level of finance receivables outstanding (due in part to portfolio acquisitions during 1992) and (c) lower net credit loss ratios on finance receivables, partially offset by (d) a decrease in yields on finance receivables (relating in part to a change in the receivables portfolio mix toward lower yielding residential real estate loans), (e) higher insurance losses, including losses incurred as a result of Hurricane Andrew, and (f) lower investment income as yields on investments declined. The ratio of net credit losses to average net receivables decreased to 2.20% in 1992 from 2.39% in 1991. In TFC's commercial finance business, revenues increased principally as a result of (a) the inclusion of the operating results of Cessna's finance operations for 10 months, (b) an increased level of receivables and (c) gains on the sales of finance receivables portfolios, partially offset by (d) a decrease in yields on receivables and (e) a higher level of accounts on which the accrual of interest income has been suspended. TFC's income increased due to those factors and a decrease in the cost of borrowed funds, partially offset by an increase in loan loss provisions, principally attributable to its real estate portfolio. PAUL REVERE 1993 VS. 1992 Paul Revere's revenues increased $87.0 million (8%) and income increased $30.9 million (27%). Revenues increased primarily in its individual disability insurance line, principally through marketing arrangements with other companies. Its income increased as a result of higher income in its individual disability insurance line (due to the higher revenues and lower operating expense and benefit ratios, which reflect the benefit of recapture gains on terminating reinsurance agreements), partially offset by lower income in group insurance, due to an increase in long-term disability benefit ratios. Paul Revere's investment income increased as a result of (a) a higher level of invested assets, offset in part by lower investment yields, and (b) significantly higher net realized investment gains ($14.7 million in 1993 vs. $2.2 million in 1992). Realized investment gains in 1993 ($36.6 million) were partially offset by an increased provision for other than temporary declines in values of investments ($21.9 million). 1992 VS. 1991 Paul Revere's revenues increased $41.4 million (4%) in 1992 and income increased $17.5 million (18%). Revenues increased primarily in its individual disability insurance line, partially offset by lower revenues in group insurance as a result of discontinuing its U.S. group medical insurance line. Its income increased due to higher income in its individual disability insurance line (due to higher revenues and a lower benefit ratio), offset in part by lower investment yields. Realized investment gains in 1992 ($44.9 million) were offset by an increased provision for other than temporary declines in values of investments ($42.7 million). 38 - ------------------------------------------------------------------------------- REPORT OF MANAGEMENT - ------------------------------------------------------------------------------- The consolidated financial statements of Textron Inc. have been prepared by management and have been audited by Textron's independent auditors, Ernst & Young, whose report appears below. Management is responsible for the consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles and include amounts based on management's judgments. Management is also responsible for maintaining internal accounting control systems designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are executed and recorded in accordance with established policies and procedures. Textron's systems are under continuing review and are supported by, among other things, business conduct and other written guidelines, an internal audit function and the selection and training of qualified personnel. The Board of Directors, through its Audit Committee, oversees management's financial reporting responsibilities. The Audit Committee, comprised of five outside directors, meets regularly with the independent auditors, representatives of management and the internal auditors to discuss and make inquiries into their activities. Both the independent auditors and the internal auditors have free access to the Audit Committee, with and without management representatives in attendance. s/James F. Hardymon s/Richard A. McWhirter James F. Hardymon Richard A. McWhirter Chairman and Executive Vice President Chief Executive Officer and Chief Financial Officer February 3, 1994 - ------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS - ------------------------------------------------------------------------------- To the Board of Directors and Shareholders Textron Inc. We have audited the accompanying consolidated balance sheet of Textron Inc. as of January 1, 1994 and January 2, 1993, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the three years in the period ended January 1, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Textron Inc. at January 1, 1994 and January 2, 1993 and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 1, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 13 and 14 to the consolidated financial statements, in fiscal 1992 the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. s/Ernst & Young New York, New York February 3, 1994 39
- ------------------------------------------------------------------------------- TEXTRON INC. CONSOLIDATED STATEMENT OF INCOME - ------------------------------------------------------------------------------- For each of the three years in the period ended January 1, 1994 (In millions except per share amounts) 1993 1992 1991 - ------------------------------------------------------------------------------- REVENUES Sales $6,271.3 $5,616.7 $5,210.5 Interest, discount and service charges 1,260.2 1,273.2 1,183.9 Insurance premiums 1,137.0 1,093.5 1,073.3 Investment income (including net realized investment gains) 409.8 364.1 372.4 - ------------------------------------------------------------------------------- Total revenues 9,078.3 8,347.5 7,840.1 - ------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 5,210.6 4,560.7 4,185.4 Selling and administrative 1,441.2 1,401.8 1,329.8 Interest expense 667.8 742.0 754.4 Provision for losses on collection of finance receivables, less recoveries 152.6 160.4 134.8 Insurance benefits and increase in policy liabilities 849.1 823.8 812.2 Amortization of insurance policy acquisition costs 143.5 131.8 128.5 - ------------------------------------------------------------------------------- Total costs and expenses 8,464.8 7,820.5 7,345.1 - ------------------------------------------------------------------------------- Income before income taxes 613.5 527.0 495.0 Income taxes 234.4 202.9 195.5 - ------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 379.1 324.1 299.5 Cumulative effect of changes in accounting principles: Postretirement benefits other than pensions, net of income taxes - (570.5) - Income taxes - (109.0) - - ------------------------------------------------------------------------------- NET INCOME (LOSS) $ 379.1 $ (355.4) $ 299.5 ======== ======== ======== - ------------------------------------------------------------------------------- INCOME (LOSS) PER COMMON SHARE: INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ 4.21 $ 3.66 $ 3.42 Cumulative effect of changes in accounting principles: Postretirement benefits other than pensions - (6.44) - Income taxes - (1.23) - - ------------------------------------------------------------------------------- NET INCOME (LOSS) $ 4.21 $ (4.01) $ 3.42 ======== ======== ======== - -------------------------------------------------------------------------------
See summary of significant accounting policies and notes to consolidated financial statements. 40
- ------------------------------------------------------------------------------- TEXTRON INC. CONSOLIDATED BALANCE SHEET - ------------------------------------------------------------------------------- JANUARY 1, January 2, (Dollars in millions) 1994 1993 - ------------------------------------------------------------------------------- ASSETS Cash $ 26.2 $ 31.1 Investments 4,764.2 4,152.1 Receivables -- net: Finance 7,562.5 7,027.4 Commercial and U.S. Government 678.3 702.9 - ------------------------------------------------------------------------------- 8,240.8 7,730.3 Inventories 1,487.7 1,648.1 Property, plant and equipment -- net 1,269.0 1,183.8 Unamortized insurance policy acquisition costs 783.5 696.3 Goodwill, less accumulated amortization of $343.3 and $290.3 1,437.4 1,365.8 Other assets (including net prepaid income taxes) 1,649.6 1,559.3 - ------------------------------------------------------------------------------- TOTAL ASSETS $19,658.4 $18,366.8 ========= ========= - ------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable $ 614.1 $ 488.5 Accrued postretirement benefits other than pensions 1,032.7 980.6 Other accrued liabilities (including income taxes) 2,267.8 2,072.3 Insurance reserves and claims 4,091.5 3,614.5 Debt: Textron Parent Company Borrowing Group 2,025.4 2,283.4 Finance and insurance subsidiaries 6,846.7 6,439.7 - ------------------------------------------------------------------------------- 8,872.1 8,723.1 - ------------------------------------------------------------------------------- TOTAL LIABILITIES 16,878.2 15,879.0 - ------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock: Preferred stock (15,000,000 shares authorized): $2.08 Cumulative Convertible Preferred Stock, Series A (liquidation value -- $19.5) 9.2 10.5 $1.40 Convertible Preferred Dividend Stock, Series B (preferred only as to dividends) 7.4 7.6 Common stock, 12.5 cents par value (250,000,000 shares authorized; 91,859,000 and 91,007,000 shares issued) 11.5 11.4 Capital surplus 686.6 660.8 Retained earnings 2,209.4 1,940.4 Other (52.3) (51.5) - ------------------------------------------------------------------------------- 2,871.8 2,579.2 Less cost of treasury shares 91.6 91.4 - ------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 2,780.2 2,487.8 - ------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,658.4 $18,366.8 ========= ========= - -------------------------------------------------------------------------------
See summary of significant accounting policies and notes to consolidated financial statements. 41
- ------------------------------------------------------------------------------- TEXTRON INC. CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------- For each of the three years in the period ended January 1, 1994 (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 379.1 $ (355.4) $ 299.5 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting principles - 679.5 - Depreciation and amortization 280.8 264.4 222.8 Provision for losses on receivables 194.7 196.0 183.4 Increase in insurance policy liabilities 341.7 308.9 335.6 Amortization of insurance policy acquisition costs 143.5 131.8 128.5 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Decrease (increase) in commercial and U.S. Government receivables (26.7) (1.6) 76.9 Decrease (increase) in inventories 175.9 54.8 (64.6) Additions to insurance policy acquisition costs (235.2) (204.7) (227.2) Increase in other assets (79.4) (22.2) (113.5) Increase (decrease) in accounts payable 108.2 (50.4) (33.2) Increase (decrease) in accrued liabilities (11.6) 20.4 29.1 Other -- net 28.4 20.0 1.0 - ------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,299.4 1,041.5 838.3 - ------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (1,744.5) (1,863.4) (1,489.5) Proceeds from investments 1,188.4 1,507.2 1,070.1 Finance receivables originated or purchased (5,010.8) (4,852.6) (3,827.9) Finance receivables repaid or sold 4,253.4 4,212.0 3,177.9 Net proceeds from sale of minority interest in subsidiary 174.5 - - Capital expenditures (251.8) (217.1) (155.6) Cash used in acquisitions of businesses (net of cash acquired) (139.2) (904.4) - Other investing activities -- net 27.5 (15.0) 13.9 - ------------------------------------------------------------------------------------------- Net cash used by investing activities (1,502.5) (2,133.3) (1,211.1) - ------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term debt 484.8 (50.4) 74.1 Proceeds from issuance of long-term debt 1,668.9 2,913.9 2,033.5 Principal payments on long-term debt (1,954.5) (1,780.1) (1,729.7) Receipts from interest-sensitive insurance products 193.3 142.0 130.9 Return of account balances on interest-sensitive insurance products (104.9) (87.7) (88.2) Proceeds from exercise of stock options 19.5 33.7 26.4 Dividends paid (110.1) (98.1) (89.4) - ------------------------------------------------------------------------------------------- Net cash provided by financing activities 197.0 1,073.3 357.6 Effect of foreign exchange rate changes on cash 1.2 (.5) (1.1) - ------------------------------------------------------------------------------------------- NET DECREASE IN CASH (4.9) (19.0) (16.3) Cash at beginning of year 31.1 50.1 66.4 - ------------------------------------------------------------------------------------------- Cash at end of year $ 26.2 $ 31.1 $ 50.1 ======== ======== ======== - -------------------------------------------------------------------------------------------
See summary of significant accounting policies and notes to consolidated financial statements. 42
- ------------------------------------------------------------------------------- TEXTRON INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- For each of the three years in the SHARES OUTSTANDING* period ended January 1, 1994 ------------------------ (Dollars in millions; shares in thousands) 1993 1992 1991 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------- $2.08 PREFERRED STOCK Beginning balance 377 421 462 $ 10.5 $ 11.6 $ 12.5 Conversion to common stock (56) (44) (41) (1.3) (1.1) (.9) - ---------------------------------------------------------------------------------------------------------- Ending balance 321 377 421 $ 9.2 $ 10.5 $ 11.6 ====== ====== ====== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------- $1.40 PREFERRED STOCK Beginning balance 153 163 194 $ 7.6 $ 7.7 $ 8.1 Conversion to common stock (15) (10) (31) (.2) (.1) (.4) - ---------------------------------------------------------------------------------------------------------- Ending balance 138 153 163 $ 7.4 $ 7.6 $ 7.7 ====== ====== ====== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------- COMMON STOCK Beginning balance 87,563 86,088 84,777 $ 11.4 $ 11.3 $ 11.3 Conversion of preferred stock to common stock 151 114 146 .1 - - Exercise of stock options 695 1,334 1,165 - .1 - Issuance of common stock 4 27 - - - - - ---------------------------------------------------------------------------------------------------------- Ending balance 88,413 87,563 86,088 $ 11.5 $ 11.4 $ 11.3 ====== ====== ====== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------- CAPITAL SURPLUS Beginning balance $ 660.8 $ 646.6 $ 644.6 Conversion of preferred stock to common stock 1.4 1.2 1.3 Exercise of stock options 24.7 12.6 .7 Issuance of common stock .1 .4 - Other (.4) - - - ---------------------------------------------------------------------------------------------------------- Ending balance $ 686.6 $ 660.8 $ 646.6 ======== ======== ======== - ---------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Beginning balance $1,940.4 $2,393.9 $2,183.8 Net income (loss) 379.1 (355.4) 299.5 Dividends declared: Preferred stock (.9) (1.0) (1.1) Common stock (per share: $1.24 in 1993; $1.12 in 1992 and $1.03 in 1991) (109.2) (97.1) (88.3) - ---------------------------------------------------------------------------------------------------------- Ending balance $2,209.4 $1,940.4 $2,393.9 ======== ======== ======== - ---------------------------------------------------------------------------------------------------------- TREASURY STOCK Beginning balance $ 91.4 $ 119.0 $ 144.7 Exercise of stock options .3 (27.0) (25.7) Issuance of common stock (.1) (.6) - - ---------------------------------------------------------------------------------------------------------- Ending balance $ 91.6 $ 91.4 $ 119.0 ======== ======== ======== - ---------------------------------------------------------------------------------------------------------- OTHER Beginning balance $ (51.5) $ (24.4) $ (53.2) Currency translation adjustment (22.5) (48.9) (1.5) Marketable equity securities valuation adjustment 10.6 5.7 3.8 Pension liability adjustment (3.5) .7 10.4 Shares allocated to ESOP participants 14.6 15.4 16.1 - ---------------------------------------------------------------------------------------------------------- Ending balance $ (52.3) $ (51.5) $ (24.4) ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
*Shares issued at the end of 1993, 1992, 1991 and 1990 were as follows (in thousands): $2.08 Preferred - 390; 446; 490 and 531 shares, respectively; $1.40 Preferred - 625; 640; 650 and 681 shares, respectively; Common - 91,859; 91,007; 90,767 and 90,621 shares, respectively. See summary of significant accounting policies and notes to consolidated financial statements. 43 - ------------------------------------------------------------------------------- TEXTRON INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------------------- PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Textron Inc. and all of its majority- and wholly-owned subsidiaries other than Avdel plc (see Note 1). All significant intercompany transactions are eliminated. Textron consists of two borrowing groups -- the Textron Parent Company Borrowing Group (comprised of all entities of Textron other than its finance and insurance subsidiaries) and Textron's finance and insurance subsidiaries. To enhance the reader's understanding of Textron's operations, Textron has presented in Note 18 separate financial information for each of its two borrowing groups. FINANCE RECEIVABLES For finance receivables, interest income is recognized in revenues using the interest method so as to produce a constant rate of return over the terms of the receivables. Accrual of interest income is suspended for accounts which are contractually delinquent by more than three months unless collection is not doubtful in the case of commercial finance receivables or three payments in the case of consumer finance receivables. In addition, detailed reviews of commercial loans may result in earlier suspension if collection is doubtful. Accrual of interest on commercial loans is resumed when the loan becomes contractually current, and suspended interest income is recognized at that time. Subsequent interest income on consumer loans is recognized when collected. Fees received and direct loan origination costs are deferred and amortized to revenues over the contractual lives of the respective loans using the interest method. Unamortized amounts are recognized in revenues when loans are sold or paid in full. Finance receivables are written off when they are deemed uncollectible, but in any event all consumer loan accounts for which an amount aggregating a full contractual payment has not been received for six consecutive months are written off. Commercial loans are written down to the fair value (less estimated costs to sell) of the related collateral when the collateral is repossessed or when no payment has been received for six months, unless management deems the loans collectible. Foreclosed real estate loans are transferred out of finance receivables into other assets at the lower of fair value (less estimated costs to sell) or the outstanding loan balance. The difference between the amount transferred and the outstanding loan balance is written off. The carrying value of real estate owned is periodically reevaluated and, where appropriate, adjustments are made through a valuation allowance to reflect subsequent changes in fair value, but the carrying value is never increased above the amount originally transferred. Provisions for losses on finance receivables are charged to income in amounts sufficient to maintain the allowance at a level considered adequate to cover the losses in the existing receivable portfolio. INSURANCE OPERATIONS RECOGNITION OF REVENUES AND EXPENSES Premiums from individual disability insurance and traditional life insurance products are recognized in revenues when due. Group insurance premiums are recognized as income over the period to which the premiums relate. Benefits and expenses relating to those businesses are recognized over the life of the contracts through the establishment of reserves for future policy benefits and the amortization of deferred policy acquisition costs. Benefits to policyholders include benefits paid or accrued, changes in reserves for future policy benefits and surrenders. For investment and interest-sensitive life products, revenues consist of policy and surrender charges assessed during the year. Benefits and expenses for these products include amounts incurred during the year for benefit claims in excess of related account balances, policy maintenance expenses, interest credited and amortization of deferred policy acquisition costs. Unearned insurance premiums are deferred and subsequently recognized in revenues over the lives of the policies (a) on the interest method for decreasing term credit life insurance coverage and on the pro rata method for level term credit life coverage, (b) in relation to anticipated claims for credit disability insurance and (c) on the pro rata method for casualty insurance. DEFERRED POLICY ACQUISITION COSTS Costs, which vary with, and are related primarily to, the production of new business, have been deferred to the extent such costs are deemed recoverable from future profits. Such costs primarily include commissions, selling, selection and policy issue expenses. For disability insurance, traditional life insurance and casualty insurance products, these costs are amortized in proportion to premiums over the estimated lives of the policies. Anticipated investment income is considered in determining if a premium deficiency relating to short-term contracts exists. For investment and interest-sensitive life products, these costs are amortized in proportion to estimated gross profits from interest, mortality and other margins under the contracts. INSURANCE RESERVES AND CLAIMS Reserves for future policy benefits and unpaid claims and claim expenses include policy reserves, claim reserves and claim liabilities established for Textron's 44 - ------------------------------------------------------------------------------- individual disability, group and individual life insurance products. Policy reserves represent the portion of premiums received, accumulated with interest, to provide for future claims. Policy reserves for individual disability insurance and traditional life insurance products are based on Textron's withdrawal, morbidity and mortality experience. Policy reserves for group insurance consist primarily of group life waiver of premium reserves. Policy reserves for interest-sensitive life insurance products are determined based on the accumulated policy account value. Claim reserves are established for future payments not yet due on claims already incurred, primarily relating to individual disability insurance and group long-term disability insurance products. These reserves are established based on past experience and are continuously reviewed and updated. Any resulting adjustments are reflected in current operations. Claim liabilities represent policy benefits currently due but unpaid at year end. Other policyholder funds represent amounts accumulated under deferred contracts to provide annuities in the future. INVESTMENTS Investments in marketable equity securities are carried at market value. Unrealized gains and losses, net of applicable income taxes, resulting from fluctuations in the aggregate market value of marketable equity securities are reflected as an adjustment to shareholders' equity. Investments in most debt securities and all mortgage loans are carried at amortized cost (less adjustments for other than temporary declines in value). In 1992, Textron determined that a portion of its debt security portfolio should be considered available for sale and carried at the lower of aggregate amortized cost or market. At January 1, 1994 and January 2, 1993, the aggregate market value of the securities available for sale exceeded their amortized cost. Textron will adopt Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115) as of the beginning of 1994. FAS 115 establishes new, more restrictive criteria to be used in determining which debt securities can be carried in the financial statements at amortized cost. Securities which will be carried at amortized cost and classified in Textron's held for investment category will be those which Textron has both the ability and positive intent to hold to maturity. Securities classified in the available for sale category will be carried at fair value and will consist of those securities which Textron intends to hold for an indefinite period of time but not necessarily to maturity. Unrealized gains and losses related to securities available for sale will be reported as a separate component of shareholders' equity. Upon adopting FAS 115, Textron will transfer certain debt securities, with an amortized cost of approximately $2,546 million, from the held for investment category to the available for sale category of its investment portfolio. The net unrealized gains of approximately $95 million, net of applicable income taxes, relating to the debt securities classified in the available for sale portfolio at the date of adoption, will be recorded as an increase to shareholders' equity. Net realized gains or losses resulting from sales or calls of investments and losses resulting from declines in fair values of investments that are other than temporary declines are included in revenues. The cost of securities sold is determined primarily on the specific identification method. See Note 2 for further information about investments. INVENTORIES Inventories are carried at the lower of cost or market. See Note 5 for further information about inventories. LONG-TERM CONTRACTS AND PROGRAMS Sales under fixed-price contracts and programs are generally recorded as deliveries are made. Sales under cost reimbursement-type contracts are recorded as costs are incurred and fees are earned. Certain contracts are awarded on a fixed-price incentive fee basis. Incentive fees on such contracts are considered when estimating revenues and profit rates and are recorded when the amounts can reasonably be determined. Costs attributed to units delivered under fixed-price contracts are based generally on the estimated average cost per unit at contract completion and under programs are based on the average remaining cost per unit. Profits expected to be realized on long-term contracts and programs are based on estimates of total sales value and costs at completion. Such estimates are reviewed and revised periodically throughout the lives of the contracts and programs. Revisions to contract profits are recorded in the accounting period in which the revisions are made. Revisions to program profits are recorded over the balance of the programs. Estimated losses on contracts and programs are recorded when identified. See Notes 4 and 5 for further information about receivables and inventories related to long- term contracts and programs. PROPERTY, PLANT AND EQUIPMENT The cost of property, plant and equipment is being depreciated based on the estimated useful lives of the assets. See Note 6 for further information about property, plant and equipment. GOODWILL Goodwill related to Textron's manufacturing operations is being amortized on the straight-line method over periods ranging from 20 to 40 years. Goodwill related to Textron's finance and insurance subsidiaries is being amortized on the straight-line method over 25 years. 45 - ------------------------------------------------------------------------------- INCOME PER COMMON SHARE Income per common share is based on average common shares outstanding during each year assuming full conversion of outstanding preferred stock and exercise of stock options. Such average shares were 90,052,000 in 1993; 88,580,000 in 1992 and 87,563,000 in 1991. TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS Adjustments resulting from the translation of the financial statements of most of Textron's foreign operations are excluded from the determination of its income and accumulated in a separate component of shareholders' equity until the entity is sold or substantially liquidated. Foreign exchange gains and losses included in income (which relate principally to transactions denominated in foreign currencies) in 1993, 1992 and 1991 were not material. RESEARCH AND DEVELOPMENT Company funded research and development expenditures are charged to expense as incurred. See Note 11 for further information about research and development. PENSION BENEFITS See Note 12 for information about Textron's accounting policies for pension benefits. EMPLOYEE BENEFITS OTHER THAN PENSIONS See Note 13 for information about Textron's accounting policies for employee benefits other than pensions. INTEREST RATE EXCHANGE AGREEMENTS As part of managing its interest rate exposure on its variable interest rate borrowings, Textron is a party to various interest rate exchange agreements. While Textron is exposed to credit loss for the periodic settlement of amounts due under such agreements in the event of nonperformance by the counterparties, Textron does not anticipate nonperformance by any of those parties. The risk of loss in the event of nonperformance by the counterparties was insignificant at January 1, 1994. Interest differentials to be paid or received are accrued and recognized in interest expense over the lives of the agreements. INCOME TAXES Deferred income taxes for years prior to 1992 were recognized for income and expense items that were reported in different periods for financial reporting and income tax purposes based on the tax rates applicable in the years such timing differences arose. Deferred income taxes for 1993 and 1992 have been recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are expected to be realized or settled. See Note 14 for further information about income taxes. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values presented in Note 15 are estimates of the fair values of the financial instruments at a specific point in time using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgement in the interpretation of current market data. Therefore, the fair values presented are not necessarily indicative of amounts Textron could realize or settle currently. Textron does not necessarily intend to dispose of or liquidate such instruments prior to maturity. See Note 15 for further information about fair values of financial instruments. ENVIRONMENTAL REMEDIATION Environmental liabilities are recorded based on the most probable cost if known or on the estimated minimum cost, determined on a site by site basis. Textron's environmental liabilities are undiscounted and do not take into consideration any possible recoveries of future insurance proceeds or significant claims against other third parties. See Note 16 for further information about environmental remediation. - ------------------------------------------------------------------------------- TEXTRON INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- - ---------------------------------------- 1 ACQUISITIONS - ---------------------------------------- AVDEL PLC In early 1989, Textron acquired Avdel plc, a fastening systems manufacturing business based in England, the total cost of which approximated $250 million. Avdel had net assets with an historical book value of approximately $85 million at December 31, 1993. In February 1989, the U.S. Federal Trade Commission (FTC) challenged the acquisition under antitrust law. On October 28, 1993, the FTC conditionally approved Textron's offer to settle the matter by licensing a new competitor for Avdel's Monobolt non-aerospace blind rivet and selling the licensee certain manufacturing equipment of Avdel's U.S. operation. The settlement and approval of the license/divestiture are expected to become effective in 1994. Until the settlement becomes effective, Textron is precluded from consolidating in its financial statements the results of operations of Avdel and is therefore carrying its investment in Avdel at cost. 46 - ------------------------------------------------------------------------------- Avdel's sales and earnings before income taxes in 1993 (unaudited), 1992 and 1991 were $153 million and $17 million, respectively, $163 million and $16 million, respectively, and $162 million and $17 million, respectively. Such results do not reflect any purchase price adjustments which would be required as a result of Textron's acquisition of Avdel, principally amortization of goodwill. TEXTRON ACUSTAR PLASTICS On May 3, 1993, Textron acquired the plastics operations of the Acustar division of Chrysler Corporation at a cost of $139.2 million in cash. Total sales for the Acustar plastics operations in 1992 were approximately $220 million (unaudited), substantially all of which were to Chrysler. In conjunction with the acquisition, Textron assumed liabilities as follows: - ------------------------------------------------------------------------------- (In millions) - ------------------------------------------------------------------------------- Fair value of assets acquired $ 197.3 Cash paid 139.2 - ------------------------------------------------------------------------------- Fair value of liabilities assumed $ 58.1 ======== - -------------------------------------------------------------------------------
THE CESSNA AIRCRAFT COMPANY On February 28, 1992, Textron purchased the outstanding common stock of The Cessna Aircraft Company (Cessna) at a cost of $605.0 million in cash. Textron has accounted for the acquisition of Cessna as a purchase and, accordingly, Cessna's results of operations are included in Textron's financial statements from February 29, 1992. Textron has allocated its purchase price to the underlying assets and liabilities of Cessna based on their respective fair values. The excess (approximately $406 million) of Textron's purchase price over the fair value of Cessna's net assets is being amortized over 40 years. The pro forma revenues, net income and net income per common share for 1991, combining the results of Cessna with those of Textron as if the purchase of Cessna had occurred at the beginning of 1991, would have been $8.7 billion, $312 million and $3.56, respectively. The corresponding pro forma amounts for 1992, as if the purchase of Cessna had occurred at the beginning of 1992, would not have differed significantly from the actual historical amounts. The pro forma results are not necessarily indicative of what would have occurred had the acquisition been consummated as of the beginning of the respective years or of future operations of the combined company. In conjunction with the acquisition, Textron assumed liabilities as follows: - ------------------------------------------------------------------------------- (In millions) - ------------------------------------------------------------------------------- Fair value of assets acquired $1,535.4 Cash paid 605.0 - ------------------------------------------------------------------------------- Fair value of liabilities assumed $ 930.4 ======== - -------------------------------------------------------------------------------
USA FINANCIAL SERVICES, INC. On February 4, 1992, Textron's wholly-owned subsidiary Avco Financial Services (AFS) purchased substantially all of the assets of USA Financial Services, Inc., consisting principally of $340 million of finance receivables, for $287.8 million in cash. In conjunction with the acquisition, AFS assumed liabilities as follows: - ------------------------------------------------------------------------------- (In millions) - ------------------------------------------------------------------------------- Fair value of assets acquired $ 428.0 Cash paid 287.8 - ------------------------------------------------------------------------------- Fair value of liabilities assumed $ 140.2 ======== - -------------------------------------------------------------------------------
- ---------------------------------------- 2 INVESTMENTS - ----------------------------------------
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- Debt securities: Commercial paper, at cost (approximates fair value) $ 89.7 $ 185.5 Bonds held for investment, at amortized cost (estimated fair value: $3,924.6 and $3,373.2) 3,688.8 3,240.0 Bonds available for sale (estimated fair value: $610.6 and $356.6) 574.1 336.1 - ------------------------------------------------------------------------------- 4,352.6 3,761.6 Marketable equity securities, at market (cost: $39.5 and $32.1) 73.7 45.1 First mortgages on real estate, at cost (estimated fair value: $199.1 and $202.4) 179.4 185.0 Insurance policy loans and other investments, at cost (estimated fair value: $164.4 and $168.7) 158.5 160.4 - ------------------------------------------------------------------------------- $4,764.2 $4,152.1 ======== ======== - -------------------------------------------------------------------------------
47
- ------------------------------------------------------------------------------- The amortized cost and estimated fair value of debt securities at January 1, 1994 and January 2, 1993 were as follows: - ----------------------------------------------------------------------------------------------------------------- JANUARY 1, 1994 - ----------------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED (In millions) COST GAINS LOSSES FAIR VALUE - ----------------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of other U.S. Government agencies and authorities $ 31.4 $ 5.3 $ - $ 36.7 Obligations of states, municipalities and political subdivisions 147.8 10.4 .2 158.0 Obligations of foreign governments and agencies 243.8 27.6 .3 271.1 Public utility securities 743.5 51.5 .8 794.2 Corporate securities 1,738.4 101.6 11.9 1,828.1 Mortgage-backed securities* 873.6 54.4 1.8 926.2 - ----------------------------------------------------------------------------------------------------------------- Debt securities held for investment 3,778.5 250.8 15.0 4,014.3 - ----------------------------------------------------------------------------------------------------------------- Debt securities available for sale (principally corporate and mortgage-backed securities) 574.1 38.9 2.4 610.6 - ----------------------------------------------------------------------------------------------------------------- $4,352.6 $289.7 $ 17.4 $4,624.9 ======== ====== ====== ======== - -----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- January 2, 1993 - ----------------------------------------------------------------------------------------------------------------- Gross Gross Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value - ----------------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of other U.S. Government agencies and authorities $ 32.0 $ 3.9 $ - $ 35.9 Obligations of states, municipalities and political subdivisions 220.7 8.7 10.4 219.0 Obligations of foreign governments and agencies 210.2 12.2 .1 222.3 Public utility securities 520.5 11.6 3.3 528.8 Corporate securities 1,241.4 51.7 14.0 1,279.1 Mortgage-backed securities* 1,200.7 77.4 4.5 1,273.6 - ----------------------------------------------------------------------------------------------------------------- Debt securities held for investment 3,425.5 165.5 32.3 3,558.7 - ----------------------------------------------------------------------------------------------------------------- Debt securities available for sale (principally corporate securities) 336.1 28.1 7.6 356.6 - ----------------------------------------------------------------------------------------------------------------- $3,761.6 $193.6 $ 39.9 $3,915.3 ======== ====== ====== ======== - -----------------------------------------------------------------------------------------------------------------
*A substantial portion of these securities is guaranteed by the U.S. Government or U.S. Government agencies. The amortized cost and estimated fair value of debt securities at January 1, 1994, by contractual maturity, are presented below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
- ------------------------------------------------------------------------------- Amortized Estimated (In millions) cost fair value - ------------------------------------------------------------------------------- Due in 1994 $ 148.9 $ 153.6 Due 1995 to 1998 527.4 564.7 Due 1999 to 2003 972.0 1,032.2 Due after 2003 1,641.1 1,744.1 - ------------------------------------------------------------------------------- 3,289.4 3,494.6 - ------------------------------------------------------------------------------- Mortgage-backed securities 1,063.2 1,130.3 - ------------------------------------------------------------------------------- $4,352.6 $4,624.9 ======== ======== - -------------------------------------------------------------------------------
48 - ------------------------------------------------------------------------------- Proceeds from sales of debt securities (excluding commercial paper) during 1993, 1992 and 1991 were $241.4 million, $535.6 million and $426.7 million, respectively. Gross gains and losses realized on those sales were $13.5 million and $3.2 million, respectively, in 1993, $33.4 million and $20.9 million, respectively, in 1992 and $20.9 million and $1.8 million, respectively, in 1991. Net realized gains resulting from sales of marketable equity securities were $9.4 million in 1993. - ------------------------------------------------------------------------------- - ---------------------------------------- 3 FINANCE RECEIVABLES - ---------------------------------------- Contractual maturities of finance receivables outstanding at January 1, 1994 and total finance receivables outstanding at that date and at January 2, 1993 were as follows:
- ----------------------------------------------------------------------------------------------------------------- FINANCE RECEIVABLES CONTRACTUAL MATURITIES LESS OUTSTANDING ------------------------------- FINANCE ------------------- (In millions) 1994 1995 After 1995 CHARGES 1993 1992 - ----------------------------------------------------------------------------------------------------------------- CONSUMER: Consumer loans $1,485.0 $1,014.0 $ 919.2 $1,028.2 $2,390.0 $2,275.0 Real estate loans 567.2 489.5 3,328.8 2,124.7 2,260.8 2,141.9 Retail installment contracts 558.3 304.3 193.1 313.7 742.0 656.7 Other 39.9 29.0 25.8 17.9 76.8 84.7 - ----------------------------------------------------------------------------------------------------------------- 2,650.4 1,836.8 4,466.9 3,484.5 5,469.6 5,158.3 - ----------------------------------------------------------------------------------------------------------------- COMMERCIAL: Installment contracts 297.6 218.2 446.9 156.0 806.7 693.2 Real estate loans 96.4 78.7 348.3 9.6 513.8 497.7 Finance leases 134.3 124.5 347.2 135.7 470.3 426.8 Leveraged leases 7.0 6.1 589.5 307.0 295.6 284.0 Floorplan and other receivables 329.0 55.2 89.7 11.2 462.7 394.8 - ----------------------------------------------------------------------------------------------------------------- 864.3 482.7 1,821.6 619.5 2,549.1 2,296.5 - ----------------------------------------------------------------------------------------------------------------- $3,514.7 $2,319.5 $6,288.5 $4,104.0 8,018.7 7,454.8 ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------- Less allowance for credit losses 224.6 212.4 Less finance-related insurance reserves and claims 231.6 215.0 - ----------------------------------------------------------------------------------------------------------------- $7,562.5 $7,027.4 ======== ======== - -----------------------------------------------------------------------------------------------------------------
The maximum term over which consumer loans and retail installment contracts are written is 10 years, but approximately 90% of these loans are written with terms of four years or less. Consumer real estate loans are written with a maximum term of 15 years. Consumer loans are unsecured or secured by personal property and are in relatively small amounts. Retail installment contracts are secured by personal property. Consumer real estate loans are secured by real property and are limited to a maximum of 85% of the property's appraised market value at the date of the loans. Commercial installment contracts have initial terms generally ranging from one to 10 years. Commercial real estate loans have initial terms generally ranging from three to five years. Finance leases have initial terms written generally up to 12 years. Leveraged leases have initial terms written up to approximately 30 years. Finance leases and commercial installment contracts are secured by the financed equipment and, in some instances, by the personal guarantee of the principals or recourse arrangements with the originating vendor. Commercial real estate loans are secured by real property and are generally limited to a maximum of 80% of the property's appraised market value at the date of the loans. Leveraged leases are secured by the ownership of the leased asset. Accounts are often repaid or refinanced prior to contractual maturity. Accordingly, the foregoing tabulation should not be regarded as a forecast of future cash collections. During 1993 and 1992, cash collections of receivables (excluding finance charges) were $4.2 billion and $4.1 billion, respectively. The ratio of cash collections to average net receivables was approximately 57% and 59%, respectively. Nonearning finance receivables were $181.9 million at January 1, 1994. 49 - ------------------------------------------------------------------------------- - ---------------------------------------- 4 LONG-TERM CONTRACT - ---------------------------------------- - ---------------------------------------- AND PROGRAM RECEIVABLES - ---------------------------------------- Long-term contract and program receivables at January 1, 1994 and January 2, 1993 aggregated $251 million and $219 million, respectively, including $114 million and $81 million, respectively, of unbilled costs and accrued profits on long-term contracts for which the contractual criteria for billing had not yet been met. An estimated $65 million and $47 million, respectively, of the unbilled amounts are not expected to be collected within one year. There are no significant amounts included in receivables which represent balances billed but unpaid under contractual retainage provisions or significant long-term contract receivables subject to uncertainty as to collection. - ---------------------------------------- 5 INVENTORIES - ----------------------------------------
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- Finished goods $ 394.6 $ 395.6 Work in process 1,119.9 1,297.1 Raw materials 241.3 232.1 - ------------------------------------------------------------------------------- 1,755.8 1,924.8 Less progress and advance payments 268.1 276.7 - ------------------------------------------------------------------------------- $1,487.7 $1,648.1 ======== ======== - -------------------------------------------------------------------------------
Inventories aggregating $734 million at January 1, 1994 and $786 million at January 2, 1993 were valued by the last-in, first-out (LIFO) method. (Had such LIFO inventories been valued at current costs, their carrying values would have been approximately $148 million and $135 million higher at those respective dates.) The remaining inventories, other than those related to certain long-term contracts and programs, are valued generally by the first-in, first-out method. Inventories related to long-term contracts and programs, net of progress and advance payments, were $553 million at January 1, 1994 and $577 million at January 2, 1993. Such inventories include unamortized tooling, deferred learning costs and costs related to unnegotiated, customer-directed changes of approximately $235 million at January 1, 1994 and $211 million at January 2, 1993. Textron expects to recover all such amounts over the related contracts and programs. As to government contracts, inventory costs also generally include general and administrative expenses ($40 million at January 1, 1994; $53 million at January 2, 1993). - ---------------------------------------- 6 PROPERTY, PLANT AND EQUIPMENT - ----------------------------------------
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- At cost: Land and buildings $ 727.9 $ 684.4 Machinery and equipment 2,069.2 1,883.4 - ------------------------------------------------------------------------------- 2,797.1 2,567.8 Less accumulated depreciation 1,528.1 1,384.0 - ------------------------------------------------------------------------------- $1,269.0 $1,183.8 ======== ======== - -------------------------------------------------------------------------------
Depreciation of property, plant and equipment was $206 million in 1993, $199 million in 1992 and $182 million in 1991, including depreciation using accelerated methods of $48 million, $50 million and $60 million, respectively. - ---------------------------------------- 7 INSURANCE RESERVES AND CLAIMS - ----------------------------------------
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- Paul Revere: Future policy benefits $1,090.3 $ 992.0 Unpaid claims and claim expenses 1,358.2 1,159.1 Other policyholder funds 1,462.1 1,295.3 Other 180.9 168.1 - ------------------------------------------------------------------------------- $4,091.5 $3,614.5 ======== ======== - -------------------------------------------------------------------------------
The laws of many states in which Textron's insurance subsidiaries are admitted to do business require as a condition of admission that all insurance companies so admitted collectively guarantee to policyholders the solvency of other insurance companies admitted in the particular state. Textron's insurance subsidiaries have not been required to date to make any significant payments pursuant to such guarantees. While the amount of any assessments which may be made in the future cannot be predicted, Textron does not believe the total assessments, if any, would be material to its net income or financial condition. 50 - ------------------------------------------------------------------------------- - ---------------------------------------- 8 DEBT AND CREDIT FACILITIES - ---------------------------------------- The Textron Parent Company Borrowing Group (comprised of all entities of Textron other than its finance and insurance subsidiaries) and Textron's finance subsidiaries are independent borrowers, and, accordingly, their debt is supported by their own respective assets and cash flows. At January 1, 1994 and January 2, 1993, consolidated debt consisted of the following:
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- TEXTRON PARENT COMPANY BORROWING GROUP: SENIOR: Borrowings under or supported by long-term credit facilities* $ 638.3 $ 659.6 8.75% - 9.25%; due 2016 to 2022 278.8 278.8 Medium-term notes; due 1994 to 2011 (average rate - 8.8%) 429.6 454.6 Variable rate notes due 1994 to 2000 (average rate - 3.9%) 390.0 390.0 Other notes (average rate - 4.6%) 178.4 227.4 - ------------------------------------------------------------------------------- Total senior 1,915.1 2,010.4 - ------------------------------------------------------------------------------- SUBORDINATED: 8.86% - 9.5%; due 1998 to 2017 110.3 273.0 - ------------------------------------------------------------------------------- Total Textron Parent Company Borrowing Group 2,025.4 2,283.4 - ------------------------------------------------------------------------------- FINANCE SUBSIDIARIES: SENIOR: Borrowings under or supported by credit facilities** 2,860.1 2,414.9 3.20% - 5.98%; due 1994 to 2000 1,543.8 984.2 6.01% - 7.91%; due 1994 to 2000 689.0 656.3 8.08% - 9.91%; due 1994 to 2000 757.5 1,040.7 10% - 11.85%; due 1994 to 1998 298.8 491.7 12.25% - 15.38%; due 1994 to 1995 112.2 161.0 Variable rate notes due 1994 to 1996 (average rate - 4.0%) 534.0 529.0 - ------------------------------------------------------------------------------- Total senior 6,795.4 6,277.8 - ------------------------------------------------------------------------------- SENIOR SUBORDINATED: 8.75% - 15%; due 1994 to 1998 51.3 161.9 - ------------------------------------------------------------------------------- Total finance subsidiaries 6,846.7 6,439.7 - ------------------------------------------------------------------------------- Total debt $8,872.1 $8,723.1 ======== ======== - -------------------------------------------------------------------------------
*The weighted average interest rates on these borrowings, before consideration of the effect of interest rate exchange agreements, at January 1, 1994, January 2, 1993 and December 28, 1991 were 3.6%, 3.9% and 5.4%, respectively, and the weighted average interest rates for the years 1993, 1992 and 1991 were 3.4%, 4.1% and 6.7%, respectively. **The weighted average interest rates on these borrowings, before consideration of the effect of interest rate exchange agreements, at January 1, 1994, January 2, 1993 and December 28, 1991 were 3.7%, 4.5% and 5.6%, respectively, and the weighted average interest rates for the years 1993, 1992 and 1991 were 3.7%, 4.4% and 6.9%, respectively. - ------------------------------------------------------------------------------- Required payments and sinking fund requirements during the next five years on debt outstanding at January 1, 1994 (excluding amounts that might become payable under credit facilities and revolving credit agreements) are as follows:
- -------------------------------------------------------------------------------------------------- (In millions) 1994 1995 1996 1997 1998 - -------------------------------------------------------------------------------------------------- Textron Parent Company Borrowing Group $ 171.9 $ 126.0 $ 181.6 $ 162.8 $ 14.9 Finance subsidiaries 911.7 1,009.6 787.0 352.4 471.2 ------------------------------------------------------------------------------------------------- $1,083.6 $1,135.6 $ 968.6 $ 515.2 $ 486.1 ======== ======== ======== ======== ======== - --------------------------------------------------------------------------------------------------
51
- ------------------------------------------------------------------------------- Cash payments for interest were as follows: - ------------------------------------------------------------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Textron Parent Company Borrowing Group $205.5 $215.6 $203.4 Finance subsidiaries 439.8 477.0 492.9 - ------------------------------------------------------------------------------- $645.3 $692.6 $696.3 ====== ====== ====== - -------------------------------------------------------------------------------
The Textron Parent Company Borrowing Group maintains credit facilities with various banks for borrowing funds on both a short- and a long-term basis. During 1993, Textron replaced its $1.5 billion credit agreement with two separate credit agreements with 38 banks aggregating $1.5 billion. Of the total credit facility, $1.25 billion is available on a fully revolving basis until November 1, 1996, with the remainder available on a fully revolving basis until November 1, 1994. Textron pays fees in support of those facilities. The credit agreements contain provisions requiring Textron to maintain a minimum level of shareholders' equity and a minimum interest coverage ratio. The portion of the credit facilities not used or reserved as support for commercial paper or bank borrowings at January 1, 1994 was $878 million. Textron's finance subsidiaries -- AFS and Textron Financial Corporation (TFC) -- have lines of credit with various banks aggregating $3.2 billion at January 1, 1994, of which $2.3 billion relates to long-term loans. The subsidiaries' lines of credit not used or reserved as support for commercial paper or short-term bank borrowings at January 1, 1994 were $100 million, all of which related to long-term loans. AFS and TFC generally pay fees in support of these lines. The amount of the net assets of Textron's finance and insurance subsidiaries available for cash dividends and other payments to the Textron Parent Company Borrowing Group is restricted by the terms of lending agreements and insurance statutory requirements. As of January 1, 1994, approximately $311 million of their net assets of $2.2 billion was available to be transferred to the Textron Parent Company Borrowing Group pursuant to these restrictions. AFS' and TFC's loan agreements also contain various restrictive provisions regarding additional debt, the creation of liens or guarantees and the making of investments. - ------------------------------------------------------------------------------- Under interest rate exchange agreements, Textron and its finance subsidiaries make periodic fixed payments in exchange for periodic variable payments. Textron and its finance subsidiaries have entered into such agreements to mitigate their exposure to increases in interest rates on a portion of their variable rate debt. The agreements, which had weighted average original terms of 7.9 years for the Textron Parent Company Borrowing Group and 4.4 years and 3.7 years for the finance subsidiaries, at January 1, 1994 and January 2, 1993, respectively, had the effect of fixing the rate of interest on variable interest rate borrowings as follows:
- ---------------------------------------------------------------------------------------------------- JANUARY 1, 1994 January 2, 1993 INTEREST RATE EXCHANGE AGREEMENTS WEIGHTED Weighted NOTIONAL AVERAGE Notional average (Dollars in millions) AMOUNT INTEREST RATE amount interest rate - ---------------------------------------------------------------------------------------------------- Textron Parent Company Borrowing Group (expire through 2004) $ 621.4 9.05% $ 621.4 9.05% Finance subsidiaries (expire through 2000) 446.6 9.46% 751.2 10.21% - ---------------------------------------------------------------------------------------------------- $1,068.0 9.22% $1,372.6 9.69% ======== ==== ======== ===== - ----------------------------------------------------------------------------------------------------
52 - ------------------------------------------------------------------------ - ---------------------------------------- 9 SHAREHOLDERS' EQUITY - ---------------------------------------- PREFERRED STOCK Each share of $2.08 Preferred Stock ($23.63 approximate stated value) is convertible into 2.2 shares of common stock and is redeemable by Textron at $50 per share. In the event of involuntary liquidation, preferred shareholders would be entitled to $50 per share and accrued dividends. In the event of voluntary liquidation, shareholders would be entitled to $50 per share. Each share of $1.40 Preferred Dividend Stock ($11.82 approximate stated value) is convertible into 1.8 shares of common stock and is redeemable by Textron at $45 per share. In the event of liquidation, holders of each share of such stock would be entitled to receive accrued dividends and thereafter share ratably on a converted basis with holders of common stock, subject to the prior rights of the $2.08 Preferred Stock. PREFERRED STOCK PURCHASE RIGHTS One-half of a Preferred Stock Purchase Right (Right) is attached to each outstanding share of common stock. Each whole Right entitles the holder to buy one unit of Series C Junior Participating Preferred Stock at an exercise price of $175. The Rights will become exercisable only under certain circumstances related to a person or group acquiring or offering to acquire a substantial block of Textron's common stock. If certain additional events then occur, each whole Right will allow holders of units to acquire common stock of Textron, or in some cases of an acquiring entity, having a value equal to twice the exercise price. The Rights expire in March 1996, but may be redeemed earlier at a price of $.05 per whole Right. STOCK OPTIONS AND PERFORMANCE AWARDS Textron's 1990 Long-Term Incentive Plan authorizes the granting of awards to key employees through December 31, 1994 in either or both of the following forms: (a) performance share units (or performance units prior to 1992) and (b) options to purchase Textron common stock. Performance awards entitle recipients to payments in cash upon the attainment of performance targets established at the time such awards are granted or if otherwise approved by a committee of the Board of Directors. Amounts paid under performance share unit awards are based on the fair market value of Textron's common stock when the performance targets are attained. The Plan provides for both incentive stock options and non-qualified stock options and requires that such options be exercisable at a purchase price per share not less than the fair market value of Textron common stock at the date of grant and in the case of incentive stock options within ten years. The total number of shares of common stock for which options may be granted under the Plan is 5,000,000.
- --------------------------------------------------------------------------------------------------- OPTION ACTIVITY Stock option transactions in 1993, 1992 and 1991 are summarized as follows: - --------------------------------------------------------------------------------------------------- 1993 1992 1991 - --------------------------------------------------------------------------------------------------- Shares under option at beginning of year (at average prices of $34.07 in 1993; $28.12 in 1992 and $24.53 in 1991) 3,457,447 3,672,547 4,009,709 Options granted (at average prices of $55.83 in 1993; $41.89 in 1992 and $36.81 in 1991) 1,275,500 1,225,400 953,400 Options exercised (at average prices of $28.25 in 1993; $25.29 in 1992 and $22.91 in 1991) (701,305) (1,348,356) (1,212,418) Options canceled (at average prices of $35.45 in 1993; $29.56 in 1992 and $26.13 in 1991) (34,148) (92,144) (78,144) - --------------------------------------------------------------------------------------------------- Shares under option at end of year (at average prices of $42.02 in 1993; $34.07 in 1992 and $28.12 in 1991) 3,997,494 3,457,447 3,672,547 ========= ========= ========= - --------------------------------------------------------------------------------------------------- Shares exercisable at end of year (at average prices of $33.74 in 1993; $27.97 in 1992 and $24.92 in 1991) 2,119,377 1,778,078 2,257,372 ========= ========= ========= - ---------------------------------------------------------------------------------------------------
53
- ------------------------------------------------------------------------------- RESERVED SHARES Shares of common stock reserved at January 1, 1994 for the conversion of preferred stock and the exercise of stock options were as follows: - ------------------------------------------------------------------------------- $2.08 Cumulative Convertible Preferred Stock, Series A* 858,064 $1.40 Convertible Preferred Dividend Stock, Series B* 1,123,978 Options granted to employees 3,997,494 - ------------------------------------------------------------------------------- 5,979,536 ========= - -------------------------------------------------------------------------------
*Includes shares issuable upon conversion of shares of preferred stock held as treasury shares. - ---------------------------------------- 10 LEASES - ---------------------------------------- Rental expense for leased real estate, office locations, and machinery and equipment was approximately $128 million, $123 million and $116 million in 1993, 1992 and 1991, respectively. Future minimum rental commitments for all noncancellable operating leases in effect at January 1, 1994 approximated $72 million for 1994, $52 million for 1995, $33 million for 1996, $21 million for 1997, $15 million for 1998 and $81 million thereafter. - ---------------------------------------- 11 RESEARCH AND DEVELOPMENT - ---------------------------------------- Textron performs research and development under both company initiated programs and contracts with others, primarily the U.S. Government. Company initiated programs include research and development for commercial products and independent research and development related to government products and services. A significant portion of the cost incurred for independent research and development is recoverable from the U.S. Government through overhead cost allowances. Company funded research and development, as indicated below, includes amounts charged to income with respect to (a) company initiated programs and (b) cost sharing portions of, and any losses incurred on, customer initiated programs.
- ------------------------------------------------------------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Company funded $195 $172 $192 Customer funded 319 258 265 - ------------------------------------------------------------------------------- Total research and development $514 $430 $457 ==== ==== ==== - -------------------------------------------------------------------------------
- ---------------------------------------- 12 PENSION BENEFITS - ---------------------------------------- Textron and certain of its subsidiaries have a number of defined benefit pension plans covering substantially all of their employees. Benefits under salaried plans are based on salary and years of service, while benefits under hourly plans generally are based on negotiated amounts and years of service. Textron's funding policy is consistent with the funding requirements of federal law and regulations. Plan assets consist principally of corporate and government bonds and common stocks. Pension cost in 1993, 1992 and 1991 included the following components:
- ------------------------------------------------------------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 67.0 $ 67.4 $ 60.2 Interest cost on projected benefit obligation 187.8 183.3 160.2 Actual return on plan assets (369.5) (282.3) (454.0) Amortization of unrecognized transition net asset (15.8) (15.8) (15.8) Net amortization and deferral of actuarial gains 133.7 59.3 262.6 - ------------------------------------------------------------------------------- Net pension cost $ 3.2 $ 11.9 $ 13.2 ======= ======= ======= - -------------------------------------------------------------------------------
54 - ------------------------------------------------------------------------------- The following table sets forth the funded status of Textron's pension plans at January 1, 1994 and January 2, 1993.
- ---------------------------------------------------------------------------------------------------- JANUARY 1, 1994 January 2, 1993 - ---------------------------------------------------------------------------------------------------- ASSETS ACCUMULATED Assets Accumulated EXCEED BENEFITS exceed benefits ACCUMULATED EXCEED accumulated exceed (In millions) BENEFITS ASSETS benefits assets - ---------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $1,717.1 $ 730.9 $1,913.6 $305.7 Nonvested benefit obligation 86.2 51.2 65.6 31.2 - ---------------------------------------------------------------------------------------------------- Accumulated benefit obligation 1,803.3 782.1 1,979.2 336.9 Additional amounts related to projected pay increases 219.5 14.8 261.7 8.2 - ---------------------------------------------------------------------------------------------------- Projected benefit obligation 2,022.8 796.9 2,240.9 345.1 Plan assets at fair value 2,653.3 663.6 2,826.5 251.2 - ---------------------------------------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligation 630.5 (133.3) 585.6 (93.9) Unrecognized net actuarial gains (236.9) (4.9) (228.7) (8.8) Unrecognized prior service cost 15.2 61.5 45.9 30.2 Unrecognized transition net obligation (net asset) (171.1) 1.9 (206.7) 18.2 Adjustment required to recognize minimum liability - (55.8) - (40.4) - ---------------------------------------------------------------------------------------------------- Net pension asset (liability) recognized on the consolidated balance sheet $ 237.7 $(130.6) $ 196.1 $(94.7) ======== ======= ======== ====== - ----------------------------------------------------------------------------------------------------
Major assumptions used in the accounting for the defined benefit pension plans are shown in the following table. Net pension cost is determined using these factors as of the end of the prior year; the funded status of the plans is determined using the discount rate and rate of compensation increase as of the end of the current year.
- ---------------------------------------------------------------------------------------------------- JANUARY 1, January 2, December 28, December 29, 1994 1993 1991 1990 - ---------------------------------------------------------------------------------------------------- Discount rate 7.25% 8.00% 8.00% 8.25% Weighted average long-term rate of compensation increase 5.00% 5.50% 6.00% 6.00% Long-term rate of return on plan assets 9.00% 9.00% 9.00% 9.00% - ----------------------------------------------------------------------------------------------------
- ---------------------------------------- 13 EMPLOYEE BENEFITS - ---------------------------------------- - ---------------------------------------- OTHER THAN PENSIONS - ---------------------------------------- Textron and certain of its subsidiaries have a number of defined contribution savings and other retirement plans, including Textron's employee stock ownership plan, covering both salaried and hourly employees. Eligible employees who participate in certain of these plans receive, within certain limits, matching Textron contributions. Costs relating to these plans, which are generally funded as accrued, amounted to approximately $33 million, $35 million and $34 million for 1993, 1992 and 1991, respectively, of which $17 million, $20 million and $21 million related to the employee stock ownership plan for 1993, 1992 and 1991, respectively. Textron provides certain health care and life insurance benefits for certain retired employees. Eligibility for these benefits is restricted to the particular benefit plans at the particular locations offering postretirement benefits. These benefits and similar benefits for active employees are administered by insurance companies or other carriers who determine premiums for insured plans and expected costs to be paid during the year under self-insured plans. Prior to 1992, Textron recognized the cost of providing these benefits by expensing the annual insurance premiums and costs under self-insured plans on a pay-as-you-go basis. In 1992, Textron adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106), with respect to its retiree health care and life insurance benefits. FAS 106 requires Textron to recognize the cost of such benefits using the accrual method of accounting over the employees' years of service. 55 - ------------------------------------------------------------------------------- The FAS 106 transition obligation -- representing the accumulated postretirement benefit obligation for Textron's retiree health care and life insurance benefit plans at December 29, 1991 -- of $570 million ($6.44 per share), net of related income tax benefit, was recorded as the cumulative effect of a change in accounting principle. The respective amounts of such retiree costs deductible for tax purposes, allocable to government contracts and allowable in contract price determinations are not affected by FAS 106. The adoption of FAS 106 had no cash flow impact on Textron. Postretirement benefit costs other than those related to pensions in 1993 and 1992 included the following components:
- ------------------------------------------------------------------------------- (In millions) 1993 1992 - ------------------------------------------------------------------------------- Service cost -- benefits earned during the year $ 9.0 $14.3 Interest cost on accumulated postretirement benefit obligation 68.4 75.1 Net amortization (6.4) - - ------------------------------------------------------------------------------- Postretirement benefit costs $71.0* $89.4 ===== ===== - -------------------------------------------------------------------------------
*The decrease in postretirement benefit costs is primarily the result of benefit changes. Textron's postretirement benefit plans other than pensions currently are not funded. The following table sets forth the status of Textron's retiree health care and life insurance plans at January 1, 1994 and January 2, 1993:
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- Actuarial present value of benefits attributed to: Retirees $ 677.1 $627.8 Fully eligible active plan participants 153.0 150.4 Other active plan participants 146.4 175.9 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 976.5 954.1 Unrecognized net actuarial gains 29.9 9.8 Unrecognized prior service cost benefit 26.3 16.7 - ------------------------------------------------------------------------------- Postretirement benefit liability recognized on the consolidated balance sheet $1,032.7 $980.6 ======== ====== - -------------------------------------------------------------------------------
An assumed discount rate of 8% was used to determine postretirement benefit costs other than pensions for 1993 and 1992. An assumed discount rate of 7.25% and 8% was used to determine the status of Textron's plans at January 1, 1994 and January 2, 1993, respectively. The weighted average annual assumed rate of increase in the per capita cost of covered benefits (that is, the health care cost trend rate) is 12% for retirees age 65 and over and 16% for retirees under age 65 in 1994, and both rates are assumed to decrease gradually to 5.5% until 2002 and 2004, respectively, and remain at that rate thereafter. Increasing these rates by one percentage point in each year would have increased the accumulated postretirement benefit obligation as of January 1, 1994 by $83 million and increased the aggregate of the service and interest cost components of postretirement benefit costs for 1993 by $7 million. - ---------------------------------------- 14 INCOME TAXES - ---------------------------------------- Textron files a consolidated federal income tax return which includes all U.S. subsidiaries. Separate returns are filed for Textron's foreign subsidiaries. In 1992, Textron adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). FAS 109 requires Textron to modify its income tax accounting so that deferred taxes are stated at prevailing income tax rates and to modify the accounting for income taxes in purchase business combinations. Textron's adoption of FAS 109 was made by a cumulative effect charge to income of $109 million ($1.23 per share). Prior year financial statements have not been restated. The adoption of FAS 109 had no cash flow impact on Textron. For years beginning on or after January 1, 1993, the Revenue Reconciliation Act of 1993 increased the maximum corporate tax rate from 34% to 35%. In accordance with FAS 109, the change in the tax rate resulted in a revaluation of Textron's net deferred tax assets which were in existence at the beginning of 1993, decreasing Textron's 1993 effective tax rate. Income before income taxes is summarized as follows:
- ------------------------------------------------------------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- United States $466.5 $402.6 $357.6 Foreign 147.0 124.4 137.4 - ------------------------------------------------------------------------------- Total $613.5 $527.0 $495.0 ====== ====== ====== - -------------------------------------------------------------------------------
56 - ------------------------------------------------------------------------------- Income taxes (benefit) before the cumulative effect of changes in accounting principles are summarized as follows*:
- ------------------------------------------------------------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- CURRENT: Federal $129.6 $101.0 $127.3 State 29.7 27.1 23.9 Foreign 46.7 38.1 40.6 - ------------------------------------------------------------------------------- 206.0 166.2 191.8 - ------------------------------------------------------------------------------- DEFERRED: Federal 27.3 30.7 (4.0) State 1.2 2.4 3.3 Foreign (.1) 3.6 4.4 - ------------------------------------------------------------------------------- 28.4 36.7 3.7 - ------------------------------------------------------------------------------- Total $234.4 $202.9 $195.5 ====== ====== ====== - -------------------------------------------------------------------------------
*Income taxes related to the cumulative effect of changes in accounting principles in 1992 consist of a $335 million deferred tax benefit related to the adoption of FAS 106 (see Note 13) and a $109 million deferred tax provision related to the adoption of FAS 109. Federal and state income taxes related to the cumulative effect of changes in accounting principles were $189 million and $37 million, respectively. Following is a reconciliation of the federal statutory income tax rate to the effective income tax rate applicable to pretax income before the cumulative effect of changes in accounting principles, as reflected in the consolidated statement of income:
- ------------------------------------------------------------------------------- 1993 1992 1991 - ------------------------------------------------------------------------------- FEDERAL STATUTORY INCOME TAX RATE 35.0% 34.0% 34.0% Increase (decrease) in taxes resulting from: State income taxes 3.3 3.7 3.6 Amortization of goodwill 3.0 3.0 2.6 Effect of tax rate change on net deferred tax asset (1.4) - - Foreign Sales Corporation benefit (.8) (1.2) (1.0) Other - net (.9) (1.0) .3 - ------------------------------------------------------------------------------- Effective income tax rate 38.2% 38.5% 39.5% ==== ==== ==== - -------------------------------------------------------------------------------
Textron's net deferred tax asset consisted of gross deferred tax assets and gross deferred tax liabilities of $1,002.2 million and $751.5 million, respectively, at January 1, 1994 and $1,105.3 million and $817.6 million, respectively, at January 2, 1993. The components of Textron's net deferred tax asset as of January 1, 1994 and January 2, 1993 were as follows:
- ------------------------------------------------------------------------------- JANUARY 1, January 2, (In millions) 1994 1993 - ------------------------------------------------------------------------------- DEFERRED TAX (ASSETS) LIABILITIES: Obligation for postretirement benefits other than pensions $(394.4) $(362.8) Finance subsidiary transactions, principally leasing 309.2 268.5 Insurance policy acquisition costs 222.7 222.7 Other insurance liabilities (154.6) (163.1) Fixed assets, principally depreciation 110.4 98.4 Allowance for bad debts (84.8) (73.6) Liabilities for future policy benefits (72.5) (58.2) Deferred compensation and vacation pay (64.6) (55.2) Other, principally timing of other expense deductions (122.1) (164.4) - ------------------------------------------------------------------------------- Total net deferred tax asset $(250.7) $(287.7) ======= ======= - -------------------------------------------------------------------------------
Textron's 1991 deferred income tax provision of $3.7 million consisted principally of insurance policy acquisition costs, depreciation and allowance for bad debts. Cash payments for income taxes were $189 million, $147 million and $176 million in 1993, 1992 and 1991, respectively. Deferred income taxes have not been provided for the undistributed earnings of foreign subsidiaries which aggregated approximately $350 million at January 1, 1994. Management's intention is to reinvest such undistributed earnings for an indefinite period, except for distributions upon which incremental taxes would not be material. If such earnings were distributed, taxes (net of foreign tax credits) would have increased by approximately $28 million, principally due to foreign withholding taxes. 57 - ------------------------------------------------------------------------------- At January 1, 1994, consolidated shareholders' equity included $84 million of U.S. life insurance subsidiaries' policyholders' surplus on which no income taxes have been provided. The amount of taxes which would become due if the surplus were distributed to the life insurance subsidiaries' shareholders is approximately $29 million. Under present circumstances, it is not anticipated that any of these earnings will become taxable. - ---------------------------------------- 15 FAIR VALUE OF - ---------------------------------------- - ---------------------------------------- FINANCIAL INSTRUMENTS - ---------------------------------------- Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (FAS 107), requires disclosure of fair value information about all financial instruments held or owed by a company except for certain excluded instruments and instruments for which it is not practicable to estimate fair value. The following methods and assumptions were used in estimating the fair value of Textron's financial instruments: INVESTMENTS The estimated fair values of investment securities, except for insurance policy loans to policyholders, were based on quoted market prices where available. If quoted market prices were not available, the estimated fair values were based on independent appraisals, prices from independent brokers or discounted cash flow analyses using interest rates currently being offered for similar loans to borrowers of similar credit quality. The estimated fair value of insurance policy loans to policyholders approximated the carrying value of such loans. FINANCE RECEIVABLES The estimated fair values of fixed rate consumer loans, real estate loans and commercial installment contracts were estimated based on discounted cash flow analyses using interest rates currently being offered for similar loans to borrowers of similar credit quality. Estimated future cash flows were adjusted for Textron's estimates of prepayments, refinances and loan losses based on internal historical data. The estimated fair value of all variable rate receivables and fixed rate retail installment contracts approximated the net carrying value of such receivables. The estimated fair values of nonperforming loans were based on independent appraisals, discounted cash flow analyses, using risk adjusted interest rates, or Textron valuations based upon the fair value of the related collateral. The fair values of Textron's lease receivables and finance-related insurance reserves and claims ($826.4 million and $231.6 million, net carrying value, respectively, at January 1, 1994 and $763.3 million and $215.0 million, net carrying value, respectively, at January 2, 1993) are not required to be disclosed under generally accepted accounting principles. INSURANCE RESERVES AND CLAIMS The estimated fair value of other policyholder funds was based on the cash surrender value of Paul Revere's financial products portfolio. The fair value of reserves or liabilities relating to Textron's other insurance products is not required to be disclosed under generally accepted accounting principles. DEBT AND INTEREST RATE EXCHANGE AGREEMENTS The estimated fair value of fixed rate debt was determined by either independent investment bankers or discounted cash flow analyses using interest rates for similar debt with maturities similar to the remaining terms of the existing debt. The fair values of variable rate debt and borrowings under or supported by long-term credit facilities approximated their carrying values. The estimated fair values of interest rate exchange agreements were determined by independent investment bankers and represent the estimated amounts that Textron would be required to pay to a third party to assume Textron's obligations under the agreements. 58 - ------------------------------------------------------------------------------- The carrying values and estimated fair values of Textron's financial instruments for which it is practicable to calculate a fair value are as follows:
- ----------------------------------------------------------------------------------------------- JANUARY 1, 1994 January 2, 1993 - ----------------------------------------------------------------------------------------------- ESTIMATED Estimated CARRYING FAIR Carrying fair (In millions) VALUE VALUE value value - ----------------------------------------------------------------------------------------------- ASSETS: INVESTMENTS $4,764.2 $5,062.1 $4,152.1 $4,331.5 FINANCE RECEIVABLES: Consumer loans $5,239.1 $5,266.1 $4,943.6 $4,975.6 Commercial loans 1,728.6 1,762.3 1,535.5 1,574.5 - ----------------------------------------------------------------------------------------------- $6,967.7 $7,028.4 $6,479.1 $6,550.1 - ----------------------------------------------------------------------------------------------- LIABILITIES: OTHER POLICYHOLDER FUNDS $1,462.1 $1,447.1 $1,295.3 $1,282.7 DEBT: Textron Parent Company Borrowing Group: Variable rate debt fixed by interest rate exchange agreements $ 621.4 $ 709.6 $ 621.4 $ 694.4 Other variable rate debt 613.5 613.5 622.5 622.5 Fixed rate debt 790.5 884.7 1,039.5 1,108.7 - ----------------------------------------------------------------------------------------------- Total Textron Parent Company Borrowing Group 2,025.4 2,207.8 2,283.4 2,425.6 - ----------------------------------------------------------------------------------------------- Finance subsidiaries: Variable rate debt fixed by interest rate exchange agreements 446.6 479.6 751.2 805.2 Other variable rate debt 3,574.6 3,574.6 3,063.5 3,063.5 Fixed rate debt 2,825.5 2,940.1 2,625.0 2,717.9 - ----------------------------------------------------------------------------------------------- Total finance subsidiaries 6,846.7 6,994.3 6,439.7 6,586.6 - ----------------------------------------------------------------------------------------------- Total debt $8,872.1 $9,202.1 $8,723.1 $9,012.2 ======== ======== ======== ======== - -----------------------------------------------------------------------------------------------
59 - -------------------------------------------------------------------------------- - ---------------------------------------- 16 CONTINGENCIES - ---------------------------------------- There are pending or threatened against Textron and its subsidiaries lawsuits and other proceedings, including the proceeding described in Note 1, some of which allege violations of federal government procurement regulations, involve environmental matters, or are or purport to be class actions. Among these suits and proceedings are some which seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; the cleanup of allegedly hazardous wastes; or, under federal government procurement regulations, could result in suspension or debarment of Textron or its subsidiaries from U.S. Government contracting for a period of time. These suits and proceedings are being defended or contested on behalf of Textron and its subsidiaries. On the basis of information presently available, Textron believes that any such liability or the impact of the application of relevant government regulations would not have a material effect on Textron's net income or financial condition. With respect to environmental matters, Textron's accrued estimated environmental liabilities are based on assumptions which are subject to a number of factors and uncertainties which can affect the reliability and precision of such accruals, including (a) the unavailability of information about the number of additional sites at which Textron may be identified as a potentially responsible party by both federal and state governments, (b) uncertainties about the nature and application of environmental regulations being promulgated, (c) the level of cleanup that may be required at specific sites and choices concerning the technologies to be applied in corrective actions, (d) the number of contributors to the costs of remediation at specific sites and the financial condition of the contributors, and (e) the time periods over which remediation may occur. It is estimated that Textron's accrued environmental remediation liabilities will be paid primarily over the next five to ten years. - ---------------------------------------- 17 SELECTED FINANCIAL INFORMATION BY - ---------------------------------------- - ---------------------------------------- BUSINESS SEGMENT AND GEOGRAPHIC AREA - ---------------------------------------- Presented below and on page 33 of this report is selected financial information by business segment and geographic area for Textron. The 1993 data include the operations of Textron Acustar Plastics from May 4, 1993. The 1992 data include the operations of Cessna from February 29, 1992. Textron's business segments have been realigned and prior year amounts have been reclassified to conform to the current year's segment presentation. - ------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION BY BUSINESS SEGMENT - ------------------------------------------------------------------------------- For a description of the businesses comprising each segment, see pages 67 to 70 of this report.
- ------------------------------------------------------------------------------------------------------------------- BUSINESS SEGMENTS IDENTIFIABLE ASSETS CAPITAL EXPENDITURES DEPRECIATION ------------------------------- ---------------------- ---------------------- (In millions) 1993 1992 1991 1993 1992 1991 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- MANUFACTURING: Aircraft $ 1,658 $ 1,676 $ 583 $ 67 $ 56 $ 22 $ 46 $ 36 $ 23 Automotive 655 394 395 54 29 21 32 25 23 Industrial 616 612 597 64 52 44 34 38 34 Systems and Components 1,832 2,011 2,158 32 39 44 67 74 78 - ------------------------------------------------------------------------------------------------------------------- 4,761 4,693 3,733 217 176 131 179 173 158 - ------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES: Finance 8,801 8,267 7,324 20 17 18 18 17 16 Paul Revere 5,377 4,561 4,169 6 2 4 5 5 5 - ------------------------------------------------------------------------------------------------------------------- 14,178 12,828 11,493 26 19 22 23 22 21 - ------------------------------------------------------------------------------------------------------------------- Corporate 834 857 524 9 22 3 4 4 3 Eliminations (115) (11) (13) - - - - - - - ------------------------------------------------------------------------------------------------------------------- $19,658 $18,367 $15,737 $252 $217 $156 $206 $199 $182 ======= ======= ======= ==== ==== ==== ==== ==== ==== - -------------------------------------------------------------------------------------------------------------------
60
- ------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION BY GEOGRAPHIC AREA - ------------------------------------------------------------------------------- GEOGRAPHIC AREAS REVENUES ---------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Revenues by origin: United States $7,957 $7,246 $6,660 Canada 773 707 736 Asia/Pacific 167 206 248 Western Europe 178 185 179 - ------------------------------------------------------------------------------- $9,075 $8,344 $7,823 ====== ====== ====== - -------------------------------------------------------------------------------
INCOME ---------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Income by origin: United States $ 788 $ 723 $ 673 Canada 87 65 67 Asia/Pacific 35 34 36 Western Europe 23 24 21 - ------------------------------------------------------------------------------- 933 846 797 - ------------------------------------------------------------------------------- Corporate expenses and other - net (87) (69) (76) Interest expense - net (232) (250) (226) - ------------------------------------------------------------------------------- Income before income taxes $ 614 $ 527 $ 495 ====== ====== ====== - -------------------------------------------------------------------------------
EXPORT SALES ---------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Destination of U.S. exports: Western Europe $ 616 $ 511 $ 410 Canada 345 229 221 Asia/Pacific 258 205 365 Mexico 114 102 44 Middle East 113 73 80 Other locations 143 124 51 - ------------------------------------------------------------------------------- $1,589 $1,244 $1,171 ====== ====== ====== - -------------------------------------------------------------------------------
IDENTIFIABLE ASSETS ----------------------------- (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------- Identifiable assets by location: United States $16,155 $15,044 $12,570 Canada 1,674 1,570 1,712 Asia/Pacific 546 481 515 Western Europe 501 474 467 Corporate 834 857 524 Eliminations (52) (59) (51) - ------------------------------------------------------------------------------- $19,658 $18,367 $15,737 ======= ======= ======= - -------------------------------------------------------------------------------
Notes: (i) Corporate assets include Textron's investment in Avdel plc (see Note 1) and its net deferred tax asset. (ii) Revenues by geographic area exclude interest income of the Textron Parent Company Borrowing Group of $3.7 million, $3.3 million and $17.6 million in 1993, 1992 and 1991, respectively. (iii) Revenues include sales to the U.S. Government of $1.6 billion, $1.7 billion and $1.8 billion in 1993, 1992 and 1991, respectively. (iv) Revenues between geographic areas, predominantly revenues of U.S. divisions, were approximately 4%, 3% and 4% of total revenues in 1993, 1992 and 1991, respectively. (v) Assets in foreign locations relate principally to the Financial Services segments. - ---------------------------------------- 18 FINANCIAL INFORMATION - ---------------------------------------- - ---------------------------------------- BY BORROWING GROUP - ---------------------------------------- Textron consists of two borrowing groups -- the Textron Parent Company Borrowing Group and Textron's finance and insurance subsidiaries. This framework is designed to enhance the borrowing power of the total company by separating borrowing oriented units of a specialized business nature such as financial services. The Textron Parent Company Borrowing Group is comprised of all entities of Textron other than its finance and insurance subsidiaries. The financial statements of this group as set forth below reflect Textron's investments in its finance and insurance subsidiaries on the equity basis. Its sources of cash flow include dividends paid by the finance and insurance subsidiaries, as well as cash generated by other operating units. The finance and insurance subsidiaries finance their respective operations by borrowing from their own group of external creditors. 61 - ------------------------------------------------------------------------------- Textron, which had been the sole shareholder of The Paul Revere Corporation (PRC), sold 7.5 million shares of PRC, representing 16.7% of the outstanding shares of PRC, on October 26, 1993, for $174.5 million (net of related expenses) in an underwritten public offering registered under the Securities Act of 1933. Textron contributed $100 million to the capital of PRC prior to the sale. The proceeds from the sale were used to reduce debt. - ------------------------------------------------------------------------------- FINANCIAL INFORMATION FOR THE TEXTRON PARENT COMPANY BORROWING GROUP - -------------------------------------------------------------------------------
STATEMENT OF INCOME For each of the three years in the period ended January 1,1994 (In millions) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------- REVENUES $6,275.0 $5,620.0 $5,228.1 - ----------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 5,210.6 4,560.7 4,185.4 Selling and administrative 651.5 644.0 627.4 Interest expense 235.5 253.1 244.0 - ----------------------------------------------------------------------------------------------------------------- Total costs and expenses 6,097.6 5,457.8 5,056.8 - ----------------------------------------------------------------------------------------------------------------- 177.4 162.2 171.3 Pretax income of finance and insurance subsidiaries 436.1 364.8 323.7 - ----------------------------------------------------------------------------------------------------------------- Income before income taxes 613.5 527.0 495.0 Income taxes 234.4 202.9 195.5 - ----------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 379.1 324.1 299.5 Cumulative effect of changes in accounting principles, net of income taxes - (679.5) - - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 379.1 $ (355.4) $ 299.5 ======== ======== ======== - -----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------- BALANCE SHEET JANUARY 1, January 2, (In millions) 1994 1993 - --------------------------------------------------------------------------------------------------- ASSETS Cash $ 12.1 $ 28.2 Receivables - net 695.4 709.4 Inventories 1,487.7 1,648.1 Investments in finance and insurance subsidiaries 2,160.8 1,998.6 Property, plant and equipment - net 1,150.3 1,068.8 Goodwill, less accumulated amortization of $173.7 and $139.3 1,138.3 1,048.1 Other assets (including net prepaid income taxes) 1,432.9 1,329.0 - --------------------------------------------------------------------------------------------------- Total assets $8,077.5 $7,830.2 ======== ======== - --------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities (including income taxes) $3,271.9 $3,059.0 Debt 2,025.4 2,283.4 Shareholders' equity 2,780.2 2,487.8 - --------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $8,077.5 $7,830.2 ======== ======== - ---------------------------------------------------------------------------------------------------
62 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION FOR THE TEXTRON PARENT COMPANY BORROWING GROUP (CONTINUED) - --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS For each of the three years in the period ended January 1, 1994 (In millions) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 379.1 $ (355.4) $ 299.5 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting principles - 679.5 - Undistributed earnings of finance and insurance subsidiaries (165.4) (147.5) (127.4) Depreciation and amortization 228.6 215.5 183.4 Provision for losses on receivables 13.2 7.4 23.2 Interest accretion 37.1 36.3 27.0 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Decrease (increase) in receivables (37.2) - 61.0 Decrease (increase) in inventories 175.9 54.8 (64.6) Increase in other assets (82.6) (29.2) (73.2) Increase (decrease) in accounts payable and accrued liabilities 29.6 (67.9) (46.1) Other - net 6.0 9.6 (10.0) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 584.3 403.1 272.8 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash used in acquisitions of businesses (net of cash acquired) (139.2) (620.1) - Net proceeds from sale of minority interest in subsidiary 174.5 - - Capital expenditures (225.6) (197.9) (133.6) Other investing activities - net 22.1 28.1 18.6 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (168.2) (789.9) (115.0) - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term debt 26.6 19.5 1.9 Proceeds from issuance of long-term debt 402.3 1,348.4 655.0 Principal payments on long-term debt (670.4) (923.3) (749.4) Capital contribution to subsidiary (100.0) - - Proceeds from exercise of stock options 19.5 33.7 26.4 Dividends paid (110.1) (98.1) (89.4) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (432.1) 380.2 (155.5) Effect of foreign exchange rate changes on cash (.1) (.1) .1 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (16.1) (6.7) 2.4 Cash at beginning of year 28.2 34.9 32.5 - ----------------------------------------------------------------------------------------------------------------------------------- Cash at end of year $ 12.1 $ 28.2 $ 34.9 ======= ======== ======= - -----------------------------------------------------------------------------------------------------------------------------------
63 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION FOR TEXTRON'S FINANCE AND INSURANCE SUBSIDIARIES - --------------------------------------------------------------------------------
STATEMENT OF INCOME For each of the three years ended December 31, (In millions) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- REVENUES Interest, discount and service charges $1,260.2 $1,273.2 $1,183.9 Credit life, credit disability and casualty insurance premiums 300.8 298.5 308.7 Non-cancellable disability income, life and group insurance premiums 836.2 795.0 764.6 Investment income (including net realized investment gains) 406.1 360.8 354.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues 2,803.3 2,727.5 2,612.0 - ----------------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Selling and administrative 789.7 757.8 702.4 Interest expense 432.3 488.9 510.4 Provision for losses on collection of finance receivables, less recoveries 152.6 160.4 134.8 Credit life, credit disability and casualty insurance losses and adjustment expenses, less recoveries 132.1 137.2 130.1 Death and other insurance benefits 392.9 369.9 362.3 Increase in insurance policy liabilities 324.1 316.7 319.8 Amortization of insurance policy acquisition costs 143.5 131.8 128.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 2,367.2 2,362.7 2,288.3 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 436.1 364.8 323.7 Income taxes 174.6 138.9 118.1 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 261.5 225.9 205.6 Cumulative effect of changes in accounting principles, net of income taxes - (44.7) - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME 261.5 181.2 205.6 Minority interest in net income 2.6 - - - ----------------------------------------------------------------------------------------------------------------------------------- TEXTRON'S EQUITY IN NET INCOME $ 258.9 $ 181.2 $ 205.6 ======== ======== ======== - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DECEMBER 31, December 31, (In millions) 1993 1992 - -------------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 14.1 $ 2.9 Investments 4,759.9 4,144.8 Finance receivables - net 7,605.4 7,069.5 Property, plant and equipment - net 99.0 98.3 Unamortized insurance policy acquisition costs 783.5 696.3 Goodwill, less accumulated amortization of $169.6 and $151.0 299.1 317.7 Other assets 660.1 541.1 - -------------------------------------------------------------------------------------------------------------------- Total assets $14,221.1 $12,870.6 ========= ========= - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND EQUITY Accounts payable and accrued liabilities (including income taxes) $ 938.7 $ 817.8 Insurance reserves and claims 4,091.5 3,614.5 Debt 6,846.7 6,439.7 Equity: Textron 2,160.8 1,998.6 Minority interest 183.4 - - -------------------------------------------------------------------------------------------------------------------- Total liabilities and equity $14,221.1 $12,870.6 ========= ========= - --------------------------------------------------------------------------------------------------------------------
64
- ---------------------------------------------------------------------------------- FINANCIAL INFORMATION FOR TEXTRON'S FINANCE AND INSURANCE SUBSIDIARIES (CONTINUED) - ---------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS For each of the three years ended December 31, (In millions) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Textron's equity in net income $ 258.9 $ 181.2 $ 205.6 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of changes in accounting principles - 44.7 - Depreciation and amortization 52.2 48.9 39.4 Provision for losses on finance receivables 181.5 188.6 160.2 Increase in insurance policy liabilities 341.7 308.9 335.6 Amortization of insurance policy acquisition costs 143.5 131.8 128.5 Changes in assets and liabilities excluding those related to the acquisition of USA Financial Services: Additions to insurance policy acquisition costs (235.2) (204.7) (227.2) Decrease (increase) in other assets 3.2 7.0 (40.3) Increase in accounts payable and accrued liabilities 75.3 35.3 53.3 Other - net (11.7) (40.8) (12.6) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 809.4 700.9 642.5 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (1,744.5) (1,863.4) (1,487.2) Proceeds from investments 1,188.4 1,507.2 1,063.1 Finance receivables originated or purchased (5,010.8) (4,852.6) (3,827.9) Finance receivables repaid or sold 4,252.6 4,219.9 3,196.8 Capital expenditures (26.2) (19.2) (22.0) Cash used in acquisition of USA Financial Services (net of cash acquired) - (285.3) - Other investing activities - net 5.4 (43.1) (17.7) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (1,335.1) (1,336.5) (1,094.9) - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term debt 458.2 (69.9) 72.2 Proceeds from issuance of long-term debt 1,266.6 1,565.5 1,378.5 Principal payments on long-term debt (1,284.1) (856.8) (980.3) Receipts from interest-sensitive insurance products 193.3 142.0 130.9 Return of account balances on interest-sensitive insurance products (104.9) (87.7) (88.2) Capital contributions from Textron 100.0 9.0 - Dividends paid to Textron (93.5) (78.4) (78.2) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 535.6 623.7 434.9 Effect of foreign exchange rate changes on cash 1.3 (.4) (1.2) - ----------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH 11.2 (12.3) (18.7) Cash at beginning of year 2.9 15.2 33.9 - ----------------------------------------------------------------------------------------------------------------------------------- Cash at end of year $ 14.1 $ 2.9 $ 15.2 ========= ========= ========= - -----------------------------------------------------------------------------------------------------------------------------------
Notes: (i) TFC derives a substantial portion of its business from financing the sale and lease of products manufactured and sold by Textron. In 1993, 1992 and 1991, TFC paid Textron $617.1 million, $575.8 million and $363.9 million, respectively, for the purchase of receivables and operating lease equipment. Under operating agreements with Textron, TFC generally has recourse to Textron with respect to finance receivables and leases of products manufactured and sold by Textron. At December 31, 1993, finance receivables and operating lease equipment of $771.0 million ($623.7 million at December 31, 1992) were due from Textron or subject to recourse to Textron. (ii) Textron has agreed to cause TFC's pretax income available for fixed charges to be not less than 125% of its fixed charges and its consolidated shareholder's equity to be not less than $200 million. No related payments were required for 1993, 1992 or 1991. (iii) Approximately 73%, 73% and 75% of the credit life and credit disability insurance premiums earned and 22%, 20% and 19% of the casualty insurance premiums earned in 1993, 1992 and 1991, respectively, were related directly to AFS' consumer loan activities. 65
- ------------------------------------------------------------------------------- QUARTERLY FINANCIAL INFORMATION FOR 1993 AND 1992 - ------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER (Unaudited) ------------------ ------------------ ------------------ ------------------ (In millions except per share amounts) 1993 1992 1993 1992 1993 1992 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: REVENUES Manufacturing $1,478.0 $1,324.8 $1,565.8 $1,486.4 $1,520.4 $1,342.8 $1,707.1 $1,462.7 Financial Services 685.9 669.7 686.4 674.2 711.9 687.2 719.1 696.4 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues $2,163.9 $1,994.5 $2,252.2 $2,160.6 $2,232.3 $2,030.0 $2,426.2 $2,159.1 ======== ======== ======== ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- INCOME Manufacturing $ 110.3 $ 107.8 $ 125.2 $ 130.9 $ 117.5 $ 115.7 $ 144.7 $ 126.3 Financial Services 101.4 88.2 104.5 84.6 114.0 95.5 114.9 96.5 - ----------------------------------------------------------------------------------------------------------------------------------- Operating income 211.7 196.0 229.7 215.5 231.5 211.2 259.6 222.8 Corporate expenses and other - net (17.5) (17.3) (18.3) (18.5) (15.2) (12.3) (36.2) (20.6) Interest expense - net (59.6) (63.4) (58.0) (64.8) (58.2) (63.2) (56.0) (58.4) - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 134.6 115.3 153.4 132.2 158.1 135.7 167.4 143.8 Income taxes 51.8 45.9 59.1 51.4 58.6 52.2 64.9 53.4 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 82.8 69.4 94.3 80.8 99.5 83.5 102.5 90.4 Cumulative effect of changes in accounting principles, net of income taxes - (679.5) - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 82.8 $ (610.1) $ 94.3 $ 80.8 $ 99.5 $ 83.5 $ 102.5 $ 90.4 ======== ======== ======== ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) PER COMMON SHARE: INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ .92 $ .79 $ 1.05 $ .91 $ 1.10 $ .94 $ 1.13 $ 1.02 Cumulative effect of changes in accounting principles - (7.69) - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ .92 $ (6.90) $ 1.05 $ .91 $ 1.10 $ .94 $ 1.13 $ 1.02 ======== ======== ======== ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK INFORMATION Price Range: High $ 48 $ 39-5/8 $ 56-1/2 $ 38-1/8 $ 58-7/8 $ 39-1/8 $ 58-3/4 $ 44-3/4 Low $ 40-3/8 $ 35 $ 45-7/8 $ 33-3/4 $ 51 $ 35-1/8 $ 52 $ 34-7/8 Dividend per share $ .31 $ .28 $ .31 $ .28 $ .31 $ .28 $ .31 $ .28 - -----------------------------------------------------------------------------------------------------------------------------------
66 - -------------------------------------------------------------------------------- FIVE-YEAR SUMMARY - --------------------------------------------------------------------------------
(Dollars in millions except per share amounts) 1993* 1992** 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------------- REVENUES Sales $ 6,271.3 $ 5,616.7 $ 5,210.5 $ 5,470.6 $ 5,272.5 Interest, discount and service charges 1,260.2 1,273.2 1,183.9 1,139.3 1,007.8 Insurance premiums 1,137.0 1,093.5 1,073.3 974.7 836.3 Investment income (including net realized investment gains) 409.8 364.1 372.4 333.0 323.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues 9,078.3 8,347.5 7,840.1 7,917.6 7,440.1 - ----------------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 5,210.6 4,560.7 4,185.4 4,424.6 4,202.8 Selling and administrative 1,441.2 1,401.8 1,329.8 1,289.1 1,252.5 Interest expense 667.8 742.0 754.4 774.6 733.1 Provision for losses on collection of finance receivables, less recoveries 152.6 160.4 134.8 123.5 89.6 Insurance benefits and increase in policy liabilities 849.1 823.8 812.2 720.5 636.0 Amortization of insurance policy acquisition costs 143.5 131.8 128.5 126.1 115.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 8,464.8 7,820.5 7,345.1 7,458.4 7,029.8 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 613.5 527.0 495.0 459.2 410.3 Income taxes 234.4 202.9 195.5 176.2 141.6 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 379.1 324.1 299.5 283.0 268.7 Extraordinary loss, net of income taxes*** - - - - (9.5) Cumulative effect of changes in accounting principles, net of income taxes - (679.5) - - - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 379.1 $ (355.4) $ 299.5 $ 283.0 $ 259.2 ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE: INCOME BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ 4.21 $ 3.66 $ 3.42 $ 3.18 $ 3.02 Extraordinary loss*** - - - - (.11) Cumulative effect of changes in accounting principles - (7.67) - - - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 4.21 $ (4.01) $ 3.42 $ 3.18 $ 2.91 ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS DECLARED $ 1.24 $ 1.12 $ 1.03 $ 1.00 $ 1.00 ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES OUTSTANDING 90,052,000 88,580,000 87,563,000 89,014,000 88,999,000 ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION AT YEAR-END Total assets $ 19,658.4 $ 18,366.8 $ 15,737.3 $ 14,891.5 $ 13,790.4 Debt: Textron Parent Company Borrowing Group $ 2,025.4 $ 2,283.4 $ 1,820.3 $ 1,925.4 $ 1,956.0 Finance and insurance subsidiaries $ 6,846.7 $ 6,439.7 $ 5,663.5 $ 5,318.9 $ 4,661.3 Shareholders' equity $ 2,780.2 $ 2,487.8 $ 2,927.7 $ 2,662.4 $ 2,547.1 Book value per common share $ 31.18 $ 28.11 $ 33.65 $ 31.00 $ 28.24 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER DATA Capital expenditures $ 251.8 $ 217.1 $ 155.6 $ 191.2 $ 240.2 Depreciation $ 205.8 $ 199.2 $ 182.1 $ 179.3 $ 173.6 Number of common shareholders 28,000 30,000 31,000 33,000 35,000 - -----------------------------------------------------------------------------------------------------------------------------------
*The results of operations of Textron Acustar Plastics are included from May 4, 1993. **The results of operations of Cessna are included from February 29, 1992. ***The extraordinary loss in 1989 resulted from arbitration concerning a terminated coproduction agreement. 67 DIRECTORY OF DIVISIONS MANUFACTURING AIRCRAFT Bell Helicopter Textron Webb F. Joiner, President P.O. Box 482 Fort Worth, TX 76101 (817) 280-2011 Helicopters and spare parts for the U.S. Government, foreign governments and commercial markets; tiltrotor aircraft development; aftermarket sales of technical, training and logistics support services. The Cessna Aircraft Company Russell W. Meyer, Jr., Chairman and Chief Executive Officer P.O. Box 7706 Wichita, KS 67277-7706 (316) 941-6000 Light and mid-size business jets and utility turboprop aircraft supported worldwide through a network of company-owned Citation service centers and authorized representatives. AUTOMOTIVE CWC Castings Textron John L. Kelly, President 1085 W. Sherman Blvd. Muskegon, MI 49441 (616) 733-1331 Gray iron and chilled iron castings, primarily camshafts, marketed directly to automobile and engine manufacturers in the U.S. and Europe. Davidson Exterior Trim Textron D. Michael Weston, President 100 Brady Road Americus, GA 31709 (912) 924-6111 Molded and painted reaction injection molded and thermoplastic exterior ornamentation such as bumper covers, body side moldings, grilles and spoilers for the automotive industry; structural composite bumper beams; styling, design, engineering support and production. Davidson Interiors Textron Frank J. Preston, President 875 Greenland Road Orchard Park, Bldg. C Portsmouth, NH 03801 (603) 433-4142 Automotive instrument panels, door panels, armrests, airbag doors, center consoles and headliners for totally integrated vehicle interiors; Flexible Bright (trademark) grilles and wheels. McCord Winn Textron William H. Walsh, President 620 Washington Street Winchester, MA 01890 (617) 729-4400 Seating comfort systems, plastic products, precision motors and components marketed directly to automotive original equipment manufacturers in North America and Western Europe. Randall Textron Jane L. Warner, President P.O. Box 46334 Cincinnati, OH 45246 (513) 896-9400 Functional and decorative metal parts in roll sections, stampings, and tubular steel; bright metal and painted moldings; decorative and functional plastic painted and chrome-plate components; wheel ornamentation, fuel fillers and window channels. Textron Acustar Plastics Fred L. Hubacker, President 1850 Research Drive Troy, MI 48083 (810) 528-6595 Plastic injection molded and painted automotive interior and exterior body parts, including instrument panels, decorative trim and modular assembled lighting components. INDUSTRIAL Avdel plc (pending regulatory approval) John C. Marley, Chairman and Chief Executive Welwyn Garden City Hertz AL7 1QB England 44-707-372-624 Specialized engineered fastening and assembly systems, including innovative hand-held and automatic assembly systems for global markets. Camcar Textron James R. MacGilvray, President 600-18th Avenue Rockford, IL 61104-5181 (815) 961-5000 Cold-formed threaded and non-threaded metal fasteners and components, as well as synergistic assemblies which combine fasteners, stampings and molded plastics. Sold to automotive, appliance, business equipment, construction and other OEM and distributor markets. 68 INDUSTRIAL (continued) Cherry Textron George A. Andrews, President P.O. Box 2157 Santa Ana, CA 92707-0157 (714) 545-5511 Proprietary blind rivet fastening systems, including hand-held and fully automated installation systems for aerospace, automotive, transportation and other industrial markets. Supported by worldwide, engineering-oriented distribution system. Cone Drive Textron John G. Melvin, President 240 East Twelfth Street Traverse City, MI 49685-0272 (616) 946-8410 Double enveloping worm gear speed reducers, gear motors and gearsets sold directly from Cone Drive's manufacturing locations to the mining, steel, aerospace, automotive, printing, packaging and brewing industries. E-Z-GO Textron L.T. Walden, Jr., President P.O. Box 388 Augusta, GA 30903-0388 (706) 798-4311 Electric- and gasoline-powered golf cars for fleet and individual markets; multi-purpose utility vehicles for the turf, industrial and commercial markets. Greenlee Textron Carl D. Burtner, President 4455 Boeing Drive Rockford, IL 61109 (815) 397-7070 Powered equipment, electrical test instruments and hand tools such as conduit benders, cable pullers and punch and die metal hole-making systems. Distributed to power utilities, infrastructure, and security and alarm markets. Homelite Textron Robert W. Reid, President P.O. Box 7047 Charlotte, NC 28241 (704) 588-3200 Consumer and professional gasoline-powered string trimmers, blowers, hedge trimmers, brushcutters, edgers and chain saws; gasoline-powered generators, pumps, heaters, pressure washers and compressors; lawn mowers sold under the Homelite brand name. Jacobsen Textron Richard D. Miller, President 1721 Packard Avenue Racine, WI 53403-2564 (414) 637-6711 Professional mowing and turf maintenance equipment for golf course and commercial use including greens and fairway mowers, trim and rotary mowers, aerators, work trucks and other powered turf maintenance equipment. Micromatic Textron Michael J. Brennan, President 345 East 48th Street Holland, MI 49423 (616) 392-1461 Proprietary machine tools, components and systems designed and manufactured for automotive, transportation and other commercial markets worldwide. Speidel Textron Alfred M. Massotti, President 70 Ship Street Providence, RI 02903 (401) 421-8600 Watch attachments made from metal, leather and plastic materials; fashion jewelry products including identification bracelets, neckchains and watches; British Sterling and Silver toiletries. Sold primarily by Speidel's direct sales force to retail jewelers, department and drug stores and select mass merchandisers. SYSTEMS AND COMPONENTS Aircraft Engine Components Textron Daniel L. Shaffer, President P.O. Box 11906 Newington, CT 06131 (203) 666-4601 Gas turbine engine components such as disks, hubs, cases and frames made to customer design for engine manufacturers and the spare parts market. Airfoil Textron G.L. (Topper) Long, President P.O. Box 4427 Lima, OH 45802 (419) 226-2900 Fan blades, compressor blades, vanes, impellers and integrally bladed rotors for commercial and military aircraft turbine engine producers worldwide. Avco Overseas Services Textron Dieter F. Wolter, President 10801 Kempwood-Suite 1 Houston, TX 77043 (713) 895-3400 Logistics support to clients overseas, principally in the procurement of spare parts and equipment, and in the recruiting, screening and testing of qualified professionals. 69 SYSTEMS AND COMPONENTS (continued) Fuel Systems Textron Michael Boston, President 700 N. Centennial Zeeland, MI 49464 (616) 772-9171 Fuel systems components for aircraft and industrial gas turbine engines (original equipment manufacture and aftermarket service), including main engine fuel injection devices, fuel metering and distribution valves, and augmentor fuel systems. Sold to the world's major engine builders, the U.S. Government and commercial airlines. HR Textron Richard J. Millman, President 25200 W. Rye Canyon Rd. Valencia, CA 91355 (805) 259-4030 Sophisticated control systems for prime contractors and the U.S. Government for use in high-performance aircraft, helicopters, missiles, space launch vehicles and turbine engines; servovalves; fuel and pneumatic systems components; and automatic test equipment. Textron Aerostructures Fred N. Hubbard, President P.O. Box 210 Nashville, TN 37202 (615) 361-2000 Aircraft wings and components for the business jet and regional commuter markets as well as for the commercial and military transport markets; design assistance to customers. Textron Defense Systems Harold K. McCard, President 201 Lowell Street Wilmington, MA 01887 (508) 657-5111 "Smart" weapons development and production based on sensor-fuzed weapons technology; aircraft landing systems; surveillance systems; inertial systems; energy technology; and special material process. Textron Lycoming Reciprocating Engine Philip R. Boob, President 652 Oliver Street Williamsport, PA 17701 (717) 323-6181 Piston engine manufacture of new engines for both fixed wing aircraft and helicopters as well as remanufacturing and overhaul. Textron Lycoming Turbine Engine David G. Assard, President 550 Main Street Stratford, CT 06497-7593 (203) 385-2000 Gas turbine engine manufacture, repair and overhaul; related products and services for military and commercial customers worldwide. Textron Marine and Land Systems John J. Kelly, President 6600 Plaza Drive New Orleans, LA 70127 (504) 245-6600 Air cushion amphibious landing craft for the U.S. Navy; a new class of motor lifeboats for the Coast Guard; Surface Effect Ships and commercial air cushion vehicles; Cadillac Gage armored combat vehicles, turrets, and advanced suspension systems for U.S. and foreign customers. Textron Specialty Materials Paul R. Hoffman, President Two Industrial Avenue Lowell, MA 01851 (508) 452-8961 High-performance composite materials such as boron and carbon fibers; metal, ceramic and carbon composites; and fire protection materials. Sold to sporting goods and automobile manufacturers, major oil companies and government agencies worldwide. 70 FINANCIAL SERVICES FINANCE Avco Financial Services Warren R. Lyons, President P.O. Box 19701 Irvine, CA 92713-9701 (714) 553-1200 Consumer financing, both unsecured and secured by personal property, through nearly 1,200 AFS loan offices in the United States, Australia, Canada, New Zealand, Spain and the United Kingdom; credit life and disability insurance, collateral protection, involuntary unemployment insurance, and credit property and property/casualty insurance. Textron Financial Corporation Stephen J. Davis, President P.O. Box 6687 Providence, RI 02940-6687 (401) 621-4200 Commercial financing, including equipment leasing, secured equipment lending and receivables and inventory financing. Sold directly through 35 offices in the U.S., and indirectly through its relationships with manufacturers, dealers and financial intermediaries. PAUL REVERE Paul Revere Charles E. Soule, President 18 Chestnut Street Worcester, MA 01608 (508) 799-4441 Individual, non-cancellable and group long-term disability income insurance products designed for professionals, corporate executives and small business owners; group life and dental insurance; individual life and annuities. PRINCIPAL CORPORATE OFFICERS Administrative and Management Committee: James F. Hardymon Chairman and Chief Executive Officer Lewis B. Campbell President and Chief Operating Officer Thomas P. Hollowell Executive Vice President Corporate Development Mary L. Howell** Senior Vice President Government and International Relations Richard A. McWhirter*** Executive Vice President and Chief Financial Officer Thomas D. Soutter*** Executive Vice President and General Counsel William F. Wayland* Executive Vice President Administration and Chief Human Resources Officer Staff Officers: Edward C. Arditte* Vice President Investor Relations and Risk Management Raymond W. Caine, Jr.** Vice President Corporate Communications Robert B. Clendenen*** Vice President Audit and Business Ethics Brian T. Downing* Vice President and Treasurer Arnold M. Friedman** Vice President and Deputy General Counsel Frank Gulden Senior Vice President Human Resources Gregory E. Hudson* Vice President Taxes William P. Janovitz** Vice President and Controller Cecil W. Labhart*** Vice President Information Systems Services Karen A. Quinn-Quintin* Vice President and Secretary Operating Management: Gary E. Atwell*** Group Vice President Richard H. Campbell Group Vice President Herbert L. Henkel* Group Vice President Fred L. Hubacker Group Vice President and President Textron Acustar Plastics Derek Plummer*** Group Vice President Terry D. Stinson Group Vice President Richard A. Watson** Group Vice President Service with Textron and its subsidiaries/divisions: ***5-9 years ***10-19 years ***20 years and over This annual report is printed on recycled paper. SHAREHOLDER INFORMATION ANNUAL MEETING TO BE HELD APRIL 27 IN PROVIDENCE The annual meeting of Textron shareholders will be held at 10:30 a.m. on Wednesday, April 27, 1994, at the Omni Biltmore Hotel, Kennedy Plaza, Providence, Rhode Island. Shareholders are encouraged to attend. ABOUT YOUR SECURITIES AND RECORDS The common stock of Textron Inc. is listed on the New York, Midwest and Pacific Stock Exchanges and quoted in the daily stock table carried by most newspapers. The ticker symbol for Textron is TXT. Textron's preferred stocks are traded only on the New York Stock Exchange. First Chicago Trust Company of New York, 14 Wall Street, Suite 4680, New York, NY 10005, acts as transfer agent, registrar and dividend paying agent for Textron stock and maintains all shareholder records for the corporation. First Chicago also acts as conversion agent for Textron's $2.08 preferred stock and its $1.40 preferred dividend stock. Shareholders may obtain information relating to their share position, dividends, transfer requirements, lost certificates, conversion rights, dividend reinvestment accounts and other related matters by telephoning First Chicago Trust Company of New York's "Telephone Response Center" at (201) 324-0498. Shareholders must provide their tax identification number, the name(s) in which their shares are registered and their record address when they request information. This service is available to all shareholders Monday through Friday 9:00 a.m. to 5:00 p.m. Eastern Time. Shareholders also may obtain this and other information about their holdings by writing to First Chicago at the above address. DIVIDEND PAYMENTS MAILED QUARTERLY Quarterly dividends are mailed with the intent of reaching shareholders of common and preferred stock on the first business day of January, April, July and October. Postal delays may cause actual receipt dates to vary. FREE AUTOMATIC DIVIDEND REINVESTMENT Textron's Shareholder Investment Service offers common shareholders of record a convenient method to purchase additional shares of Textron common stock without paying brokerage, commission or other service fees. Participants in the plan may choose to have all or part of their dividends automatically reinvested, make additional cash payments or do both in purchasing shares of Textron common stock. Brokerage expenses for these purchases are paid by Textron. Personal recordkeeping is simplified by an account statement that is mailed to participants. More information and an authorization form may be obtained by writing to First Chicago Trust Company of New York, P. O. Box 2500, Jersey City, New Jersey, 07303-2500 or by calling (201) 324-0498. ADDITIONAL INFORMATION AVAILABLE TO SHAREHOLDERS Questions about Textron should be directed to the Corporate Communications Department, Textron Inc., 40 Westminster Street, Providence, RI 02903 or by calling (401) 421-2800. INVESTOR RELATIONS INQUIRIES Questions concerning investor relations matters should be directed to the Investor Relations Department at the address above, or by calling (401) 421-2800. FORM 10-K AVAILABLE After April 1, 1994, shareholders may, without charge, obtain copies of Textron's Form 10-K annual report filed with the Securities and Exchange Commission. Requests for this report should also be addressed to Textron's Corporate Communications Department. Design: Jack Hough Associates, Inc., Norwalk, CT Major photography: George Simian. Directors' photograph: Carol Fatta Textron 1993 Annual Report Textron Inc. 40 Westminster Street Providence, RI 02903 (401) 421-2800 APPENDIX TEXTRON ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR 1993 APPENDIX OF PHOTO CAPTIONS On the Cover: Textron's automotive divisions constitute one of North America's leading suppliers of interior components to the automotive industry. Vinyl leather-like parts such as instrument panels, center consoles, door panels, steering wheel covers and other trim are supplied by Textron as an integrated package of components for the interior of the Chrysler LHS and other LH models as well as the Cadillac Seville and Eldorado. Belinda Reeves, Davidson Interiors, is shown examining the interior of a Chrysler LHS. PHOTO CAPTION: Page 6 James F. Hardymon (top) and Lewis B. Campbell (bottom) PHOTO CAPTION: Page 8 In designing automotive components, a proper "fit" is essential. This instrument panel is designed for the 1994 Ford Windstar minivan. It is being "fitted" to a model of the vehicle by Paul Boisineau (L), and Jerry Beebe, Instrument Panel Design Engineers, at the Textron Automotive Engineering Design Center, Walled Lake, Michigan. PHOTO CAPTION: Page 9 Instrument panels are fully tested at the MacDonald Molding operation of Textron Acustar Plastics prior to shipment. Modular assembly methods contribute to Textron's success in automotive component manufacturing. Deborah Herrington is shown testing a completed assembly for Chrysler's Jeep (trademark) Grand Cherokee. PHOTO CAPTION: Page 10 The acquisition of Textron Acustar Plastics (TAP) strengthened Textron's position as a major automotive components supplier. It also added new products to Textron's businesses, including these rear lighting assemblies being inspected by Konnie Thompson, Assembler, at TAP's Evart Products, Evart, Michigan. PHOTO CAPTION: Page 11 In addition to more conventional automobiles, Textron's automotive divisions supply the front and rear fascia, instrument panel and fuel filler assemblies for the Dodge Viper R/T 10 high-performance sports car. Shown inspecting the exterior fascia are Bob Galoci, Davidson Exterior Trim (L), and Ken O'Donnell, Production Control Manager, Dodge Viper. PHOTO CAPTION: Page 12 Bell Helicopter Textron is a world leader in commercial helicopter production. One of the most successful models from Bell is the 206L LongRanger manufactured at Bell's Mirabel, Canada facility. Completing assembly of a 206L control console are Pre-flight Mechanics Francois Clavet (L), and Daniel Lemaire. Bell's twin-engine Model 230 helicopter is designed for many uses. This emergency medical helicopter is operated by Survival Flight for the University of Michigan Medical Center. Greg Bradley, Bell Helicopter Regional Marketing Manager (R), and Denise Hubert, RN, Flight Nurse/ Paramedic, inspect the first of two Model 230 helicopters delivered to the University. PHOTO CAPTION: Page 14 Mature defense programs, like the AH-1W SuperCobra at Bell Helicopter, undergo continuous development, such as the design of next generation instrument displays and other control mechanisms. Bob Traphagen, Simulation Lab Technician, is shown configuring updated instrumentation in this cockpit simulator. PHOTO CAPTION: Page 15 Much of the design of the Bell-Boeing V-22 TiltRotor aircraft utilizes Integrated Product Teams uniting manufacturing, engineering, tooling and other disciplines to reduce manufacturing costs and aircraft weight. Team members Jonathan Lane, Lead Engineer, and Bunny Crump, Engineer, are shown designing a transmission component for the V-22. PHOTO CAPTION: Page 16 The Cessna Citation V Ultra business jet incorporates the most advanced digital avionics package in its class. Large primary flight displays, plus a central multi-function display, provide easy-to-read instruments for safe, reliable flight operation. Sales Administrator, Mike Pierce, is shown inspecting a Citation V Ultra control panel. PHOTO CAPTION: Page 17 The CitationJet, introduced by Cessna in 1993, has already exceeded expectations in fuel usage, speed and performance. Mark Shepherd, Manager Client Relations (L), and Roger Martin, Manager Business Development, are shown discussing a CitationJet at Cessna's Completion Center, the last stop for aircraft before delivery. PHOTO CAPTION: Page 18 The Citation X, Cessna's largest and fastest jet, with estimated speeds up to Mach .9, completed its first flight in December 1993. John Daniel, Senior Program Manager (L), and Joanne VanMeter, Engineer, are shown inspecting the first Citation X aircraft as it neared completion at Cessna's Wichita, Kansas manufacturing facility. PHOTO CAPTION: Page 19 Cessna's company-owned Citation service centers are the only factory-direct service network in the industry and the largest worldwide service organization of any business jet manufacturer. Cessna Aircraft Technician, Bill Williams, is shown performing maintenance service on a Citation III at the Citation Service Center in Newburgh, New York. PHOTO CAPTION: Page 20 At Avco Financial Services, the ALEX II data network helps Toni Sepulveda, Administrative Assistant, quickly obtain accurate credit information regarding a customer's loan application. Computer technology at all of Textron's Financial Services divisions reduces operating costs while improving customer service. PHOTO CAPTION: Page 21 Paul Revere is the North American leader in individual, non-cancellable disability income insurance marketed primarily to individual professionals and independent business owners. Joseph Cambio, MD (R), is shown discussing his personal coverage with Robert F. Calise (L), an Independent Broker and Clarke Alderman, RHU, Paul Revere Sales Manager. PHOTO CAPTION: Page 22 Direct, personalized customer service is a hallmark of Avco Financial Services' branch office operations. Discussing the finance needs of two customers is Gary Vitti (R), Branch Manager of AFS' Brockton, Massachusetts office. AFS' branch offices operate at nearly 1,200 locations in six countries and provide secured and unsecured consumer loans as well as credit life, ac-cident and health insurance for its loan customers. PHOTO CAPTION: Page 23 Textron Financial Corporation (TFC) provides commercial financing for a wide range of customers including those who purchase or lease Textron products. Shown talking over the merits of E-Z-GO's new Medalist golf car are Herb Petersen (L), E-Z-GO Branch Manager, Ed Roberts (C), Sales Manager, TFC, and Art Wilson, Head Professional, Sunnyvale, CA, Municipal Golf Course. PHOTO CAPTION: Page 25 On December 21, 1993, Cessna Aircraft's Citation X achieved its first flight. PHOTO CAPTION: Page 27 In October 1993, 7.5 million shares of Paul Revere stock were listed on the New York Stock Exchange. PHOTO CAPTION: Page 28 The members of Textron's Board of Directors are: (seated, L to R) B. F. Dolan; Joseph R. Carter; Jean Head Sisco; James F. Hardymon, Chairman; Sam F. Segnar; Webb C. Hayes II; and R. Stuart Dickson. (Standing L to R) Martin D. Walker; Lewis B. Campbell; John W. Snow; J. Paul Sticht; John D. Macomber; William M. Ellinghaus; Barbara Scott Preiskel; Thomas B. Wheeler; and H. Jesse Arnelle. EX-22 9 EXHIBIT Exhibit 21 TEXTRON INC. - SIGNIFICANT SUBSIDIARIES (as of January 1, 1994) Set forth below are the names of certain subsidiaries of Textron Inc. Other subsidiaries which, considered in the aggregate, do not constitute a significant subsidiary are omitted from such list. Name of Subsidiary Place of Incorporation Ace Industries Textron Inc. California Airfoil Forging Textron Inc. Delaware Airfoil Textron Inc. Delaware Compressor Components Textron Inc. Delaware Atlantic Aerospace Textron Inc. Connecticut Avco Corporation Delaware ARS Two Inc. Delaware Avco Community Developers, Inc. California Avco Overseas Services Corporation Delaware Textron Pacific Limited Australia Avco Financial Services, Inc. (1) Delaware Babco Textron Inc. Massachusetts Bell Helicopter Services Inc. Delaware Bell Helicopter Asia (Pte) Limited Singapore Bell Helicopter Textron Inc. Delaware Cadillac Gage Textron Inc. Michigan Cessna Aircraft Company, The Kansas Cone Drive Operations Inc. Delaware Evart Products Textron Inc. Delaware Fuel Systems Textron Inc. Delaware Greenlee Textron Inc. Delaware HR Textron Inc. Delaware McCord Corporation Michigan Davidson Textron Inc. Delaware Davidson Overseas Investment Inc. Delaware Davidson Marley B.V. (2) Netherlands McCord Winn Textron Inc. Massachusetts McDonald Molding Textron Inc. Delaware Micromatic Operations Inc. Delaware Micro-Precision Operations Inc. Delaware The Paul Revere Corporation Massachusetts The Paul Revere Life Insurance Company Massachusetts The Paul Revere Protective Life Insurance Company Delaware The Paul Revere Variable Annuity Insurance Company Massachusetts The Paul Revere Equity Sales Company Massachusetts The Paul Revere Investment Management Company Massachusetts _______________ (1) See page 3 hereof for details of subsidiaries of Avco Financial Services, Inc. (2) 50.1% owned by Davidson Overseas Investment Inc. Name of Subsidiary Place of Incorporation Rantoul Products Textron Inc. Delaware Textron Atlantic Inc. Delaware Bell Helicopter Supply Center B.V. Netherlands Textron Atlantic (Netherlands) B.V. Netherlands Textron Atlantic Belgium S.A. Belgium Textron Atlantic SARL France Textron Limited United Kingdom Textron Financial Corporation Delaware Cessna Finance Corporation Kansas Textron FSC Inc. U.S. Virgin Islands Textron Properties Inc. Delaware Textron Canada Limited (3) Canada Textron Realty Corporation Delaware Wolverine Metal Specialties, Inc. Michigan _______________ (3) 64.5% of the capital stock of Textron Canada Limited is held by Textron Properties Inc. and the remaining 35.5% by Textron Inc. Name of Subsidiary Place of Incorporation AFS Corporation (1) Delaware Avco DC Corporation (1) Delaware Avco Enterprises, Inc. (3) California Avco Financial Services Canada Limited (2) Ontario Avco Financial Services International, Inc. (3) Nebraska Avco Financial Services Ltd. (1) Australian Capital Territory Avco Financial Services Limited (3) New Zealand Avco Group Limited (1) United Kingdom Avco National Bank (4) California Balboa Insurance Company (1) California Balboa Life Insurance Company (3) California Family Insurance Corporation (3) Wisconsin Meritplan Insurance Company (5) California Newport Insurance Company (5) Arizona _________________ (1) Owned by Avco Financial Services International, Inc. (2) Owned by AFS Corporation and Avco DC Corporation (3) Owned by Avco Financial Services, Inc. (4) Owned by Avco Enterprises, Inc. (5) Owned by Balboa Insurance Company EX-23 10 EXHIBIT Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Textron Inc. of our report dated February 3, 1994, included in the 1993 Annual Report to Shareholders of Textron Inc. Our audits also included the financial statement schedules of Textron Inc. listed in the accompanying Index to Financial Statements and Financial Statement Schedules. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-46501, Form S-8 No. 2-78073, Form S-8 No. 2-95413, Form S-8 No. 33-00668, Form S-8 No. 33-19402, Form S-8 No. 33-37139 and Form S-8 No. 33-38094) of Textron Inc. and in the related Prospectuses and Prospectus Supplements of our report dated February 3, 1994, with respect to the consolidated financial statements and schedules of Textron Inc. included or incorporated by reference in this Annual Report (Form 10-K) for the year ended January 1, 1994. s/Ernst & Young New York, New York March 24, 1994 EX-24.1 11 EXHIBIT Exhibit 24.1 POWER OF ATTORNEY The undersigned, Textron Inc. ("Textron"), a Delaware corporation, and the undersigned directors and officers of Textron, do hereby constitute and appoint Thomas D. Soutter, Arnold M. Friedman, Michael D. Cahn and Duncan I. Sutherland, and each of them, with full powers of substitution, their true and lawful attorneys and agents to do or cause to be done any and all acts and things and to execute and deliver any and all instruments and documents which said attorneys and agents, or any of them, may deem necessary or advisable in order to enable Textron to comply with the Securities and Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of Textron's Annual Report on Form 10-K for the fiscal year ended January 1, 1994, including specifically, but without limitation, power and authority to sign the names of the undersigned directors and officers in the capacities indicated below and to sign the names of such officers on behalf of Textron to such Annual Report filed with the Securities and Exchange Commission, to any and all amendments to such Annual Report, to any instruments or documents or other writings in which the original or copies thereof are to be filed as a part of or in connection with such Annual Report or amendments thereto, and to file or cause to be filed the same with the Securities and Exchange Commission; and each of the undersigned hereby ratifies and confirms all that such attorneys and agents, and each of them, shall do or cause to be done hereunder and such attorneys and agents, and each of them, shall have, and may exercise, all of the powers hereby conferred. IN WITNESS WHEREOF, Textron has caused this Power of Attorney to be executed and delivered in its name and on its behalf by the undersigned duly authorized officer and its corporate seal affixed, and each of the undersigned has signed his or her name hereto, on this 26th day of March, 1994. TEXTRON INC. By: s/James F. Hardymon James F. Hardymon Chairman and Chief Executive Officer ATTEST: s/Karen A. Quinn-Quintin Karen A. Quinn-Quintin Secretary s/James F. Hardymon s/Barbara Scott Preiskel James F. Hardymon Barbara Scott Preiskel Chairman and Chief Director Executive Officer (principal executive officer) Director s/Lewis B. Campbell s/Sam F. Segnar Lewis B. Campbell Sam F. Segnar President and Chief Operating Director Officer, Director s/H. Jesse Arnelle s/Jean Head Sisco H. Jesse Arnelle Jean Head Sisco Director Director s/Joseph R. Carter s/John W. Snow Joseph R. Carter John W. Snow Director Director s/R. Stuart Dickson s/J. Paul Sticht R. Stuart Dickson J. Paul Sticht Director Director s/B. F. Dolan s/Martin D. Walker B. F. Dolan Martin D. Walker Director Director s/William M. Ellinghaus s/Thomas B. Wheeler William M. Ellinghaus Thomas B. Wheeler Director Director s/Webb C. Hayes, III s/Richard A. McWhirter Webb C. Hayes, III Richard A. McWhirter Director Executive Vice President and Chief Financial Officer (principal financial officer) s/John D. Macomber s/William P. Janovitz John D. Macomber William P. Janovitz Director Vice President and Controller (principal accounting officer) EX-24.2 12 EXHIBIT EXHIBIT 24.2 TEXTRON INC. Assistant Secretary's Certificate I, BHIKHAJI M. MANECKJI, a duly elected Assistant Secretary of TEXTRON INC., a Delaware corporation (the "Corpora- tion"), do hereby certify that set forth below is a true and correct copy of a resolution adopted by the Corpora- tion's Board of Directors at a meeting duly called and held on March 26, 1994, at which a quorum was present and voting throughout: RESOLVED, that the officers of the Corpora- tion be, and they hereby are, authorized in the name and on behalf of the Corporation to execute and deliver a power of attorney appointing Thomas D. Soutter, Arnold M. Friedman, Michael D. Cahn and Duncan I. Sutherland, or any of them, to act as attorneys-in-fact for the Corporation for the purpose of executing and filing the Corporation's Annual Report on Form 10-k for its fiscal year ended January 1, 1994 and amendments thereto; and be it further RESOLVED, that each of Thomas D. Soutter, Arnold M. Friedman, Michael D. Cahn and Duncan I. Sutherland, acting singly, be and hereby is authorized to act as attorney-in-fact for and on behalf of any and all directors of the Corporation who may so appoint each of them with respect to the execution, by such person or persons on behalf of the Corporation, of the Corporation's Annual Report on Form 10-K for its fiscal year ended January 1, 1994, and the taking of any other action in connection therewith. I do hereby further certify that the foregoing resolution has been neither modified nor amended, and remains in full force and effect as of the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Corporation this 28th day of March, 1994. s/Ann T. Willaman Assistant Secretary (SEAL) -----END PRIVACY-ENHANCED MESSAGE-----